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%.
Example 11: small business 50% active asset reduction
Lana qualifies for the small business 50% reduction because she meets the basic conditions. Therefore, she can reduce her capital gain by a further 50%, as follows:
$7,000 - (50% x $7,000) = $3,500
Lana may be able to reduce her capital gain further using the small business retirement exemption or the small business rollover.
End of example