
Frustrated with your current rate of progress? Here are seven types of busy that could hold you up, plus tips on overcoming them. Which one are you?
Frustrated with your current rate of progress? Here are seven types of busy that could hold you up, plus tips on overcoming them. Which one are you?
For the second time in 2022, the government of the day has delivered a Federal Budget. Last night’s Budget was the first delivered by the new Labor government that was elected in May 2022.
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Talking to your employer about setting up an arrangement to “sacrifice” some of your pre-tax salary could potentially lower your tax bill – and boost your retirement nest egg.
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The Government is continuing to tighten the eligibility rules for claiming tax concessions relating to small business capital gains tax (CGT) obligations.
If you qualify, these concessions can have a big impact on how much of the profit from the sale of a business asset you get to keep, and how much goes to the taxman.
Given the generous nature of the concessions, the ATO is keen to ensure they are used appropriately.
Selling an income-producing asset such as property, business equipment or shares at a profit, will create an assessable capital gain. This capital gain is then used to calculate your CGT obligation, which forms part of your annual income tax bill.
Business owners are permitted to use several tax concessions to reduce their CGT obligation, but the eligibility rules can be tricky to navigate.
A new tax determination (TD 2021/2) has further tightened them by clarifying that companies carrying on a business whose only activity is renting out an investment property are not eligible to claim the CGT concessions when the property is sold.
Although this ruling is a big loss for some property investors, it’s worth remembering that if you do qualify, these concessions can substantially reduce – or even eliminate – the CGT payable on the sale of business assets.
The four small business CGT concessions are in addition to the normal 50 per cent general discount on CGT applying when you have owned an asset for more than 12 months.
Generally, the concessions apply to any asset your business owns and eventually sells at a profit, provided your annual turnover is under $2 million.
The four small business CGT concessions are:
If your business turnover is over $2 million but under $10 million, you may be able to use the small business restructure rollover concession. This permits the transfer of active assets – including CGT assets, trading stock and depreciating assets – from one business entity to another without incurring an income tax liability.
You can apply for as many of the four special CGT concessions as you are entitled to. In some situations, this can reduce your capital gain to zero. Before applying, you need to meet the basic eligibility conditions for the CGT concessions.
As the release of TD 2021/2 shows, the government regularly tightens the eligibility criteria for these concessions, so if you plan to take advantage of them, ensure you check the qualifying requirements carefully – or speak to us – as the process is quite complex.
Put simply, you must satisfy four basic conditions applying to all the concessions and then check if you meet the additional eligibility rules applying to each CGT concession.
The first condition requires you to be either a small business entity (SBE) with an aggregated turnover of less than $2 million; not carrying on a business but have a ‘passively-held asset’ used in the business as a connected entity; a partner in an SBE partnership; or satisfy the maximum net asset value ($6 million) test.
In addition, the business asset you are disposing of must satisfy the active asset test. If the asset is a share in a company or an interest in a trust, it must meet additional conditions.
The final step covers assets related to membership interests in a partnership. Each step must be considered in the set order before moving to the eligibility criteria for the individual concessions.
If you would like more information about the tax implications surrounding the disposal of your business assets, call us today.
The tough trading conditions resulting from COVID-19 mean Nasir has decided to downsize his trucking business. He sells an active asset, which is a haulage vehicle he has owned for four years. As a result, he makes a capital gain of $80,000.
At the same time, he makes a separate capital loss of $10,000 when he sells another smaller piece of equipment.
As Nasir satisfies all the eligibility conditions for the normal CGT discount and the small business 50% active asset reduction concession, his capital gain position for these assets is:
Capital gain | $80,000 |
Capital loss | $10,000 |
Take the capital loss away from the capital gain | $70,000 |
Apply 50% CGT discount ($70,000 x 50%) to the remaining capital gain | $35,000 |
Apply 50% small business active asset reduction ($35,000 x 50%) to the remaining capital gain | $17,500 |
Reduced capital gain | $17,500 |
Nasir may be able to further reduce his $17,500 (reduced) capital gain if he satisfies the conditions applying to both the small business retirement exemption and the rollover concession.
* This case study is for illustrative purposes only. Please seek advice for your specific circumstances.
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