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When Does A CGT Concession Or Exemption Apply To Your Small Business?

Small businesses are facing a set of challenges once again that can make fulfilling tax obligations seem like a daunting task. However, as a small business, capital gains tax concessions on assets used to conduct your business may be of interest to you. These assets are known as “active assets” and can, for example, be a tangible asset (such as commercial property), or an intangible asset (such as goodwill).

The turnover threshold for such CGT concessions is $2 million, according to the ATO.  If your turnover is more than $2 million, then you need to satisfy an assets test.

There are stringent eligibility requirements and conditions that you must meet in order to access these concessions.

If you have owned an active business asset, you may only be required to pay tax on 25% of the capital gain when the asset is disposed of.

If you are 55 years of age or older, and are retiring or are permanently incapacitated (and have owned an active business asset for at least 15 years), you may not have to pay any CGT when disposing of an asset by sale, gift or transfer. You might also be able to contribute the amount that you make from this exemption to your super fund without affecting your non-concessional contributions limits (you can speak with us about this if you are unsure about this process).

If you are under 55, the taxable 25% of the disposal of an asset can be paid into a complying fund or a retirement savings account. There is then a full CGT exemption on the sale of an active business asset of up to $500,000 (the lifetime limit). Any amounts earned from this exemption to CGT may be able to be paid into your super fund without affecting the non-concessional contributions limit).

Disposing of an active asset, but are going to buy a replacement asset or improve on an existing one? You can defer your capital gain in this instance until a later year. The replacement asset can be acquired one year before or up to two years after the last CGT event in the income year that you choose the roll-over for.

If the asset is a share in a company or an interest in a trust, there will be additional conditions that you will be required to meet as well. If you are a small business, there are other CGT exemptions, rollovers and concessions specific to small businesses that you may be able to access, if you meet the eligibility criteria. These small business CGT concessions will reduce the taxable capital gain and in some cases result in no tax being paid at all on the gain.

Speak with us to find out what you may be entitled to when it comes to CGT and your business to ensure that you are doing the right thing with your tax obligations after selling an asset.

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Capital Gains Tax Can Be Tricky – That’s Why We’re Here To Help

September 13, 2021

If you have disposed of any assets (which can include the loss, destruction or sale of an asset) which are subject to capital gains tax, you need to let us know as soon as possible. These are known as capital gains events, which can affect the way in which a capital gain or loss is calculated, and when it is included in a net capital gain or loss.

The type of CGT event that applies to your situation may affect the time of the CGT event’s occurrence, and exactly how to calculate your capital gain or loss. As mentioned earlier, a CGT event can involve the loss of an asset, the destruction of an asset or the sale of an asset.

The Sale Of An Asset

If there is a contract of sale, the CGT event happens when you enter into the contract.

A common CGT asset involved with contracts of sale that is often sold is the house. The CGT event, in that case, happens on the date of the contract, not on the date of settlement.

If there is no contract of sale, the CGT event is usually when you stop being the asset’s owner.

Your capital gain or loss for the assets is usually the selling price, less the original cost and certain other costs associated with acquiring, holding and disposing of the asset.

Loss Or Destruction Of An Asset

If a CGT asset that you own is lost, stolen or destroyed, then the CGT event happens when you first receive compensation for the loss, theft or destruction.  In this way, the capital gain for such an asset is the amount of compensation less the asset’s original cost. If you do not receive compensation for the asset, the CGT event happens when the loss is discovered or the destruction occurred. Replacing the asset may result in being able to defer (or “roll over”) the capital gain until another CGT event occurs (e.g. selling the replacement asset).

The best way to ensure that you are doing the right thing when it comes to CGT tax is to keep your records up to date. This will assist us in ensuring that you are remaining compliant Any CGT events that have occurred need to be recorded (including asset disposals for at least five years after the event occurred. The best way to ensure this is to keep track of:

Keeping accurate and well-maintained records for CGT events is of utmost importance, as it allows us to ensure that you are accurately reporting your transactions and lodging your return correctly. If they incur any net capital losses, this needs to be reflected in the return as they may be able to offset these against capital gains in a later year. Once a loss has been offset against a capital gain, you need to keep the records about that CGT event for two years (for individuals and small businesses) or four years (for other taxpayers).

If you are in the process of disposing of a capital gains asset, you will want to be certain that you are doing the right thing. Capital gains tax can be a tricky issue, with plenty of rigamarole. Come speak with us to ensure that your returns are lodged with the most accurate and correct information needed for submission.