CGT concessions you can claim

Step 2 – Work out if you qualify for the 15-year exemption

If you qualify for the small business 15-year exemption, you can disregard the capital gain entirely and you do not need to apply any further concessions. There is no need to apply capital losses before you apply the 15-year exemption. This means you may use these capital losses to offset other capital gains.

If the capital gain is from a depreciating asset, you cannot use the 15-year exemption.

Do you qualify?

You qualify for the small business 15-year exemption if you:

• meet the basic conditions for the small business CGT concessions (including the active asset test – in this case the asset must have been an active asset for at least 7.5 years during your period of ownership)
• continuously owned the CGT asset for the 15-year period ending just before the CGT event, where you are
  • an individual in business and at the time of the CGT event you were 55 years or more and the event was connected with your retirement or you were permanently incapacitated
  • an individual in business and your CGT asset is a share in a company or an interest in a trust and the company or trust had a significant individual, for periods totalling at least 15 years, during which the individual owned the shares or trust interests (not necessarily the same individual for the whole period)
  • a company or trust and the company or trust had a significant individual for at least 15 of the years they owned the asset (not necessarily the same individual for the whole period) and at the time of the CGT event the significant individual was 55 years or more and the event was connected with their retirement, or they must have been permanently incapacitated.
   

For CGT assets acquired or transferred under the rollover provisions relating to assets compulsorily acquired, lost or destroyed, or those relating to marriage breakdown, there are modified rules about the requirement that the asset be continuously owned for at least 15 years.

Superannuation consequences

From 1 July 2007, if you are contributing a 15-year exemption amount to a superannuation fund or retirement savings account (RSA), the amount is generally a non-concessional contribution. To exclude the amount from your non-concessional contributions cap and have it count towards your $1 million (indexed annually from 2007–08) superannuation CGT cap instead, you must notify the fund on the CGT cap election (NAT 71161). You must complete this election by no later than the time you make the contribution.

Find out more:

• Super contributions caps - too much can mean extra tax.

If you make a capital loss from the CGT event, you can use the loss to reduce other capital gains.

Step 3 – Work out if you have any capital losses

If you have any capital losses for the current year or losses carried forward from a previous year, you must use them to reduce the capital gain before applying any of the remaining concessions.

Step 4 – Work out if you may claim the CGT discount

The CGT discount allows individuals (including partners in partnerships) and trusts to reduce their capital gain by 50%. Superannuation funds can reduce their gain by 33.33%. There are more rules for beneficiaries who are entitled to a share of a trust capital gain. Companies are not eligible for the CGT discount.

The discount is not limited to small business capital gains, but can also be applied to personal capital gains.

Capital gains and depreciating assets

You make a capital gain from a depreciating asset only to the extent you have used the depreciating asset for a non-taxable purpose (for example, for private purposes). Such a gain may be eligible for the CGT discount.

Are you eligible

To be eligible for the CGT discount you must meet both of the following:

• be an individual, trust or complying superannuation fund
• have owned the asset involved for at least 12 months.

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.

If you are eligible for the CGT discount, reduce the capital gain by 50% (or 33.33% for complying superannuation funds).

Step 5 – Work out if the gain is from a depreciating asset

You can make a capital gain or capital loss from disposing of a depreciating asset only to the extent that you use the depreciating asset for a non-taxable purpose (for example, for private purposes).

If the capital gain is from a depreciating asset, you cannot use any of the small business CGT concessions to reduce the gain any further. If it is not from a depreciating asset, you may be able to reduce your capital gain further under the remaining small business CGT concessions.

Step 6 – Work out if you may claim the 50% active asset reduction

You may choose not to apply the 50% active asset reduction and go straight to the small business retirement exemption or rollover.

To qualify for the small business 50% active asset reduction on a capital gain, you need to meet only the basic conditions (see step 1).

This means that, if you meet the basic conditions, you may reduce the capital gain by 50% after applying in the following order, any:

• current year capital losses
• unapplied net capital losses from a previous year.

