The flowchart below shows the order in which you apply capital losses and the CGT concessions to each capital gain.
You don't necessarily have to go through each step. For example, if you qualify for the small business 15-year exemption, you can disregard the entire capital gain and, therefore, don't need to complete the remaining steps.
Also, you can choose not to apply the 50% active asset reduction and go straight to the small business retirement exemption or rollover.
Throughout this guide we use the example of Lana, a sole trader, to illustrate how losses and the CGT concessions can be applied to a capital gain made by a small business.
Example: Lana – a sole trader
Lana operates a small manufacturing business as a sole trader. The net value of her CGT assets and those of certain other entities don't exceed $6 million.
Her husband Max carries on his own florist business, which is unrelated to Lana's manufacturing business. They regularly consult with each other in relation to their respective businesses and act in accordance with the other's directions or wishes in relation to their respective businesses.
Max owns the land and building from which Lana's manufacturing business is conducted and leases it to Lana.
Max owns 100% of the shares in Maxaco Pty Ltd, and Lana has no involvement in this company.
Lana has also owned a small parcel of nearby land for three years and has used it in her business for the last two years. She decides to sell the land and makes a capital gain of $17,000 when she disposes of it.
In the same year as Lana makes the $17,000 capital gain on the sale of the land, she also makes a capital loss of $3,000 from the sale of another asset.
End of exampleFlowchart
Capital gains made during an income year
You make a capital gain from a depreciating asset only to the extent you have used the depreciating asset for a non-taxable purpose.
Questions
- Determine whether you satisfy the basic conditions for the small business CGT concessions
Yes |
Read on from question 2 |
|---|---|
No |
Read answer 1 |
- Determine whether you qualify for the small business 15-year exemption (not relevant to the capital gains from depreciating assets).
Yes |
Read answer 2 |
|---|---|
No |
Read on from question 3 |
- Offset any capital losses against the capital gain. Continue to question 4.
- Determine whether you are eligible for the CGT discount. If so, reduce the remaining capital gain. Continue to question 5.
- Determine whether the capital gain is from a depreciating asset used at least partly for a non-taxable purpose. If so, you are not eligible for any other concessions and can’t reduce your capital gain any further. Continue to question 6.
- Determine whether you qualify for the small business 50% active asset reduction (if you answered yes to question 1 you will qualify). If so, reduce the remaining capital gain.
Note: You can choose not to apply the 50% active asset reduction and go straight to the small business retirement exemption or rollover in question 7.
Continue to question 7. - Determine whether you qualify for the small business retirement exemption or rollover. If so, reduce the remaining capital gain. Continue to answer 3.
Answers
- You don't qualify for any of the small business CGT concessions. You may be eligible for the CGT discount.
- Disregard the entire capital gain. You don't need to apply any of the other CGT concessions.
- Amount remaining equals the net capital gain to be included in your assessable income for the year.