Small Business Capital Gains Tax (CGT) Concessions – $1B Tax Concessions in 1 Year
During the 2012-2013 year, the ATO allowed small business owners (who were retiring) a total of $618m in CGT small business retirement exemptions and $397m in CGT small business 15 -year exemptions – a total of over $1.015 billion in tax concession provided to small business owners!
Combined with the use of self-managed superannuation and the tax concessions available for super – several strategies can greatly increase overall outcomes.
The self-employed can qualify to roll into superannuation proceeds from the disposal of assets that qualify for one of the small business Capital Gains Tax exemptions. These are the small business Capital Gains Tax retirement exemption ($500,000 cap) or the exemption applying to small business assets held for 15 years or more ($1,000,000). Both types of roll-ins are subject to a single lifetime $1,000,000 indexed cap.
A sole trader or a partner in a partnership can use the small business retirement exemption to exempt all or part of a capital gain if:
- The amount chosen to be exempt does not exceed the individual’s remaining CGT retirement exemption limit. An individual’s lifetime CGT retirement exemption limit is $500,000. The $500,000 limit is reduced by any previous amounts the individual has chosen to be exempt under the retirement exemption.
- The exempt amount is contributed into a complying superannuation fund or retirement savings account (RSA) if the individual was aged under 55 years just before using the retirement exemption. If the individual is aged 55 or more just before choosing to use the retirement exemption, the individual does not have to pay any amount into a complying superannuation fund or RSA.
A small business entity can disregard a capital gain arising from a CGT asset that it has owned for at least 15 years if certain conditions are met. The main conditions are that:
- The basic conditions for small business relief are satisfied.
- The entity continuously owned the asset for the 15-year period leading up to the CGT event.
- If the entity is an individual, the individual retires in connection with the CGT event and is aged 55 or over or is permanently incapacitated, and
- If the entity is a company or trust, the entity had a significant individual for a total of at least 15 years, during which the entity owned the asset, and the individual who was the significant individual just before the CGT event retires or is permanently incapacitated.
A requirement for retirement is that the individual is aged 55 or over at the time of the CGT event.
If the sale of an asset qualifies for the 15-year exemption on the capital gain, the owner has the option of contributing all or some of the total proceeds from the sale to super. The proceeds from the sale will likely exceed the capital gain from the sale. The contribution of the sale proceeds will not be treated as either a concessional or a non-concessional contribution if the contribution does not exceed the person’s lifetime CGT cap, which is currently $1.395 million (2015-16).