What is new

Changes to the capital gains tax (CGT) small business concessions over recent years have improved access and made it easier for taxpayers to work out if they are eligible for the concessions. The most recent amendments are contained in Tax Laws Amendment (2009 Measures No. 2) Act 2009 which received royal assent on 23 June 2009. We will refer to these as the June 2009 amendments. This date is relevant later for the time limit for making choices.

The changes apply to:

• payments and CGT events happening on or after 23 June 2009, and
• CGT events happening in 2006-07 and 2007-08 and later income years.

These changes have been incorporated into this version of the Advanced guide to capital gains tax concessions for small business. Information about the changes is also available in Capital gains tax (CGT) concessions for small business - more changes for the 2007-09 years.

The following amendments apply to payments and CGT events happening on or after 23 June 2009 and involve changes to:

• enable certainliabilities to reduce an entity's net asset value in applying the $6 million maximum net asset value test
• ensure all uses of an asset (except certain personal use and certain uses from which passive income is derived) are considered in determining what its main use is
• the operation of the retirement exemption to remove unintended consequences by
• • ensuring the retirement exemption caters for CGT exempt payments flowing through small business structures involving interposed entities, and
  • excluding small business retirement exemption payments made to CGT concession stakeholders from the deemed dividend provisions of section 109 and Division 7A section 109C of the Income Tax Assessment Act 1936.
   

The following amendments were announced in the 2008-09 Budget and apply to CGT events happening in 2007-08 and later income years. The changes increase access to the small business capital gains tax (CGT) concessions for businesses with turnover less than $2 million via the small business entity test for:

• taxpayers owning a CGT asset used in a business by an affiliate or connected entity (passively-held assets), and
• partners owning a CGT asset used in the partnership business (partner's assets).

Other minor changes improve the operation of the concessions by:

• increasing the circumstances and purposes for which a spouse or child under 18 years is taken to be an individual's affiliate
• removing unintended consequences for the retirement exemption by correcting the treatment of capital proceeds received in instalments.

The following changes apply retrospectively for CGT events happening in 2006-07 and later income years to:

• increase access to the concessions for joint tenants and trustees of testamentary trusts where a gain arises from an asset within two years of the individuals death, where the deceased would have been entitled
• remove the requirement in the retirement exemption to meet the basic conditions where the replacement asset conditions have not been met for the small business rollover (CGT events J5 and J6).

As the 2006-07 and 2007-08 changes are retrospective, taxpayers have additional time to make their choice to use the concessions where they become eligible as a result of these June 2009 amendments. The extension of time to make a choice applies to CGT events happening before the 23 June 2009.

The taxpayer has until the later of:

• the day the entity lodges its income tax return for the income year in which the relevant CGT event happened
• 12 months after the day on which these amendments receive royal assent, or
• a later day allowed by the Commissioner.