Date issued: 31 May 2007

There may be significant tax savings for small business owners as a result of changes to the capital gains tax (CGT) laws that apply from 1 July 2007, according to CPA Australia.

CPA Australia senior tax counsel, Garry Addison said the small business CGT concessions are currently subject to certain criteria, such as a $5 million net assets test. One positive change to the law is the increase of this threshold to $6 million.

‘Even if a taxpayer fails the $6 million net market value test after 1 July 2007 it will still be possible for the taxpayer to access the concessions if the turnover of the taxpayer and related entities is less than $2 million per annum. This is great news for small business as there is no equivalent turnover test currently available,’ Mr Addison said.

‘If the eligibility criteria are satisfied, the tax benefits are significant. For example, a full CGT exemption will be available under the concessions where the business asset has been held for 15 years or more, and the taxpayer is either 55 and retiring, or has become permanently incapacitated.

‘Where a business asset has been held for less than 15 years and the eligibility conditions are met, there will be an automatic 50 percent reduction in any gain.

‘Taxpayers may also be able to access other concessions, in addition to the 50 per cent small business reduction, including the $500,000 retirement exemption, and the small business rollover.

‘To further maximise tax savings, a business can be structured so that you can access both the 50 per cent CGT discount and the small business CGT concessions to provide additional opportunities to eliminate or reduce any CGT payable on selling your business.

If you apply the CGT discount and concessions in tandem you could potentially reduce the CGT payable on a business sale to zero,’ Mr Addison said.

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