If you're considering selling your small business, it's crucial to understand how you can reduce the Capital Gains Tax (CGT) on the sale. With the right planning and use of small business CGT concessions, you may significantly lower the tax impact of your business sale, keeping more of your hard-earned money.

The small business CGT concessions provide a valuable opportunity to reduce, defer, or even eliminate the capital gains that arise from selling your business. This means more money in your pocket and greater flexibility for your future plans, whether that involves retirement or reinvesting in other ventures.

To explore how these concessions can work for your business, schedule a complimentary consultation today.

How the small business CGT concessions work

CGT concessions are a form of tax relief available to eligible small business owners when they sell active assets, excluding personal assets and depreciating assets. These concessions allow you to reduce, defer, or even disregard some or all of the capital gain from the sale, helping you to lower the amount of Capital Gains Tax (CGT) you have to pay.

Which CGT concessions can you use when selling your business?

The small business CGT concessions allow eligible small business entities to reduce, defer, or disregard some or all of the capital gain from selling an active business asset.

There are four main types of small business CGT concessions available:

• 15-year exemption
• 50% active asset reduction
• Retirement exemption
• Small business roll-over

To qualify for these concessions, basic conditions must be met when a CGT event occurs, such as selling or disposing of an active asset. Additional conditions may also apply to each individual concession, depending on the specific circumstances of the business or taxpayer.

When claiming concessions, there is an order of application to follow:

1. Small business CGT concessions
2. Current year or prior year capital losses
3. CGT discount, if applicable

If eligible, a taxpayer can apply more than one concession to the same capital gain, provided the conditions for each are satisfied. Additionally, the CGT discount may also be used in combination with these concessions if the requirements are met.

Step-by-step guide to applying CGT concessions

Step 1: Check if you meet the basic eligibility criteria

• Review the basic conditions to determine if your business qualifies for any small business CGT concessions.
• If eligible, continue to Step 2. If not, you may still qualify for the CGT discount.

Step 2: Check if you meet the criteria for the 15-year exemption

• If you meet the conditions for the 15-year exemption, you can disregard the entire capital gain. No further concessions are required.

Step 3: Apply your capital losses

• If you have capital losses, offset them against your capital gain. If you have multiple capital gains, you can choose the order in which to apply the losses. If you do not qualify, proceed to Step 4.

Step 4: Apply the CGT discount to reduce your capital gain

• If eligible, apply the CGT discount to reduce any remaining capital gain after capital losses have been offset.

Step 5: Use the 50% active asset reduction

• If eligible, apply the 50% active asset reduction to further reduce the remaining capital gain. You may choose to skip this reduction and go directly to the retirement exemption or roll-over.

Step 6: Consider the retirement exemption or rollover

• If eligible, apply the retirement exemption or the small business roll-over to reduce any remaining capital gain. The remaining amount is the net capital gain, which will be included in your assessable income for the current income year.

Maximise your CGT concessions to lower your tax

There are four key small business CGT concessions that can help reduce or eliminate the capital gain on the sale of business assets. If you qualify, you can apply as many concessions as you're eligible for, potentially reducing your capital gain to zero.

Small business 15-year exemption

If your business has owned the asset for at least 15 consecutive years, and you're aged 55 or over and retiring, or you're permanently incapacitated, you won't have an assessable capital gain when you sell that asset.

Small business 50% active asset reduction

If you've owned an active business asset for at least 12 months, you can reduce the capital gain by 50%.

Small business retirement exemption

You can claim an exemption on up to $500,000 of capital gain over your lifetime when selling a business asset. If you're under 55, the exempt amount must be contributed to a complying superannuation fund or retirement savings account.

Small business rollover

This concession allows you to defer part or all of the capital gain for up to two years or longer, provided you acquire a replacement asset or make capital improvements to an existing asset. The gain is deferred until another CGT event occurs, such as failing to acquire a replacement asset within the required time.

Can you use CGT exemptions to boost your super?

Small business owners can leverage certain CGT concessions to make significant contributions to their superannuation without impacting their non-concessional contributions cap. By using the 15-year exemption or the retirement exemption, you can enhance your retirement savings while reducing your capital gains tax liability.

Small business 15-year exemption

If you qualify for the small business 15-year exemption, you can contribute the exempt amount from the sale of a business asset to your superannuation fund. These contributions will not count towards your non-concessional contributions cap, giving you an opportunity to boost your retirement savings without impacting your other super contributions.

Small business retirement exemption

Similarly, amounts received from the small business retirement exemption can also be contributed to your superannuation fund. Like the 15-year exemption, these contributions will not affect your non-concessional contributions limits, allowing you to take full advantage of this exemption while planning for your retirement.