When a business sells an asset or investment, the business will usually make either a capital gain or a capital loss.

Very basically, the capital gain amount will be the amount you sold the asset for less the amount you paid for it. Capital Gains Tax (CGT) is the tax that is payable on any gains made on the asset.

Examples of capital gains events include:

• Sales on investments or assets such as shares or property
• Losing an asset, such as when it is destroyed
• When shares are cancelled, surrendered or redeemed
• When you stop being an Australian resident and hold investments in Australia
• Some payments from a Company (excluding shareholders dividends)

You may also need to pay capital gains tax if you use your main residence for business purposes.

There are four small business CGT concessions that allow you to reduce or eliminate your capital gain on business assets, provided you meet the CGT Concession Conditions. You can apply as many of the concessions as you are eligible for.

Small Business 15-Year Exemption

The small business 15-year exemption allows you to completely eliminate your capital gain if you meet the following conditions:

• Your business has owned the asset for at least 15 continuous years.
• You are aged 55 years or over; and
• You’re retiring or permanently incapacitated.

Small Business Active Asset Reduction

If your business has active business assets, you can reduce the capital gain on these assets by 50% if you have owned them for 12 months or more and meet the following conditions:

• The asset is used in running the business.
• The asset passes the active asset test if you have owned it for more than 15 years or half of the test period if you have owned it for less than 15 years.

The following assets can not be considered active assets:

• Assets whose main use is to earn rent, interest, an annuity, royalties or foreign exchange gains.
• Subdivided vacant land
• Shares or interests in company or trusts (subject to some exemptions)
• Financial instruments such as bank accounts, loans, debentures, bonds and futures and other contracts and share options.

Small Business Retirement Exemption

This allows you to exempt part or all of a capital gain up to a lifetime limit of $500,000. If you are under 55 when you elect to use this exemption, then you must pay the amount you’ve chosen to exempt into either a complying superannuation fund or a retirement savings account.

Small Business Rollover

If you sell an active asset, you can defer part or all of the capital gains for two yours or longer if you acquire a replacement asset. You don’t include the gain in your income until a change of events occurs that triggers the gain. For example, if you do not purchase a replacement asset in the specified time or when the replacement asset that was purchased is disposed of.

If you are thinking of selling a business asset, please contact our office so we can work out your eligibility to use the small business CGT concessions.