Capital gains tax (CGT) is a tax on any profit you make when you sell an asset, such as a house or car. When you sell an asset for more than you paid, you stand to make a profit. But how much you make is dictated by how much you paid for that asset compared to the final sale price.
With a federal election in full swing, most Australians will be focusing on what the government’s policy will be for capital gains tax. While there are already various tax concessions available to small businesses, the current government is proposing to do away with them. While a reduction in tax concessions may not be an immediate concern to small business owners, it could have a significant impact on their business in the long term.
The Four Small Business Capital Gain Tax Concessions
- Small business 15-year exemption
If you are a 50 years old owner of a business for 15 years old, you are exempted from CGT. The Australian Government introduced the 15-year exemption for businesses with an annual turnover of less than $2 million. This exemption exempts 75 per cent of any capital gain, or 50 per cent if held for less than 12 months.
- 50% Active Asset Reduction
You will only pay 50% of CGT when you dispose of active assets. The 50% active asset reduction for small businesses has been increased. Small businesses using the small business CGT concessions will be able to claim a 50% active asset reduction for the “active asset” if they have owned and used the asset for less than 2 years. This is currently the case for assets costing $20,000 or less.
- Retirement Exemption
The small business retirement exemption (SBRE) allows small businesses to deduct superannuation contributions they make on behalf of eligible employees. The CGT small business concessions allow small businesses to discount the cost of assets acquired and certain business assets sold in an income year.
- Rollover
For eligible small business income that relates to property, small business rollover is one of the four small business CGT concessions. This concession allows a small business to use one CGT event for multiple assets.
Conclusion
In summary, the CGT concessions for SMEs are an important inducement for them to invest in new capital equipment. For more information about tax CGT concessions visit here in small business capital gains tax CGT concessions.
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