If you are a small business owner and sell an asset that you owned for at least 15 years before the sale, you may qualify for the capital gains tax (CGT) 15 year exemption rule.
Under this rule, you are not liable for the capital gains tax provided that you or the business:
- meets the basic conditions for CGT small business relief, and
- satisfies the CGT 15 year exemption rule.
Small Business Relief
To qualify for CGT small business relief, the following four conditions must be met:
- A CGT event must happen to an asset you own. Typically this is the sale of the asset, but it could also be a capital payment for shares, creating a trust over a CGT asset, transferring a CGT asset to a trust and ceasing to be a member of a wholly owned group after a rollover, among other events.
- The CGT event needs to result in a capital gain.
- The asset needs to be classified as active for at least half of the period from the time it was acquired to the time the CGT event occurred. An asset is active if it is used in the course of carrying on a business.
- One or more of the following must also apply:
- Prior to the CGT event, the net value of the CGT assets of your entity is less than $6 million. This must include any connected entities, or
- The business is a small or medium business entity for the income year. Generally, this means that it had and aggregate annual turnover of less than $2 million, or
- The asset is an interest in an asset of a small business partnership of which you are a partner. If the asset is a passively held asset, certain other conditions must be satisfied.
The CGT 15 Year Exemption Rule
To satisfy the requirements of the 15 year exemption rule, the taxpayer must have owned the asset that is to be sold for the 15 years preceding the CGT event and:
- If the taxpayer is an individual, he or she must either be over the age of 55 at the time of the event and it must be related to retirement or the individual must be permanently incapacitated and no longer able to work.
- If the taxpayer is a company or trust, it must have had at least one “significant individual” for at least 15 years during which it owned the CGT asset. It does not matter if the significant individual is a different individual during the 15-year period.
- A significant individual must hold 20 percent of the company or trust and either be older than 55, with the event related to retirement, or be permanently incapacitated at that time of the CGT event.
The rules for this exemption are complicated, particularly when it comes to passive and intangible assets. If you have any questions or concerns, please contact Commercial Associates on 02 9299 1200 or click Email Firm below to arrange a complimentary discussion with one of our expert advisors.