Advanced guide to capital gains tax concessions for small business

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Chapter 2 - About CGT Concessions

CGT discount

If you are a company, this section does not apply to you and you cannot use the CGT discount.

If you are an individual (including a beneficiary of a trust) and

• a foreign or temporary resident, or
• an Australian resident with a period of non residency after 8 May 2012,

and you have a discount capital gain, you may not be entitled to the maximum CGT discount percentage of 50%. For more information go to Capital gains tax (CGT) discount for foreign resident individuals.

Note:

All examples in this publication assume the individual (including a beneficiary of a trust) has a CGT discount of 50%.

Otherwise, if you made a capital gain in the 2013-14 income year from a CGT asset that you acquired before 11.45am on 21 September 1999 you may choose to index the cost base (frozen at 30 September 1999) or apply the CGT discount if certain conditions are satisfied.

Where we refer to 'after 11.45am on 21 September 1999' we are referring to after 11.45am, by legal time in the Australian Capital Territory, on 21 September 1999.

Indexation is not available for assets acquired after 11.45am on 21 September 1999, but the CGT discount may apply if the relevant conditions are met.

The discount reduces a capital gain made by individuals (including partners in partnerships) and trusts by 50%. The discount for complying superannuation funds is 33 1/3%. Companies are ineligible for the CGT discount.

There are further rules for beneficiaries receiving trust distributions who are entitled to a share of a trust capital gain. For more information, see 'Trust distributions' in part A of the Guide to capital gains tax 2013-14 (NAT 4151).

You offset capital losses against capital gains before applying the CGT discount. The CGT discount is applied before the small business CGT concessions (apart from the small business 15-year exemption as this concession provides a total exemption of a capital gain).

The main condition for the CGT discount is that you must have acquired the CGT asset at least 12 months before the CGT event giving rise to the capital gain. There are rules to prevent circumvention of the 12-month requirement. 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.

The CGT discount can apply to capital gains made on non-business assets, as well as business assets.

Small business concessions

There are four CGT concessions available to small business. These concessions may apply to CGT events (for example, the disposal of a CGT asset) that happen after 11.45am on 21 September 1999. Any capital gain that results from a CGT event may be reduced or disregarded under the small business concessions if you satisfy certain conditions. The four concessions are:

• The small business 15-year exemption

This concession provides a total exemption of a capital gain if you have continuously owned the CGT asset for at least 15 years and the relevant individual is 55 years old, or older, and retiring, or is permanently incapacitated.

• The small business 50% active asset reduction

  This concession provides a 50% reduction of a capital gain.

• The small business retirement exemption

This concession provides an exemption of capital gains up to a lifetime limit of $500,000. If you are under 55 years old just before you make the choice, the amount must be paid into a complying superannuation fund or a retirement savings account (RSA).

• The small business rollover

  This concession allows you to defer a capital gain from the disposal of a business asset for a minimum of two years. If you acquire a replacement asset or make a capital improvement to an existing asset, you can defer the capital gain for longer, until the asset is disposed of or its use changes in particular ways. Either will cause the deferred capital gain to crystallise. This means you would make a capital gain equal to the deferred gain at the time of the disposal or change in use, in addition to any capital gain made on the disposal of the replacement or capital improved asset.

ATO references:
NO NAT 3359