How to claim the small business 15-year exemption on a business asset to reduce or disregard CGT.
You will not pay CGT when you dispose of an active asset if all of the following are true:
There are modified rules about the requirement that the asset is continuously owned for at least 15 years for CGT assets acquired:
You must choose to apply the small business 15-year exemption and apply it first.
You do not have to apply capital losses against your capital gain before applying the small business 15-year exemption.
If you make a capital loss from the CGT event, you may use the capital loss to reduce other capital gains.
A company or trust must have a significant individual for a total of at least 15 years of the whole period of ownership of the CGT asset.
The significant individual does not have to be the same individual.
Modified rules - involuntary disposals and relationship breakdown rollover
A requirement of the small business 15-year exemption is that you must have continuously owned the CGT asset for at least 15 years.
However, there are modified rules for CGT assets acquired or transferred under the rollover provisions relating to assets compulsorily acquired, lost or destroyed, or due to marriage or relationship breakdown.
For the purpose of determining whether the 15-year requirement has been met you can choose to:
If you choose to include your former spouse’s ownership period of the CGT asset, that asset is treated as if you acquired it when your former spouse acquired the asset.
If you acquired a replacement asset to meet the rollover requirements for the compulsory acquisition, loss or destruction of a CGT asset, the replacement asset is treated as if you acquired it when you acquired the original asset.
Cesar and Therese are both 65 years old and were married for 30 years. During their marriage, Cesar owned a farm where he operated a dairy farming business.
When Cesar and Therese divorced, the farm was transferred to Therese under the relationship breakdown rollover provisions.
Therese has operated the dairy business for the past 5 years.
Therese decides to sell the farm to retire. She can apply the 15-year exemption because she chooses to include Cesar’s ownership period to determine her ownership and active asset periods.
If you own separate interests in the same CGT asset and sell those interests together, the 15-year exemption applies only to interests in the asset that you have owned continuously for at least 15 years.
The exemption does not apply to any interest you have owned for less than 15 years. This is because interests in an asset acquired at different times are separate CGT assets.
On 1 December 2002, Janet purchased a 40% interest in a 400-hectare parcel of grazing land.
On 1 December 2007, she purchased the remaining 60% interest in the land.
On 15 December 2020 (Janet's 60th birthday), she sold the land and retired.
Janet owned the:
The 2 interests are separate CGT assets and, accordingly, the capital gain made on the sale of the 60% interest is not eligible for the 15-year exemption. It may be eligible for other CGT concessions.
For the CGT event year, if a discretionary trust has no net income (or had a tax loss) and did not make a distribution of income or capital, it may work out the small business participation percentages by focusing on the most recent year in which a distribution was made prior to the CGT event year.
If a capital gain made by a company or trust is disregarded under the small business 15-year exemption, or would have been except that the capital gain was disregarded anyway because the relevant CGT asset was acquired before 20 September 1985, any distributions made by the company or trust of that exempt amount to a CGT concession stakeholder are not:
This applies if certain conditions are met. The conditions are:
Joe is a significant individual of Company X, owning 60% of the shares in the company. Joe's wife, Anne, owns the remaining 40% of shares in the company.
The company makes a capital gain of $10,000, which it can disregard under the small business 15-year exemption because:
6 months after the CGT event, the company distributes the amount of the exempt capital gain to the shareholders. As CGT concession stakeholders, Joe and Anne both qualify for the small business 15-year distribution exemption. The amount that is exempt is calculated as follows:
If it is decided to distribute $8,000 each to Joe and Anne, they can exclude from their assessable incomes for the income year an amount of $6,000 and $4,000 respectively. The balance is likely to be assessable as a dividend.
The beneficiaries of the Malik family discretionary trust are:
Mrs. and Mr. Malik and their 3 children are significant individuals of the discretionary trust and are, therefore, CGT concession stakeholders.
The trustee of the trust sells a CGT asset of the business and makes a capital gain of $50,000. The gain qualifies for the small business 15-year exemption because Mr. Malik is:
In the next income year, the trustee distributes the $50,000 capital gain equally to Mrs. and Mr. Malik, and their 3 children.
As CGT concession stakeholders, Mrs. and Mr. Malik and their 3 children are each able to treat the distribution of $10,000 as an exempt amount.
If you are contributing a 15-year exemption amount to a super fund or retirement savings account (RSA), the amount is generally a non-concessional contribution.
To exclude the amount from your non-concessional contributions cap and have it count towards your CGT cap amount instead, you must notify the fund on the CGT cap election form. You must complete this form by no later than the time you make the contribution.
If you're an individual who disregarded the capital gain under the small business 15-year exemption and you are contributing some or all of the capital proceeds to super, the contribution must be made on or before the later of:
If you receive a 15-year exemption amount from a company or trust, the contribution must be made within 30 days after the entity made the payment to you.
You may be eligible for the small business 15-year exemption if you make a capital gain on an asset within 2 years of a person's death, if that asset is or was part of the deceased individual’s estate, and you're a:
You may also be eligible if you, together with the deceased, owned the asset as joint tenants.
You'll be eligible for the 15-year exemption to the same extent that the deceased would have been just prior to their death, except that:
The ATO can extend the 2-year period. You will need to apply for an extension on a capital gain rollover.
