Can I claim small business CGT concessions when I sell shares?

CGT concessions on sale of shares

Most people know about the 50% capital gains tax discount you can get when you sell an asset that you have held for 12 months or more.

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Not as many people know about the 4 small business concessions under section 152 of the ITAA97 that you can use in conjunction with the 50% discount to either eliminate your capital gain to $0, further reduce it  by 50% or defer it for up to 2 years.

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This can apply to all CGT assets if the eligibility criteria are met, but for this article we will focus on the sale of shares only.

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Eligibility Criteria

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You will have to satisfy the small business entity test or the maximum net asset value test.

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For the small business entity test your business turnover will have to be less than $2 million ex GST. If you don’t pass this test you can try with the MNAV test in which the net market value of your assets will have to be $6 million or less. It is crucial that you are running a business of some description, you cannot be a regular employee with no business activity.

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Note that for both of these tests you will have to also include figures from connected entity’s (Where you own at least 40% of them) and affiliated entities (Who act in accordance to your wishes).

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Special conditions for sale of shares

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152-10(2) sets out additional criteria to meet to be able to claim the CGT concessions on the sale of shares as an individual.

1. Do you have a 20% stake in the company whose shares you are selling, or do you have a spouse that owns at least 20% of those shares?
2. Does the company being sold satisfy the small business entity test, meaning it earns less than $2 million or has less than $6 million in Net assets?
3. Are the company’s assets whose shares are being sold mostly (at least 80%) made up of CGT assets such as goodwill or property used in business?

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If the above points are true along with other details such as holding the shares as an active for at least half the time you have owned them, then you may be eligible to apply the small business CGT concessions to your share sale, substantially reducing or eliminating your CGT liability.

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CGT concessions that can potentially be applied to your share sale

After applying the 50% CGT discount you can then apply a combination of the following CGT concessions:

• 15-Year exemption
• 50% active asset reduction
• Retirement exemption
• The small business rollover

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Small business CGT concessions can get complicated, especially where there are interposed entities such as companies and trusts between the taxpayer and the object company in which shares are being sold.

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For help on these matters contact the team at CTK Accounting. 

CTK Accounting is a registered CPA and tax agent accounting firm based in Wollongong, one hour south of Sydney, servicing clients Australia wide.