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Changes to the CGT concessions for small business – 2006/07 year

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If a small business taxpayer disposes of a business, including goodwill, and is able to use the small business CGT concessions, it can potentially reduce the capital gain to nil!
The small business CGT concessions are:

  • the 50% active asset reduction (which can be used in addition to the 50% discount for individuals and trusts, to effectively reduce a capital gain by 75%);
  • the 15-year exemption (which can entirely exempt a gain on the business held for at least 15 years from CGT);
  • the retirement exemption (which can be used to exempt up to $500,000 worth of capital gains over the life of an individual from CGT); and
  • the small business active asset rollover (which allows a taxpayer to defer paying CGT on a capital gain now, by rolling the gain over into a replacement asset).

The new changes to the small business CGT concessions include:

  • making it easier for small businesses to access the concessions, by making it easier to meet the $5 million net asset value test; ($6million from 1 July 2007)
  • for partners of partnerships, applying the $5 million net asset value test to the value of assets of the individual partners rather than to the partnership as a whole;
  • making it easier for companies and trusts to access certain concessions (e.g., the retirement exemption and the 15-year exemption), by replacing the requirement for there to be an individual with a 50% interest in the entity with a requirement that there be an individual with a 20% interest;
  • allowing a person to gift a business asset and still access the retirement exemption, rather than requiring the asset to be sold;
  • removing the requirement that an asset be 'active' (i.e., a business asset) immediately before it was sold (meaning that the concessions will now simply be available for an asset which was active for the lesser of half of its life, or 7.5 years); and
  • allowing legal personal representatives or beneficiaries of a deceased estate to access the concessions.

For more information on the above, please contact this office.

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