If you are an individual or trust and both the CGT discount and the small business 50% active asset reduction apply, you reduce the capital gain by 50%, then 50% of the remainder – that is, a total of 75%.

Step 7 – Work out if you qualify for the small business retirement exemption or rollover

You may choose the small business retirement exemption or the small business rollover for the remaining amount of capital gain if you meet the conditions. Alternatively, you may choose both concessions for different parts of the remaining capital gain.

Small business retirement exemption

You can use your small business retirement exemption to disregard all or part of a capital gain. You can choose to apply the retirement exemption to any amount of capital gain remaining after you have applied the other concessions or before any other concessions.

The amount you choose to disregard is called the exempt amount. The amount of any capital gain that exceeds the CGT exempt amount does not qualify for this exemption. The exempt amount must not exceed your CGT retirement exemption limit. This is a lifetime limit of $500,000.

Working out whether you qualify

Individuals in business

If you are an individual in business, you can use the small business retirement exemption to disregard all or part of a capital gain remaining after you have applied the other concessions if:

• you meet the basic conditions (see step 1)
• you keep a written record of the amount you have chosen to disregard (the exempt amount)
• where you were less than 55 years old just before you made the choice to use the retirement exemption, you made a payment equal to the exempt amount to a complying super fund or retirement savings account (RSA).

You must make the contribution to a complying super fund or RSA when:

• you make the choice to use the retirement exemption or when you received the proceeds (whichever is later)
• if the relevant event is CGT event J2, J5 or J6 – when you made the choice to use the retirement exemption.

If you are 55 or older when you make the choice to access the retirement exemption, you do not have to pay any amount to a complying super fund or RSA, even though you may have been under 55 when you received the capital proceeds.

If you receive the capital proceeds in instalments, the requirement to contribute an amount by a particular date applies to each instalment (up to the asset's CGT exempt amount).

If you make the gain as a result of CGT events J5 or J6, you can choose the retirement exemption for those gains without having to meet the basic conditions again. This is because you would have already met the basic conditions at the time you chose the rollover.

Companies and trusts

If you are a company or trust (other than a public entity), you can also use the small business retirement exemption to disregard all or part of a capital gain remaining, after you have applied the other concessions, if all of the following are met:

• you meet the basic conditions (see step 1)
• you meet the significant individual test
• you keep a written record of the amount you have chosen to disregard (the exempt amount) and, where there is more than one CGT concession stakeholder, of each stakeholder's percentage of the exempt amount (one may be nil, but together they must add up to 100%)
• you make a payment to at least one of your CGT concession stakeholders where you have chosen to use the retirement exemption
• where you make a payment to a CGT concession stakeholder, the payment is equal to the exempt amount or the amount of capital proceeds, whichever is less
• where you receive the capital proceeds in instalments, you make a payment to a CGT concession stakeholder for each instalment in succession (up to the asset's CGT exempt amount).

In the instance where you make a payment to more than one CGT concession stakeholder, you work out the amount by referring to each individual's percentage of the exempt amount.

• You must make your payment by either of the following:
• seven days after you choose to disregard the capital gain if you choose the retirement exemption for a J2, J5 or J6 event
• in any other case, by the later of seven days after you
  • choose to disregard the capital gain
  • receive the capital proceeds from the CGT event.
   

Where a stakeholder is under 55 just before receiving the payment, you must immediately contribute that amount to a complying super fund or retirement savings account (RSA) and advise the trustee of the fund or the RSA that a contribution has been in accordance with the relevant section.

If you must make a retirement exemption payment through one or more interposed entities to a CGT concession stakeholder, refer to Advanced guide to capital gains tax concessions for small business 2008–09 (NAT 3359).

If you made your gain because of CGT events J5 or J6 happening, you can choose the retirement exemption for those gains without having to meet the basic conditions again. This is because you would have already satisfied the basic conditions at the time you chose the rollover.

The exempt amount must not exceed the $500,000 CGT retirement exemption limit of each individual receiving an eligible termination payment. As this is a lifetime limit, you must consider any previous retirement exemption payments to make sure you do not exceed the limit.

