CGT discount
Some entities (including individuals) that make a capital gain after 11.45am on 21 September 1999 from a CGT asset acquired before that time and owned for at least 12 months, may choose to index the cost base (frozen as at 30 September 1999) or apply the CGT discount if certain conditions are satisfied.
Indexation is not available for assets acquired after 11.45am on 21 September 1999, but the CGT discount may apply if the relevant conditions are met.
The discount reduces a capital gain made by individuals (including partners in partnerships) and trusts by 50%. The discount for complying Superannuation funds is 33.3%. Companies are ineligible for the CGT discount.
There are further rules for beneficiaries receiving trust distributions who are entitled to a share of a trust capital gain. For more information see Chapter 4 Trust distributions in the Guide to capital gains tax 2008-09 (NAT 4151).
You offset capital losses against capital gains before applying the CGT discount. The CGT discount is applied before the small business CGT concessions (apart from the small business 15-year exemption). The main condition for the CGT discount is that you must have acquired the CGT asset at least 12 months before the CGT event giving rise to the capital gain. There are rules to prevent circumvention of the 12-month requirement. Certain CGT events, such as where new assets are created, do not qualify for the CGT discount because the 12-month rule would not be satisfied.
The CGT discount can apply to capital gains made on non-business assets as well as business assets.
Where we refer to 'after 11.45am on 21 September 1999' we are referring to after 11.45am, by legal time in the Australian Capital Territory, on 21 September 1999.
When we use the terms 'you' and 'your' in this guide, we are referring to any individual (such as a sole trader), partner of a partnership, company or trust that conducts a small business.
Small business concessions
There are four small business CGT concessions available. These concessions may apply to CGT events (for example, the disposal of a CGT asset) that happen after 11.45am on 21 September 1999. Any capital gain that results from a CGT event may be reduced or disregarded under the small business concessions if you satisfy certain conditions.
The small business 15-year exemption This concession provides a total exemption of a capital gain if you have continuously owned the CGT asset for at least 15 years and the relevant individual is aged 55 or over and retiring, or is permanently incapacitated.
The small business 50% active asset reduction This concession provides a 50% reduction of a capital gain.
The small business retirement exemption This concession provides an exemption of capital gains up to a lifetime limit of $500,000. If you are under 55 years of age just before you make the choice, the amount must be paid into a superannuation (or similar) fund.
The small business rollover This concession allows you to defer a capital gain from the disposal of a business asset for a minimum of two years. If you acquire a replacement asset or make a capital improvement to an existing asset, you can defer the capital gain for longer - until the asset is disposed of or its use changes in particular ways. Either will cause the deferred capital gain to crystallise. This means you would make a capital gain equal to the deferred gain (in addition to any capital gain made on the disposal of the replacement or capital improved asset).