Reducing your Capital Gains Tax (CGT)

Let’s recap – what is CGT?

When a business sells an asset there is typically a capital gain or a loss. Basically, it’s the difference between what the asset cost and the amount received when it is sold.

Capital Gains Tax or CGT is the tax paid on a capital gain. The sale is also referred to as a CGT event. Examples of such events include;

• selling or giving an asset to someone
• losing an asset or it is destroyed
• owning shares that are canceled, surrendered, or redeemed
• if you stop being an Australian resident
• getting a payment from a company (not a shareholder dividend)
• if you use your home for business, you might have to pay CGT when you sell it

You can find out more about CGT in another CVW blog… Capital gains tax made simple.

How to reduce your capital gain

There are 4 small business CGT concessions you can use to reduce capital gain on business assets. It’s possible to apply for as many concessions as you’re entitled to – this may reduce the capital gain to zero. However, be sure you meet the CGT concession conditions.

1. Small business 15-year exemption
   You won’t have an assessable capital gain when you sell a business asset if:
   – the business owned the asset for at least 15 continuous years
   – you’re aged 55 years or over
   – you are retiring or permanently incapacitated
2. Small business 50% active asset reduction
   If you own a small business, you can reduce your capital gain on active business assets you have owned for 12 months or more by 50%.
3. Small business retirement exemption
   When selling a business asset, CGT from the sale is exempt up to a lifetime limit of $500,000. In other words, if you’re under the age of 55, you must pay the exempt amount into either a:
   – complying with superannuation fund
   – retirement savings account
4. Small business rollover
   If selling an active asset, you can defer all or part of a capital gain for two years, or longer if you acquire a replacement asset or incur expenditure on making capital improvements to an existing asset.

You don’t include the gain in your income until a change in circumstances causes a CGT event to occur. For example, you don’t buy a replacement asset in the required time or you sell the replacement asset.

For more information about capital gains tax visit the ATO. To discuss questions about capital gains or losses in relation to your business call the CVW Accounting office today on 9219 1300.