By: Max Newnham
There was a lot of good news for small business owners in this year’s federal budget. Increasing the Small Business Entity turnover threshold from $2 million to $10 million will allow more small businesses to access the SBE tax concessions.
As a part of making this announcement there was a clear statement that the $2 million SBE turnover test would remain the same when it came to accessing the small business capital gains tax concessions.
One of the other announcements in this year’s budget, the lifetime limit of $500,000 on non-concessional contributions, could have reduced the effectiveness of the small business CGT 15-year and retirement concessions.
Q. I am 63 and have been operating a small crash repair business for more than 30 years from a factory that I own. I am now considering retiring and my factory has almost tripled in value. I have been told about a capital gains tax exemption that would reduce any tax payable on the sale of the factory, would I be eligible for it and how does it work?
A. There are two ways that an owner is eligible to access the small business CGT exemptions. The first is if the business qualifies as an SBE by having a turnover of less than $2 million, the second is if the net value of the owner’s assets counted under the test are valued at less than $6 million.
Once a person qualifies for the capital gains tax concessions they only apply to active assets, which are those assets used in the conducting of a business. In your case this would include your factory and the value of any goodwill realised on the sale of the business.
If you qualify for the CGT concessions the main one that will apply is the 15 year exemption. Under this exemption where a business asset has been owned continuously for 15 years, the owner is 55 or older, and it is sold as a result of retiring, all of the capital gain is exempt up to a limit of $1.395 million.
If this exemption is not used the active asset discount of 50 per cent can be used to reduce the capital gain made after the general 50 per cent CGT discount. The business owner can then use the small business CGT retirement exemption so that no capital gains tax is payable on the gain up to a limit of $500,000.
Business owners under 55 must contribute they retirement exemption to a super fund, while owners 55 and older don’t have to make a contribution to super. The 15 year CGT exemption contribution and the retirement exemption are classed as non-concessional contributions within a super fund.
There had been concern that the introduction of a new $500,000 lifetime limit on non-concessional contributions could have reduced the effectiveness of these small business CGT concessions.
A spokesperson for Kelly O’Dwyer, the minister for small business and assistant treasurer, has however confirmed that the small business CGT concessional contributions do not count toward the new lifetime non-concessional contribution limit. This means small business owner qualifying for the exemptions could theoretically contribute up to $1.895 million to superannuation upon their retirement.
Source: Sydney Morning Herald
