Capital Gain Tax Concessions for Small Businesses

This assignment details the capital gain tax (CGT) concessions available to small businesses in Australia. The discussion focuses on the active assets test, basic conditions for the small business CGT concessions, and the application of these concessions to a given scenario. The recommended concessions include the 50% reduction, retirement exemption, and rollover concession, which are available to the parties due to their age and asset ownership. The reference section provides links to online resources for further information.

CAPITAL GAIN TAX

Table of Contents
CAPITAL GAIN TAX...............................................................................................................1
1. Active assets and small business CGT concession.............................................................1
2. Application of the tax concession into the given scenario.................................................2
3. Recommended concession & reasons................................................................................2
REFERENCES...........................................................................................................................3

CAPITAL GAIN TAX
Capital Gain Tax (CGT) is a tax that is levied on the profit obtained from the sale of a
capital asset.
1. Active assets and small business CGT concession
Capital Gain Tax (CGT) is a tax that is levied on the profit obtained from the sale of a
capital asset. Australian CGT tax rules presents that an assets will be qualified as an active
asset only, if it has been used in the business for at least half of the total ownership (Active
assets test, n.d.). In the given case, the Australian division of Coffee Lovers was running
continuously by Mickey & Sally, hence, it is viewed that condition of active assets is
satisfied. As per the ATO’s CGT rules for small businesses, there are certain concessions
available to the party for which they do not need to pay CGT on the profit gained on the
disposal of assets. There are three fundamental criteria set for qualifying concession, out of
theses, one needs to be satisfied, mentioned below:
 Small business with an aggregate yearly turnover below $2 million
 Net assets excluding personal property is above $6 million
 Assets have been used in the small business (Basic conditions for the small business
CGT concessions, n.d.)
If anyone satisfied any one of the above mentioned conditions, then he or she can get
4 tax concessions on the capital gain received from the disposal of an active asset utilized in
the business. In the mentioned case, Mickey & Sally generates an annual turnover worth $1.3
million below $2m therefore, it becomes clear that they are eligible for following tax
concessions, mentioned below:
 15-year exemption: If the owner has continuously owned the assets for 15 year and it
is an active assets means it must be in the actual use for at least half period of
ownership & owner age is 55 year or more than he or she can dispose-off the assets
without being part of CGT assessment (Edevane, 2013).
 50% reduction in assets: Apart from 50% CGT discount for having ownership of the
assets for 1 year or more, 50% CGT can be reduced additionally.
 Retirement exemption: This concession states that maximum limit of CGT exemption
for the lifetime is $500,000 (Small Business CGT Concession. n.d). If the owner is
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under the age of 55 years then it is mandatory requirement to deposit the exempted
money into either a retirement saving account or a super fund.
 Rollover: Disposal of an active asset provides right to the party to defer it’s entire or a
portion of CGT for time duration of 2 years or longer for replacement or if additional
expenditures have been made in connection with bringing necessary improvements.
2. Application of the tax concession into the given scenario
In the given case study, it is not clearly stated that whether the Australian division of
Coffee Lovers was running from the last 15 years or not. Besides this, both the owners,
Mickey & Sally aged 32 & 31 did not fulfilled the condition of 55 year or above, hence, as
per this, they cannot sell their business without being part of CGT assessment due to the
absence of 15-year exemption concession.
The Mickey & Sally owned active business assets of Coffee Lovers division located
at Australia; therefore, 50% assets reduction concession is being available to the parties. It
means that they have to pay only 50% of their CGT liabilities to the government.
As per the concession of retirement exemption, an individual can get maximum
exemption on their CGT liabilities of $500,000. Evidencing from the given case, Mickey’s
age is 32 year and Sally’s age is 31 year, henceforth, it is a legal compulsion for the parties to
deposits exempted capital into either a retirement saving account or a super fund so as to
comply with the mandatory obligation. Hence, this concession is available to the parties
(Small Business CGT Concession. n.d)..
The disposal of the Australia located division provides rollover concession to Mickey
& Sally, as per which, they can defer its full or partial CGT liabilities over 2 year.
3. Recommended concession & reasons
From the discussion made above, it becomes clear that Mickey & Sally’s Australia
Coffee Lovers business is considered as an active assets. Its disposal to the Peter & Ryan
provides the small CGT Concession of 50% assets reduction, retirement exemption and
rollover as well. It is because, assets owned for 1 year and both the party’s age is below 55
years. However, the 15-year exemption is not available because age conditions and time
period of assets used was not satisfied.
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REFERENCES
Online
Active assets test. n.d. [Online]. Available through: < https://www.ato.gov.au/general/capital-
gains-tax/small-business-cgt-concessions/basic-conditions-for-the-small-business-cgt-
concessions/active-asset-test/>. [Accessed on 10th August 2017].
Basic conditions for the small business CGT concessions. n.d. [Online]. Available through: <
https://www.ato.gov.au/General/Capital-gains-tax/Small-business-CGT-
concessions/Basic-conditions-for-the-small-business-CGT-concessions/>. [Accessed
on 10th August 2017].
Edevane, S., 2013. The Small Business CGT Concession Explained. [Online]. Available
through: http://www.intuit.com.au/r/small-business-tax/the-small-business-cgt-
concession-explained/. [Accessed on 10th August 2017].
Small Business CGT Concession. n.d. [Online]. Available through: <
https://www.ato.gov.au/general/capital-gains-tax/small-business-cgt-concessions/>.
[Accessed on 10th August 2017].
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