Understanding payroll tax

Capital Gains Tax (CGT) issues

Recent changes to the small business CGT concessions have significantly enhanced the benefit of these concessions for eligible small business taxpayers (i.e., those with an annual turnover of less than $2 million or with net CGT assets of not more than $6 million).

CGT concessions

The four CGT concessions available are:

1. Fifty percent active asset reduction—where the basic conditions are met the amount of any capital gain will be automatically reduced by 50 percent.

2. Small business 15-year exemption: this concession fully exempts any gain from CGT if the basic conditions are met, the asset has been continuously held for at least 15 years just before the CGT event, and the individual is either 55 and retired or is permanently incapacitated.

3. The $500,000 retirement exemption provides a once in a lifetime $500,000 CGT exemption where the basic conditions are met, and an individual is either aged over 55, or is under 55 and rolls over the gain as an eligible termination payment to a complying superannuation fund.

4. Small business rollover: this concession is available where the basic conditions are met, and the amount of the gain is used to either purchase a replacement active asset or improve an existing active asset either one year before the sale of the original CGT asset or two years after. Where this concession applies, tax on any gain is deferred until the replacement asset or improved asset is on- sold.

Where a taxpayer does not satisfy the 15-year exemption, he or she may use a combination of the 50 percent active asset reduction, $500,000 retirement exemption, and the small business rollover to reduce any capital gain. With careful tax planning a taxpayer may also be able to use these concessions in combination with the 50 percent CGT discount to further reduce a potential capital gains tax liability.

You should consult your CPA accountant for more detailed advice regarding your particular circumstances.

* Garry Addison is senior tax counsel for CPA Australia (cpaaustralia.com.au).