Choosing the retirement exemption for a capital gain (subject to the $500,000 limit) without first applying the 50% active asset reduction might allow a company or trust to make larger tax-free payments to the CGT concession stakeholders of the company or trust.

Termination of employment not required

If you choose the retirement exemption, you do not have to:

• end any activity
• wind up your business.

Where you are a company or trust and you make payments to a CGT concession stakeholder who is not an employee, the stakeholder does not have to end any activity or office holding.

Find out more:

• Advanced guide to capital gains tax concessions for small business 2008–09 (NAT 3359).

Consequences of choosing the exemption

If you choose this exemption, you disregard the amount of the capital gain you have chosen as the CGT exempt amount.

Payments you make to a CGT concession stakeholder

If you are a CGT concession stakeholder, a payment you receive from a company or trust to meet the retirement exemption requirements is exempt from income tax. This has implications for any tax losses from prior years (not capital losses) you are entitled to claim as a deduction.

If you are a company or trust making the payment, you cannot deduct this amount from your assessable income.

Superannuation consequences

From 1 July 2007, if you are contributing a retirement exemption amount to a superannuation fund or RSA, the amount is generally a non-concessional contribution. To exclude the amount from your non-concessional contributions cap and have it count towards your $1 million (indexed annually from 2007–08) superannuation CGT cap instead, you must notify the fund on Capital gains tax cap election (NAT 71161). You must complete this form by no later than the time you make the contribution.

Find out more:

• Superannuation contributions caps – too much can mean extra tax.

Under superannuation laws, ETPs and RBLs were abolished from 1 July 2007.

For the 2006–07 and earlier years, exempt amounts that were taken to be ETPs (for small business individuals) or paid as ETPs (for companies and trusts) were not subject to tax in the hands of the individual unless they exceeded the recipient's reasonable benefit limit (RBL).

Small business rollover

The small business rollover allows you to defer all or part of a capital gain for two years or longer if you do either of the following:

• acquire a replacement asset
• incur expenditure on making capital improvements to an existing asset.

You must meet certain rollover conditions to defer the gain for longer than two years.

If you apply the small business rollover after the small business 50% active asset reduction, you apply it to the remaining 50% of the gain. If you have also applied the CGT discount, you apply the rollover to the remaining 25% of the capital gain.

You can use this concession for any gain remaining before or after you have applied any other concessions.

Do you qualify?

Your business qualifies to roll over a capital gain if you meet the basic conditions (see step 1). There are rollover conditions that must also be met by the end of the replacement asset period. This period starts one year before and ends two years after the last CGT event that occurs in the income year for which you choose the rollover.

Rollover conditions

To extend the rollover beyond two years, the following conditions must be met by the end of the replacement asset period:

• you must acquire a replacement asset or make a capital improvement to an existing asset, or do both, within the replacement asset period
• the replacement asset must be an active asset by the end of the replacement asset period
• if the replacement asset is a share in a company or an interest in a trust, by the end of the replacement asset period
  • you or an entity connected with you must be a CGT concession stakeholder in that company or trust, or
  • CGT concession stakeholders in the company or trust must have a small business participation percentage in the entity of at least 90%
   
• the cost of the replacement asset must be equal to or greater than the gain you deferred.

You can choose the rollover even if you have not yet acquired a replacement asset or made a capital improvement to an existing asset, but a new capital gain will arise if the any of the following happens:

• you do not acquire an active asset, or make a capital improvement to an existing active asset by the end of the replacement asset period
• by the end of the replacement asset period the cost of the replacement active asset or capital improvement (including incidental costs) is less than the amount of the capital gain that you disregarded
• a change happens to the replacement (or capital improved) asset after the replacement asset period (for example, you sell it or stop using it in your business).

If a new capital gain arises because you have not met the rollover conditions by the end of the replacement asset period (two years) you can choose the retirement exemption instead. For those gains you do not need to meet the basic conditions again but you must meet the retirement exemption conditions.