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Are You Eligible for Small Business Tax Concessions?

Are You Eligible for Small Business Tax Concessions?

As a small business owner in Australia, navigating tax regulations can be overwhelming. However, the government offers various concessions to ease this burden and support your growth. 

This article provides a clear overview of three key tax concessions available to eligible small businesses:

1. Small Business CGT Concessions (Turnover less than $2 million)

These concessions offer relief on capital gains tax (CGT) when selling assets used in your business. They include:

  • Small business 50% active asset reduction: Reduce the capital gain on an active asset by 50% (in addition to the CGT discount if conditions are met). Unlike the other small business CGT concessions, the small business 50% active asset reduction applies automatically.
  • Small business retirement exemption: Capital gains from the disposal of active assets may be disregarded up to a lifetime limit of $500,000 per individual, or CGT concession stakeholder for a company or trust
  • Small business roll-over: Defer all or part of a capital gain made from selling an active asset. If you acquire a replacement asset or incur costs on making capital improvements to an existing asset, these gains will be deferred until you dispose of the asset.

Eligibility

  • A CGT small business entity eligibility with an aggregated turnover of less than $2 million
  • Not running a business (other than as a partner) but your asset is used in your affiliate or connected entity’s small business (CGT concessions on passively-held assets)
  • A partner in a partnership that is a small business entity, and the asset is either
    • An interest in a partnership asset (partnership assets)
    • An asset you own that is not an interest in a partnership asset (partner’s assets) but is used in the business of the partnership
  • You meet the maximum net asset value test.

Active assets are assets used, or held ready for use while running a business. 

It must meet these conditions.

The CGT event needs to happen after 7:30 pm AEDT on 8 May 2018 and involve the creation, transfer, variation or ending of your right or interest to either:

  • An amount of income or capital of a partnership
  • An amount calculated by reference to the entitlement of a partner in a partnership to an amount of the partnership‘s income or capital.
  • If the CGT event involved ending your right or interest, it must be a membership interest in the partnership immediately before the CGT event happens. For all other cases, your right or interest must be a membership interest in the partnership immediately after the CGT event happens.

Additional conditions may apply to specific concessions.

2. Small Business Income Tax Offset (Turnover less than $5 million)

This offset reduces your income tax payable by up to $1,000 annually. The offset is worked out based on the proportion of tax payable relating to your total net small business income.

Eligibility

  • You must be carrying on a small business as a sole trader, or have a share of net small business income from a partnership or trust.
  • Your business must have an aggregated turnover less than $5 million for the 2016–17 income year onwards.

3. Small Business Restructure Roll-over (Turnover less than $10 million)

This concession allows you to transfer active assets from one entity to another without incurring an income tax liability.

Eligibility

  • Must be either a small business entity or be affiliated, connected, or a partner in a partnership with a small business entity.
  • Must have an aggregated turnover of less than $10 million.
  • Must be for “active assets” that are capital gains tax assets, trading stock, revenue assets, or depreciating assets.
  • Must be part of a genuine business restructure, not a tax-driven scheme.

This refers to the individuals who, directly or indirectly, own an asset. 

Key Points to Remember

  • Always confirm your eligibility every year before claiming any concession.
  • Maintain records for 5 years to support your claims.
  • Consider seeking professional advice for complex situations.

Source: Australian Taxation Office
Edited & Compiled by Tailored Accounts

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