What Is Small Business CGT Concession in Australia?

Generally, the gain can be deferred for at least two years. If a qualifying replacement asset is acquired or an existing asset is improved within the relevant replacement asset period, the gain may remain deferred until a later CGT event occurs.

For example, a business may sell one qualifying business asset and use the proceeds to acquire another asset for the ongoing business. If the relevant conditions are satisfied, the rollover may help defer the capital gain.

It is important to understand that a rollover is generally a deferral, not necessarily a permanent exemption. The deferred gain may become assessable later if the replacement asset is sold or certain other events occur.

A Simple Example of How the Concessions Can Work

Suppose an eligible business owner sells a qualifying active business asset and makes a $200,000 capital gain.

If the owner satisfies the relevant requirements, the small business 50% active asset reduction could potentially reduce the gain to $100,000.

If the individual is also eligible for another concession, such as the retirement exemption, further relief may potentially be available.

The actual tax outcome depends on factors including the taxpayer's structure, capital losses, CGT discount eligibility, asset ownership period, active asset status and the specific concession being used.

This is why simply applying a "50% reduction" to a sale price is not an appropriate way to calculate CGT.

How Business Structure Can Affect CGT Concessions

The structure through which a business operates can have a significant impact on CGT planning.

Sole traders, partnerships, companies and trusts can have different tax consequences when business assets are sold. Companies, for example, cannot access the general 50% CGT discount, while individuals and trusts may potentially qualify where the relevant conditions are satisfied.