If you’re a small business owner and the pandemic has made you reassess your future, whether it be retirement or selling your business and starting afresh somewhere else, just remember that there may be CAPITAL GAINS TAX (CGT) consequences to such a move. However, the tax law does provide four concessions to enable eligible individuals to eliminate or at least reduce the capital gain on a CGT asset, provided certain conditions are met. Read on below for some useful information compiled by our accountant in Melbourne.
To be eligible to apply these CGT concessions, the business must have a maximum net asset value of less than $6m (i.e. the net value of assets owned by the business and related entities), or failing that, the business must qualify as a CGT small business entity.
The definition of a CGT small business entity is essentially the same as a small business entity except that the aggregated turnover threshold to qualify is $2m and not $10m.
In addition, the CGT asset that gives rise to the gain must be an active asset, which simply means it is an asset used in carrying on a business by either you or a related entity.
Once the basic conditions are satisfied, your small business can choose to apply one or all of the four CGT concessions provided the additional conditions for each concession are also met. This is something our small business tax accountant can help you with. Meeting all the conditions means that the concessions can be applied one after another to eliminate the entire capital gain in some cases. The concessions consist of the following:
The 15-year exemption takes precedence over the other concessions listed and is applied without first having to use prior year capital losses. If the 15 year exemption cannot be applied, then depending on the circumstances of the capital gain, the other concessions can be used in any order to reduce the amount of tax payable.
If you run a small business and are thinking of retiring or selling the business, we can help you work out whether you qualify for these concessions, and if so, how to use them in the optimal order to reduce or eliminate completely the potential capital gain. Contact our business advisor and tax accountant today for expert help and advice. You might also be interested in our business taxation services and accounting services for small business.
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