Retirement Exemption – CGT Concession for Small Business

There are four capital gains tax (CGT) concessions available for small businesses. The concessions reduce the capital gain on business assets that must be included in a taxpayer’s assessable income.

The four concessions are: small business 15-year exemption, active asset, small business 50% active asset reduction, small business retirement exemption, and small business rollover.

The small business retirement exemption concession can exempt a capital gain on a business asset up to a lifetime retirement exemption limit of $500,000. An individual’s $500,000 limit is reduced by any previous amounts they have chosen to be exempt under the retirement exemption.

To qualify for this exemption the basic conditions that apply to all the CGT small business concessions must be met. These include that the taxpayer is either a small business entity (i.e. turnover less than $2 million, or has net assets less than $6 million).

If you are under 55 years old just before you choose the retirement exemption, then the exempt amount (which is the amount chosen to be exempt so it’s not taxable) needs to be contributed into a complying superannuation fund. The exempt amount must be contributed to the complying super fund prior to the date the tax return that includes the capital gain is lodged with the ATO.

If you are aged 55 or more just before choosing to apply the retirement exemption, then the exempt proceeds do not need to be paid into a superannuation fund.

When applying this CGT small business retirement exemption it is not necessary to actually retire or have any intention to retire.