A comprehensive guide on which CGT concessions you can and can’t access when considering selling your business.
Selling a business often leads to a significant capital gain, which in turn, means a hefty tax bill. Luckily, there are various CGT (Capital Gains Tax) concessions available that can reduce your CGT by 50% or more.
But what if you own multiple businesses?
If you’re planning to sell multiple businesses in the future, it’s crucial not to delay your tax planning. Reach out to BOA & Co. Financial Group today to book a free investment strategy session.
Am I Eligible for CGT Concessions if I Have Multiple Businesses?
In short, yes—owning multiple businesses does not disqualify you from small business tax concessions. These concessions are based on the size (revenue) and value of your businesses, not the number of businesses you own.
Eligibility Criteria
Several qualifications must be met to be eligible for the small business CGT concessions.
Revenue and Asset Tests
The two main criteria are:
- Revenue Test: Your revenue must not exceed $2 million; OR
- Asset Test: Your net assets must not exceed $6 million.
These tests are conducted on a ‘group basis,’ which includes the revenue or net assets of any entities or individuals connected to you, your business, or your affiliates.
While owning multiple businesses doesn’t automatically disqualify you, it may impact your eligibility based on these criteria. The revenue generated by your other businesses could cause you to fail the threshold tests. Alternatively, the value of assets owned by connected entities might affect your eligibility.
Example
Here’s a practical example:
John owns Business 1 Pty Ltd, producing soaps and personal care products, with an annual revenue of approximately $1.5 million. Business 1 also owns 60% of Business 2 Pty Ltd, a retail store selling products from Business 1 and home decor items, with annual sales of $1 million. Business 1’s sales to Business 2 amount to $200,000.
Now, Business 1 plans to sell the personal care products business and seeks access to small business CGT concessions to reduce their capital gain.
Currently, they can’t pass the $2 million revenue test as their grouped income is $2.3 million. Since Business 1 owns 60% of Business 2, it is considered connected to Business 1, and their income is grouped.
Due to this grouped income, Business 1 can’t pass the $2 million revenue test. They will now consider whether they can pass the $6 million net asset test to access the concessions.
However, if the sales between Business 1 and Business 2 were $750,000 instead of $200,000, Business 1 could pass the $2 million revenue test. The intercompany revenue would be excluded from the grouped revenue calculation, making the total revenue $1.75 million. In this scenario, Business 1 passes the revenue test and can investigate other criteria to access the small business CGT concessions.
Active Asset Test and Other Eligibility
Other criteria state that the asset, in this case, your business, must be an active asset. This means it must have been used in the course of business for:
- 7.5 years continuously; or
- If owned for less than 15 years, at least half its ownership period.
Additionally, if you’re selling shares in a company or units in a trust, other modified rules apply. Consult your financial adviser for detailed guidance.
What Are the Small Business CGT Concessions and Exemptions?
There are different rules within the small business CGT concessions. Provided you meet all the criteria, you may be eligible for some of these concessions:
50% General Discount
The 50% general discount applies to capital gains in general, not specifically to small business CGT concessions. Thus, the revenue and net asset tests don’t need to be passed to access this concession.
You can receive a 50% reduction on your capital gain if:
- You owned the business for 12 months or more; AND
- You’re an Australian resident for tax purposes.
15-Year Exemption
If you’ve owned your business for at least 15 years continuously, you may be eligible for an exemption on the entire capital gain. This exemption applies if you’re over 55 and the sale is connected to your retirement.
Small Business 50% Active Asset Reduction
If you pass either the revenue or asset test, you may be eligible for a 50% reduction on your capital gain. This is applied after any capital losses and the 50% general CGT discount.
Retirement Exemption
You don’t need to be retiring to access this exemption. Instead, the money from your business sale is directed towards your retirement. The retirement exemption allows up to $500,000 of your assessable capital gain to be exempt from CGT if contributed to your super.
If you’re under 55, this amount goes directly into your super. If you’re over 55, you can choose to put it into your super or take it as cash.
Small Business Rollover Concession
With this concession, you can disregard the entire capital gain if the profit is rolled over into a replacement business asset, such as a new business. The initial taxable cost base of your new business is reduced by the rolled-over amount, deferring the CGT to a future date.
To qualify for this concession:
- You must buy the replacement business within 12 months prior to selling; OR
- Within two years following the sale.
If you don’t purchase a new business within this period, the capital gain is assessed as part of that financial year’s income.
How to Apply for Small Business CGT Concessions
Accessing small business CGT concessions is typically done through your tax return. Complete the capital gains income and schedules sections with the relevant information, disclosing the concessions you’ll use.
Some cases, such as the retirement exemption, require additional documentation. You’ll need to provide the relevant documents to your nominated super fund to indicate that your contribution is related to this CGT concession.
The Final Word
You asked, ‘Am I eligible for CGT concessions if I have multiple businesses?’
Yes, you can still access CGT concessions if you own multiple businesses. You’re assessed on the grouped income of your ventures or the combined assets.
Understanding your revenue, assets, and CGT concession eligibility is crucial.
For expert advice on CGT concessions and to ensure you’re maximizing your tax benefits, contact BOA & Co. Financial Group at 1300 952 286, email us at info@boanco.com.au, or visit our website at www.boanco.com.au.