Aware Super Logo

Home

Capital gains tax concessions for small business

Small business 50% active asset reduction

Section: 12.5

Where the entity does not qualify for the 15 year exemption, it may qualify for the 50% active asset reduction if the basic conditions are met. There are no additional conditions which must be met to qualify for the 50% active asset reduction.

The 50% active asset reduction is automatically applied. However, the entity may choose not to apply  the 50% active asset reduction. This could be beneficial, for instance, where a member chooses not to apply the 50% active asset reduction to maximize the capital gain to which the retirement exemption is applied.

Before applying the 50% active asset reduction:

  • apply current year and carried forward capital losses against the capital gain
  • apply the 50% CGT discount, if the asset is owned by an individual or trust and it is held for at least 12 months

Applying the 50% CGT discount and the 50% active asset reduction effectively reduces the capital gain by 75%.

Example:

David sells an active asset which he has owned as an individual for five years. He makes a capital gain of $50,000 and qualifies for the 50% CGT discount and 50% active asset reduction. He has carried forward capital losses of $5,000. His net capital gain is worked out as follows:

How to apply small business 50% active asset reduction
Step 1: Apply any capital losses $50,000 - $5,000 = $45,000
Step 2: Apply 50% CGT discount (if applicable) $45,000 x 50% = $22,500
Step 3: Apply 50% active asset reduction $22,500 x 50% = $11,250

David may choose the retirement exemption to disregard the remaining $5,000 capital gain. Special rules apply to work out the net capital gain of beneficiaries of trusts.

This technical resource is intended for the use of financial advisers only. It is current as at the date of publication but may be subject to change. This publication has been prepared without taking into account a potential investor's objectives, financial situation, needs or objectives. Before making a recommendation based on this material, you should consider its appropriateness based on the client's objectives, financial situation and needs. Rainmaker Group is not a registered tax agent under the Tax Agent Services Act 2009. Your client should refer to a registered tax agent before relying on information published herein that may impact their tax obligations, liabilities or entitlements.

Last modified: Monday, September 28, 2020