What Is Small Business CGT Concession in Australia?

The concessions can potentially reduce the amount of the gain that becomes taxable. This may leave more funds available for retirement, reinvestment, acquiring another business or other legitimate business and financial objectives.

However, these concessions are not automatic tax exemptions. The business and the asset must satisfy specific requirements under Australian tax law.

Who Can Qualify for Small Business CGT Concessions?

The eligibility rules are more detailed than simply being described as a "small business".

Generally, you need to satisfy the basic conditions for the small business CGT concessions. One common pathway is being a small business entity carrying on a business with aggregated turnover of less than $2 million. Alternatively, certain entities that do not meet that turnover test may still qualify under the maximum net asset value test, which has a $6 million threshold.

The ATO also considers connected entities and affiliates when determining aggregated turnover and net asset values. This means a business owner should not assume that only the turnover or assets shown in their own accounts are relevant.

The asset itself generally needs to satisfy the active asset test. Additional conditions can apply where the CGT asset is a share in a company or an interest in a trust.

Because the rules can become complicated where multiple businesses, companies, trusts or related entities are involved, professional advice should be obtained before relying on a concession.

What Is an Active Asset?

An active asset is broadly an asset used or held ready for use in the course of carrying on a business.

Examples can include business premises, machinery, equipment and goodwill, depending on the circumstances.

The active asset test has specific requirements, including rules about how long the asset must have been held and used in the business.