One of the recent tax reforms over the past two years has been the expansion of tax relief potentially available under the small business Capital Gains Tax (CGT) concessions.
Recent amendments the concessions have been radically revamped so that a whole slew of previously ineligible taxpayers now have the opportunity to potentially wipe out or slash tax payable on any capital gains made. Such entities include, amongst others, closely held family groups, deceased estates and partners in large partnerships. The eligibility criteria for the concessions have also been simplified to ensure that they operate more equitably.These changes have meant that the potential tax planning opportunities and saving available for Small and Medium Sized Enterprises.
Basic Conditions
From 1 July 2007 any entity seeking to claim any of the concessions must satisfy the following conditions:
1. Capital Gain Derived
A capital gain must arise from a CGT event occurring during the year in respect of a CGT asset owned by an entity; AND
2. Net Assets or Turnover Test
The entity must either be a 'small business entity' under the recently inserted Division 328 of the Income Tax Assessment Act (ITAA), or satisfy the 'maximum net asset value test' under Division 152 of the ITAA (1997).
3. Active Asset
The CGT aset must be an 'active' asset being an asset used by an entity in carrying on a business activity for at least half of its ownership period where it has been held for less than 15 years, (or for at least seven and a half years where it has been owned for 15 years or more). The asset will also be active where it has been owned by an entity but used in a business carried on by an affiliate or a connected entity.
4. CGT Concession Stakeholder
The entity making the gain on the disposal of the shares or turst interest must be a 'CGT concession' stakeholder being a 'significant individual', or the spouse of such a person who must also hold some shares or a trust interest.
Four CGT Concessions
The four CGT concessions potentially available are as follows:
1. 50% Active Asset Reduction
Where the above basic conditions are met, the amount of any capital gain will be automatically reduced by 50%;
2. Small Business 15 year exemption
This concession fully exempts any agin from CGT if certain additional conditions are met, (and it does not require the gain to be reduced by any capital losses before it can be applied).
3. The $500,000 retirement exemption
This exemption provides a once in a lifetime $500,000 CGT exemption for each taxpayer where the basic conditions are met, and an individual is either aged over 55, or is under 55 and rolls over the ecempt gain as an eligible termination payment to a complying superannuation fund.
4. The Small Business Rollover
This concessiion is available where the basic conditions are met, and the amount of the gain is ued to fund either the purchase of a replacement active asset or an improvement to an existing active asset, and such an event takes place.
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