Small Business CGT Concessions eligibility for selling your business

According to the Family Business Survey 2023, 69 per cent of respondents think it’s moderately important to be prepared for sale within the next 24 months.

So, what concessions should you consider when preparing your family business for sale?

If you have sold or are looking to sell your business, there may be significant Capital Gains Tax (‘CGT’) on the capital gain. However, if you are a family or privately-owned business, you may be able to reduce your CGT through the small business CGT concessions (‘SBCGT Concessions’).

Broadly speaking, there are four SBCGT concessions:

• 15-year exemption – under 15-year exemption, 100 per cent of your capital gain is exempt from CGT, provided you have owned the business for at least 15 years.  
• Small business 50 per cent active asset reduction – your capital gain is reduced by 50 per cent. This concession can be applied together with the general 50 per cent CGT discount (for individuals), the retirement exemption and small business rollover relief (see below). 
• Retirement exemption – capital gains can be disregarded up to a lifetime limit of $500,000. If you are under 55 years, the exempt capital gain must be contributed into a complying superannuation fund or RSA. If you are over 55 years, there is no requirement to contribute the amount to a complying superannuation fund or RSA. You do not need to retire to be eligible for this exemption. 
• Small business rollover relief – you can defer all or part of your capital gain for up to two years. If you do not acquire a replacement asset at the end of two years, you will be taxed on the deferred capital gain.

For resident individuals, the general 50 per cent CGT discount (for assets owned for 12 months or more) can be applied together with the SBCGT concessions.

Provided the eligibility criteria are satisfied, the SBCGT concessions could reduce your CGT significantly and, in some circumstances, disregard it entirely. We have included an example below to illustrate the potential tax savings.  

Case Study

Joe owns 100 per cent of shares in ABC Pty Ltd. He has owned ABC Pty Ltd for 5 years. 

Joe has $5m in net assets, which are comprised of ABC Pty Ltd and other investments. It does not include his personal assets such as his home or superannuation fund. He does not have other ‘connected’ or ‘affiliated’ entities. 

Joe is 30 years old. Joe is considered Australian tax resident.

Joe is looking to sell his shares in ABC Pty Ltd to a third party for $4m. 

Provided the eligibility conditions for the SBCGT concessions are satisfied, Joe could apply the SBCGT concessions to reduce his CGT from the sale of ABC Pty Ltd as follows: 

_{*Joe has not claimed the retirement exemption before and can therefore claim up to the full lifetime limit of $500,000. However, Joe must contribute the exempt amount to his superannuation fund as he is under 55 years.} 

As seen in the example above, the SBCGT concessions could significantly reduce your capital gain and increase your after-tax profit.

Eligibility Criteria

Determining your eligibility for the SBCGT concessions is not always straightforward. There are technical tax questions that might become a barrier to claiming the concessions. Complexities often arise where for example, the asset sold are shares in a company and those shares are owned through interposed entities such as trusts. 

We’re here to help

If you have sold or are planning to eventually sell in the future, it is important you understand how the SBCGT concessions may apply to you and the eligibility conditions you need to be mindful of so you do not inadvertently trip one of the conditions. 

Our team at Grant Thornton is made up of qualified tax experts who can help you navigate the sale of your business and the small business CGT concessions. Please contact our team of experts today if you require assistance.

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