Money
Issue No. 51 - February/March 2010
Understanding CGT concessions
Various concessions on the sale of assets have been part of the Capital Gains Tax (CGT) regime since its inception in 1985. Initially the concessions were quite limited, but the introduction of the general 50% CGT discount and, more importantly, the small business concessions in 1999, brought about a totally different taxation regime for small business owners selling their businesses or business assets.
Under the small business concessions, eligible owners incurred much reduced taxation upon retirement and, in some cases, no taxation at all. The philosophical underpinning of the concessions was that often, small business owners made little, if any,provision for retirement through the superannuation system – for many, their business assets are their
retirement fund.
When the concessions were first introduced, the law failed to adequately deal with a number of issues. For example, initially a limited range of business structures could be adopted to enable access to the concessions, and particular problems arose with assets held in multiple tier ownership structures. Pleasingly, many of these problems and oversights have been rectified, and access to the concessions enhanced - although some aspects still present challenges.
Four small business concessions are available.These are:
• the 50% active asset concession;
• the retirement concession;
• the 15-year concession;
• the active asset rollover relief.
The concessions focus on retirement. However retirement is only a condition for accessing the 15-year concession, and is not a condition of accessing the other three. This can make the concessions a valuable tool for business restructuring.
In practice, advisers tend to apply the general 50% CGT discount first (if it is available), followed by the active asset concession - using the retirement concession to ‘mop up’ the much-reduced remaining gains.
This approach works well with individua...
