TABLE OF CONTENTS



Two important types of Capital Gain Concessions :

  • Capital Gain Tax Discount ( for assets held  for more than 12 mths)

  • Small Business Tax Concessions:

    • 15 yrs exemptions

    • 50 % active asset reduction

    • Retirement exemption

    • Rollover exemption 

  • Note : company is not eligible for 50 % discount for asset held more than 12 mths, but might eligible for 50% active asset reduction if satisfied requirements below  

Eligibility Criteria of Small Business Tax Concessions

  • There are two important sets of conditions:

    • Basic conditions: that entities must satisfy to qualify for any of the concessions; AND

    • Additional conditions: that apply to each of the above four concessions respectively 


Basic conditions in details include 3 tests:

1: Small business entity or net asset value test:

  • you're a small business entity with an aggregated turnover of less than $2 million; OR
  • Net asset value test:

  • The total net value of CGT assets (less excluded assets) owned by the following entities do not exceed $6 million just before the CGT event occurs. 

    • you;

    • entities connected with you;

    • any of your affiliates and entities connected with your affiliates

2: Active Asset Test

The active asset test is satisfied if:

  • you owned it for:

    • for a total of at least 7½ years during the test period, if you've owned it for more than 15 years, 
      OR 

    • for at least half of the test period, if you've owned it for 15 years or less

AND

  • you used it / hold it ready for use in the course of carrying on a business/partnership
    OR 

  • it is an intangible asset (goodwill) inherently connected with a business/partnership you carry on


Exclusion

some assets that can not be active assets even is used in the course of carrying on a business

  • Asset’s main use is to derive rent, interest,  an annuity, royalties or foreign exchange gains,

  • shares in companies or interests in trusts, unless they satisfy the 80% test

  • shares and trust interests in widely-held entities, unless held by a CGT concession stakeholder in the widely-held entity. 

  • Properties used for storage that were not “in the course” of carrying business: ie warehouse,

3. Additional test if the CGT asset is a share or trust interest


Additional test that apply to each of four concessional respectively :

1- 15 yrs exemptions  

Last modified: 17 Jul 2017 QC 52288

Individual 

  • Owned asset continuously for 15 year period ending just before the CGT event
  • When the CGT event happened, the taxpayer is either
    • permanently incapacitated at any age; OR
    • at least 55 years old; AND the CGT event happened in connection with retirement
  • If the CGT asset is a share in a company or interest in a trust,
    • the company or trust must have had a significant individual
    • for periods totalling at least 15 years during the entire time of
    • ownership even if not the same significant individual during the
    • whole period

Company or Trust 

  • Owned asset continuously for 15 year period ending just before the CGT event
  • There was a significant individual for at least 15 years, even if not the same individual
  • The significant individual just before the CGT event was:
    • At least 55 years old at the time and the event happened in connection with retirement, OR
    • Permanently incapacitated at that time.

2- 50 % active asset reduction

Last modified: 17 Jul 2017 QC 52289

  • Once the basic conditions are satisfied, no further requirements need to be met 

3- Retirement exemption

Last modified: 17 Jul 2017QC 52290

Individual 

  • No need to terminate any activity, employment or cease business 
  • Keep a wrien record of the CG amount chosen (CGT exempt amount) to be exempt (subject to lifetime limit)
  •  If under 55 years of age just before taxpayer chooses to use the exemption, the exempt amount must be contributed into super 
  • If 55 years of age or older when taxpayer makes the choice, no requirement to go into super (even if under 55 years of age when proceeds received)
  •  If proceeds received in instalments, super contribution requirements apply to each instalment 

Company :

  • Must have at least one significant individual just before the CGT event 
  • Keep a wrien record of the CG amount chosen to be disregarded and if there is more than one CGT concession stakeholder, each stakeholder's percentage of the exempt amount (together adding up to 100%) 
  • A payment to at least one CGT concession stakeholder worked out by reference to each individual's percentage of the exempt amount must be made 
  •  The payment is equal to the exempt amount or the amount of capital proceeds, whichever is less 
  •  If proceeds received in instalments, make payments to a CGT concession stakeholder for each instalment in succession (up to the asset's CGT exempt amount) 
  •  Payment must be made by the later of: 
    • 7 days after choosing to disregard the CG 
    •  7 days after receiving the capital proceeds from the CGT event 
  • If the stakeholder is under 55 years of age just before the payment is made, the Company or Trust must pay directly to a super fund 
  • If 55 years of age or older just before the payment is made, no need to contribute to super 

4- Rollover Exemption

Last modified: 17 Jul 2017QC 52291

  • Only the basic conditions need to be met 
  • Rollover can be obtained even where the replacement asset has not yet been acquired or any expense incurred on the capital improvement to an existing asset 
  • Time limits apply - replacement asset needs to be acquired in the period 1 year before to 2 years after the sale of the original asset 
  • If unable to acquire the replacement asset within the time limit, deferred CG will crystalise and subject to meeting the conditions, can opt to use (go back to) small business retirement exemption 


Ref: ATO " Small Business CGT Concessions " <https://www.ato.gov.au/General/Capital-gains-tax/Small-business-CGT-concessions/ >