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Capital gains tax concessions for small business

Small business retirement exemption

Section: 12.6

12.6 Small business retirement exemption

The retirement exemption allows an entity to disregard a capital gain up to $500,000 (individual lifetime limit, not indexed) if the basic conditions and additional conditions are satisfied.

The additional conditions generally require the exempt capital gain to be contributed to superannuation where the individual is under age 55. However, there is no requirement for an individual to cease their business activities and retire in order to choose the retirement exemption.

If the choice is made to apply the retirement exemption and the conditions are satisfied:

  • the entity can disregard the capital gain
  • a payment made by a company or trust to a CGT concession stakeholder is exempt from tax and is not deductible to the company or trust

Additional conditions for the retirement exemption

The conditions which must be satisfied in addition to the basic conditions are:

Entity selling the asset is:      Additional conditions to apply retirement exemption
  • if the individual is under age 55*, the individual contributes the exempt amount to superannuation; and
  • the contribution is made by (the later of) the day the individual lodges their tax return or when the proceeds are received. 
Company or trust
  • the company or trust has a significant individual just before the asset is sold; and
  • the company or trust pays the exempt amount ** to a CGT concession stakeholder by (the later of) 7 days after the entity lodges its tax return or 7 days after capital proceeds are received; and
  • if the CGT concession stakeholder is under age 55 when the payment is made, the amount must be contributed to superannuation by the company or trust on behalf of the individual#

* When the choice to apply the retirement exemption is made

** Amount does not have to be related to the individual's percentage of control of the company or participation in the income or distribution from the trust

# While the contribution is made by the company or trust, the contribution is considered to be made by the individual for tax purposes. A contribution of the exempt capital gain by or for an individual under age 55 is a CGT cap contribution and a tax deduction cannot be claimed in respect of the contribution.

Individuals aged 55 or over

If the individual is age 55 or over, there is no requirement to contribute the exempt capital gain to superannuation. If they wish to contribute the exempt capital gain to superannuation, they have the option of making a:

  • CGT cap contribution
  • Non-concessional contribution
  • Concessional contribution (personal tax-deductible contribution, if eligible)

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: Wednesday, June 28, 2023