The flow chart shows the order in which you apply capital losses and the CGT concessions to each capital gain.
You do not 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
- do not 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.
Choosing the concessions
The way you prepare your tax return is evidence of the concessions you have chosen to use except if you are choosing the retirement exemption. If you choose that concession, you must make the choice in writing.
Generally, you need to make your choice by the latest of:
- the day you lodge your income tax return for the income year in which the relevant CGT event happened
- a later day allowed by the Commissioner.
If you became eligible for the concessions because of the June 2009 amendments, you may have more time to make your choice.
Throughout this guide we use the scenario 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 entity.
Sole trader scenario
Lana operates a small manufacturing business as a sole trader. The net value of her CGT assets and those of certain other entities is less than $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 according to the other's directions or wishes in relation to their respective businesses.
Max owns the land and building from which Lana conducts her manufacturing business and leases it to her.
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.