Capital gains tax tips: what concessions can you get?

You’ve sold your commercial property and now you need to work out just how much capital gains tax you are likely to face.

It’s an issue that can baffle even the most experienced business owners.

We asked Mark Chapman, Head of Tax with Taxpayers Australia, what business owners can do to reduce the amount of capital gains tax they pay.

He says that if the property has been held for more than 12 months, the amount of a capital gain can be discounted by 50% for individuals and trusts or by 33 1/3% for certain superannuation funds. The capital gains tax discount is not available where the capital gain is incurred by a company.

“If the property was acquired before 20 September 1985 (when capital gains tax was introduced), there would not generally be a capital gains tax liability (subject to certain integrity rules),” he says.

Chapman says there are a number of capital gains tax concessions that can apply to small businesses where capital gains on business assets are incurred.  To qualify, taxpayers must meet a number of basic conditions.

“So long as those conditions are met, you can apply for as many concessions as you’re entitled to until the capital gain is reduced to nil.”

Chapman says the four concessions available to small businesses are:

1. Small business 15-year exemption

No assessable capital gain arises when selling a business asset that has been owned for 15 years and you are aged 55 years or over and are retiring or if you are permanently incapacitated.

2. Small business 50% active asset reduction

You can reduce your capital gain on a business asset by 50%.

3. Small business retirement exemption

A capital gain from the sale of a business asset will be exempt up to a lifetime limit of $500,000. If you’re under the age of 55, you must pay the exempt amount into a complying superannuation fund or retirement savings account.

4. Small business roll-over

You can defer your capital gain on a small business asset for two years, sometimes longer.  Under this method, you don’t include the gain in your income until the gain is crystallised by a change in circumstances. Typically, this would be the failure to buy a qualifying replacement asset within the two year time-frame.

Chapman says capital gains tax can be a complex subject and this article is intended to give only a basic overview.  For more detailed advice and planning, it is essential to consult an experienced tax professional.

Read more about capital gains tax for commercial properties.