As a small business owner, you may find yourself pouring extra funds into your business with the long-term goal of using the proceeds from a sale to secure your retirement. This strategy, especially when combined with various small business capital gains tax (CGT) exemptions, offers substantial financial advantages. Not only can these tax breaks significantly reduce your CGT obligations, but they may also open the door to higher contributions to your superannuation account. In certain cases, small business owners may even qualify to contribute to their super without facing the usual contribution caps, thanks to CGT exemptions. If you're unsure about how to navigate the application process for this exemption, consulting an experienced accountant in Perth can help guide you through the specifics.
How the 15-Year CGT Exemption Works
The 15-year CGT exemption provides a valuable opportunity to avoid paying capital gains tax when you sell an active business asset. However, to qualify for this exemption, certain criteria must be met:
You must meet basic eligibility requirements.
You or a significant individual involved must be:
At least 55 years old and retiring, or
Permanently incapacitated.
The CGT asset must have been owned for a continuous 15-year period, ending just before the sale.
When the sale relates to retirement, it’s essential that there’s a notable reduction in working hours or a shift in business activities. While a full retirement may follow, the exemption can apply if these changes are already in place.
Additionally, specific provisions exist for assets that are owned for 15 years but were transferred under certain circumstances, like a relationship breakdown or involuntary asset disposals.
To successfully apply for the 15-year exemption, it’s essential to work with a business advisory service or a skilled tax accountant such as Symmetry Accounting & Tax. The right expert can assist in ensuring you're meeting the required criteria to benefit from this concession.
Special Considerations for Involuntary Asset Transfers and Relationship Breakdowns
While the standard rule requires you to hold a CGT asset for 15 years to qualify for the exemption, there are some notable exceptions. If the asset was acquired through a rollover provision after being compulsorily acquired, destroyed, or lost - or transferred due to a relationship or marriage breakdown—special rules apply:
You may count your former spouse’s ownership period towards the 15-year requirement.
If the asset was transferred to you due to a compulsory acquisition or loss, you can begin your 15-year ownership period from the date you received the replacement asset.
These adjustments ensure that you don't miss out on the benefits of the 15-year exemption due to uncontrollable circumstances.
How Long Do You Need to Keep CGT Records?
After disposing of an asset, the Australian Taxation Office (ATO) requires that you keep detailed CGT records for five years unless you maintain an asset register. If you find this challenging, it's worth enlisting bookkeeping services in Perth to ensure your records are up-to-date and compliant.
The CGT asset register contains all the necessary information about your CGT assets. Once you’ve entered this data and received certification, you can discard your CGT records five years after obtaining a certified asset register entry. Make sure the register is certified by an authorized individual and meets ATO requirements.
Conclusion
To fully leverage the small business CGT 15-year exemption, it's crucial to understand the eligibility requirements and application process. If you're looking to claim this exemption and maximise your retirement planning, reaching out to an experienced tax accountant in Perth such as Symmetry Accounting & Tax or seeking business advisory services can help ensure you meet all conditions and avoid unnecessary tax liabilities.
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