The small business retirement exemption is one of the most valuable Capital Gains Tax (CGT) concessions available to Australian small business owners. The most recent Federal budget has shone a light on the concessions – it can allow eligible business owners to disregard up to $500,000 of capital gains over their lifetime when selling business assets.
How Does the Small Business Retirement Exemption Work?
If you qualify for the small business CGT concessions, the small business retirement exemption allows you to disregard all or part of a capital gain, up to a lifetime limit of $500,000 per individual.
If you are under 55 years of age, the exempt amount generally needs to be contributed into a superannuation fund (e.g. SMSF).
If you are aged 55 or over, the proceeds can usually be retained personally without being contributed to superannuation. Best to contact a business accountant Melbourne to discuss further when the proceeds can be retained and when they need to contributed into superannuation.
Who Can Access the Small Business Retirement Exemption?
To access the small business retirement exemption, you must generally satisfy the small business CGT concession eligibility rules, including:
- The asset being sold must be an active asset.
- The business must satisfy the small business entity test or maximum net asset value test. For example, turnover needs to be less than $2 million or there needs to be less than $6 million in net assets.
- The relevant ownership requirements must be met.
The rules can be complex, particularly where trusts, companies or multiple business owners are involved and require the expertise of a qualified small business accountant.
Example:
John sells his business and makes a capital gain of $400,000.
After meeting the eligibility requirements, he applies the small business retirement exemption, contributes the requisite amount into his SMSF and disregards the entire gain.
As a result, he will pay no tax on the sale, depending on his circumstances and the other concessions available. If your situation is similar to Johns, please speak to your business accountant Melbourne to discuss if this scenario is applicable to you.
Frequently Asked Questions
What is the lifetime limit?
The small business retirement exemption has a lifetime limit of $500,000 per individual.
Do I need to retire?
Despite its name, you do not necessarily need to retire to access the concession.
Do I need to contribute the proceeds to super?
If you are under 55, generally yes. If you are 55 or older, a super contribution is generally not required.
Can the retirement exemption be used with other CGT concessions?
Yes. In many cases, the small business retirement exemption can be used alongside other small business CGT concessions to further reduce tax.
Need Advice?
The small business retirement exemption can provide significant tax savings, but the eligibility requirements are highly technical and mistakes can be costly.
If you are selling a business or business asset, speak with a qualified business accountant Melbourne like Nobel Thomas. At Nobel Thomas, our experienced team of small business accountant professionals can help determine whether you qualify for the concession and develop a tax-effective strategy.
