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Capital Gains Tax for small business

The Australian Tax Office has a number of concessions in place that are designed to assist small business. One of the key areas is in Capital Gains Tax, an often neglected aspect of our countries income tax laws.

When selling your business the ATO has four concessions specifically for small business, that is a business with annual turnover below $2 million p.a., that may apply to your situation, to ease the transition from one business to another or into retirement.

1. Small business 15 year exemption

This concession provides that a capital gain will be totally tax free if you are selling a small business that you have continuously owned for 15 years; and you are 55 years or older and you are selling the business to retire.

2. Small business 50% active asset reduction

This concession allows you to reduce your capital gain by 50% when disposing of an active asset. An active asset is one that is used in the course of carrying on a business. As an example, a rental property is not an active asset, as the act of collecting rent is not carrying on a business.

3. Small business retirement exemption

This concession exempts the capital proceeds of an asset sale up to a lifetime limit of $500,000.00. This is conditional on you being under 55 years of age and you must put an amount equivalent to the capital gain into your superannuation fund.

4. Small business rollover

If you sell your small business you can defer the capital gain to a later time. If you acquire a replacement asset or similar small business within two years of the CGT event then the original capital gain will only apply upon disposal of the replacement asset. The deferred capital gain is combined with the capital gain of the replacement asset when the replacement asset is eventually sold.