What are the small business CGT concessions?.

The four concessions.

Division 152 of the Income Tax Assessment Act 1997 holds four concessions that can apply to a capital gain on a small business, and they can stack. In short: the fifteen-year exemption can remove the gain entirely where the business has been held long term and the sale is connected with retirement or permanent incapacity. A further small business reduction can cut the remaining gain, and sits on top of the general discount, so a large part of a gain can fall away. A retirement exemption can set an amount aside, with superannuation rules where the person is younger. Roll-over relief defers the gain where the proceeds are reinvested in a replacement active asset within a set period, so it is a deferral rather than an outright saving.

The eligibility tests.

Getting to any of them means passing eligibility tests. Broadly, the business has to be small enough on a turnover or a net asset measure, the asset has to be an active asset of the business, and, where the sale is of shares or a trust interest, you have to hold a large enough stake. The detail of those tests, and the figures in them, is deliberately left to advice, because it is fact specific and the thresholds change.

Why the structure decides the outcome.

These concessions can be extraordinarily valuable, but they reward a structure set up well before the sale, and the vehicle matters. A gain made inside a company can be awkward, because the general discount does not apply to companies and the concession amount can be hard to get out to the shareholders without triggering more tax, so part of the benefit can be clawed back. Whether you qualify, and how to arrange ownership so you do, is a question for your accountant and lawyer together. We advise on business structuring with a sale in mind, and run the sale through our business sale and purchase service.

Law referenced: Income Tax Assessment Act 1997, Divisions 115 and 152.