CGT concessions and super contributions
Did you know that there are significant capital gains tax (CGT) concessions available to business owners?
The Government offers substantial financial benefits depending on how long you’ve owned your business and your personal circumstances.
Here at North Advisory, our team of Chartered Accountants and business advisors knows how to determine your eligibility and help you access any concessions available to you.
Plus, we can provide guidance on the most tax effective strategy when you want to sell your business… including making additional super contributions.
Understanding eligibility criteria
Eligibility to central to gaining access to the range of CGT concessions. And the concessions you may be able to utilise will depend on some key personal factors – such as your age and stage of life.
The ATO website outlines a detailed list of eligibility criteria but some of the initial points are:
“If you qualify, you could pay little or no tax on the sale of your business assets — the Small Business CGT concessions can be very generous.”
“You must be one of the following:
- a small business entity with an aggregated turnover of less than $2 million
- not carrying on a business (other than as a partner) but your asset is used in a closely connected small business (passively-held assets)
- a partner in a partnership that is a small business entity, and the asset is either
- an interest in a partnership asset (partnership assets)
- an asset you own that is not an interest in a partnership asset (partner’s assets) but is used in the business of the partnership
- you satisfy the maximum net asset value test.
The asset satisfies the active asset test.”
We understand that this is complex, but we have the experience to be able to assess your current situation and make sure you meet the requirements.
Four CGT concessions
After determining your eligibility, we need to work out which of the four different CGT concessions is applicable to you when you want to sell your business.
It’s an important process to go through because you want to make sure you minimise your tax obligations.
Selling a business can create a hefty capital gain so finding ways to reduce your liability is pertinent.
Plus, as some of the concessions provide the opportunity to make lump sum contributions to your super, it’s a good idea to review all your options.
Again, the ATO’s website lists all the information about each concession, but here is a brief summary:
“Small business 15-year exemption
You will not pay CGT when you dispose of an active asset if you meet both of the following additional requirements:
- you are aged 55 years or older and retiring, or are permanently incapacitated
- you have continuously owned the asset for at least 15 years.
Small business 50% active asset reduction
You will only pay tax on 50% of the capital gain when you dispose of an active asset.
The small business 50% active asset reduction applies if you meet the basic eligibility conditions.
Small business retirement exemption
Capital gains from the disposal of active assets are exempt from CGT up to a lifetime limit of $500,000. If you are under 55, the exempt amount from the proceeds on disposal of the asset must be paid into a complying superannuation fund or a retirement savings account.
Small business rollover
The small business rollover allows you to defer all or part of a capital gain made from a CGT event happening to an active asset. For example, you can defer your capital gain until a later year if you buy a replacement asset or improve an existing active asset.”
“There are four main concessions — including a 15-year exemption, active-asset reduction, retirement exemption and roll-over relief — and combining them smartly may dramatically reduce your CGT liability.”
Boost your super balance
Out of these four concessions there are two that offer you the opportunity to boost your super balance and further reduce your tax liability.
The 15-year exemption and the small business retirement exemption enable you to make lump sum contributions into your super without impacting your other super contribution caps.
This is where we can work with you to make sure all the right boxes are ticked.
You can achieve different outcomes depending on the way you apply the concessions, so we look at the best way to order them to achieve the optimal result.
For example, if you sold your business for $1million you may be able to contribute the full amount tax free into your super without affecting your standard concessional and non-concessional contribution caps, as long as you have owned your business for more than 15 years and are transitioning to retirement.
Professional accountant advice
There’s no doubt that these CGT concessions can be extremely beneficial if you are a business owner nearing retirement. But they can be difficult to navigate on your own.
Our professional accountant advice can save you the headache of trying to work it out yourself! We have the knowledge and expertise to help you assess your eligibility and implement tax effective strategies. If you’d like to find out more about our services, please contact us today.
About the author
Marius Fourie - Director & Business Advisor
As Director and Business Advisor, Marius uses his accounting expertise and empathetic skills to work directly with business owners and help them feel at ease with their finances.
Marius saw a common need in clients that just wasn’t being met by accounting providers.
That need was for clear, open communication and streamlined accounting services that didn’t come padded out with any unnecessary features.
Business owners just don’t have time to compare different accounting firms to see which one has the best packages with the best inclusions (many of which they would pay for but never use).
Key Takeaways
CGT Concessions Can Significantly Reduce Tax
When applied correctly, CGT concessions can substantially reduce or eliminate capital gains tax on the sale of a business or business assets.
Eligibility Rules Are Strict
Meeting the turnover, net asset, and active asset tests is essential — small changes in circumstances can affect eligibility.
Planning Improves Outcomes
Structuring and timing the sale of assets in advance can make a major difference to the concessions available.
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Frequently Asked Questions
What are CGT concessions?
CGT concessions are tax relief measures that reduce the amount of capital gains tax payable when you sell certain assets. In Australia, they commonly apply to small business owners and eligible assets.
Who can access small business CGT concessions?
Small business CGT concessions are available to eligible individuals, trusts and companies that meet specific criteria, including turnover or net asset value tests and active asset requirements.
What types of assets qualify for CGT concessions?
Eligible assets typically include business assets, such as goodwill, business premises, and business interests, provided they meet the active asset test.
What CGT concessions are available to small businesses?
The main concessions include a 15-year exemption, a 50% reduction in active assets, retirement exemption, and rollover relief, each with distinct eligibility rules and outcomes.
Can CGT concessions be combined?
Yes. In some cases, multiple CGT concessions can be applied to the same capital gain, significantly reducing or even eliminating the tax payable.
What are CGT concessions and how can they help when selling a business?
North Advisory explains that CGT concessions can provide significant financial benefits to business owners when selling their business or a business asset — depending on how long you’ve owned the business and your personal circumstances. They also highlight that eligibility is key, and that with the right advice you may be able to access concessions and even consider tax-effective strategies like additional super contributions as part of your exit planning.
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Dee Why, Northern Beaches
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Australia