The Capital Gains Tax (CGT) small business concessions are incredibly valuable for small business owners who make a capital gain when selling their business. These concessions can eliminate or reduce the taxable gain, and even make it CGT-free if the gain is contributed to a superannuation fund. One key benefit, often overlooked, is the ability to roll over the gain.
The CGT roll-over concession allows you to defer paying tax on a capital gain for up to two years if you acquire a "replacement asset" within that time. If you don’t reinvest the entire gain in a new asset within the two-year window, the deferred gain will be reinstated and taxed. However, this two-year delay gives you time to think about your options, including deciding whether to reinvest in another business or not.
What’s more, if you're 55 or older, the reinstated gain could qualify for the retirement exemption, which means you can take up to $500,000 tax-free. If you're younger than 55, the gain would need to go into a superannuation fund. The roll-over period could also allow you to reach the age of 55 and take advantage of the retirement concession.
If you acquire a replacement asset but stop using it for business purposes after the two years, the gain will also be reinstated. In this case, you could still access the retirement concession or even roll over the gain again, deferring tax until a later time, potentially all the way until retirement.
For instance, if you sell your gym business and make a capital gain, you can roll over the gain by purchasing new equipment for other gyms you own. If that equipment wears out or is sold, the gain can be rolled over again by purchasing replacement assets. This cycle can continue until you decide to retire and claim the gain tax-free under the retirement exemption.
Given the complexity of tax laws, it’s essential to seek professional tax advice to fully understand and optimise these concessions.
