Are you claiming all your small business tax concessions?

Likewise, if an asset is sold for more than you acquired it, the gain will usually be subject to capital gains tax (CGT). However, if you are a small business entity or you satisfy a net asset value test (i.e., the aggregated value of all your net assets is equal to or less than $6 million), the small business CGT concessions may apply to either eliminate, reduce or defer this capital gain.

From the 2013 income tax year, the small business instant asset write-off threshold has increased from $1,000 to $6,500.

 

 

Also, for motor vehicles costing $6,500 or more², such a small business can claim an immediate deduction of $5,000 plus 15% of the remaining amount (i.e., cost price minus $5,000). 

 

 

The depreciation pooling arrangements (for assets with a cost of more than $6,500) have also been simplified by consolidating the long life small business pool and the general small business pool into a single pool to be written off at a rate of 15% in the first year and 30% in subsequent years.

 

The small business CGT concessions are available to small businesses on both the sale of assets of a business (whether you sell a single asset or all the assets of the business) or on the sale of the entity through which the business is carried on.

 

To qualify for these concessions, you have to satisfy certain basic conditions dealing with:

1. the size of the entity (i.e., the $2 million turnover or $6 million net asset value test); and 
2. the type of asset for which the concession is claimed (i.e., the asset must be an active asset – that is an asset used in the business or used in the business of an affiliate or entity connected with the entity).

Additional basic conditions that will not be discussed further in this article (e.g., CGT concession stakeholder and significant individual test) also apply for shares held in a company or interests in a trust.

 

The table below provides an overview of the four small business CGT concessions (and briefly notes specific additional conditions relating to each individual concession).

 

A further advantage of these concessions is that they can be claimed in addition to (and not as an alternative to) the other available CGT concessions (e.g., 50% CGT discount for non-companies or other rollovers on business restructures). 

The ATO is concerned that entities who are eligible to claim the concessions, do not claim the correct amount and that even entities that are not eligible³ to claim these concessions, still try to claim the concessions regardless of this fact.

 

Therefore, the ATO has been on the warpath against businesses claiming the small business CGT concessions and there has been a marked spike in litigation⁴ on how to calculate which assets and liabilities to include when determining whether the $6 million net asset value test has been breached. 

Claiming the small business CGT concessions can be a very complicated affair, especially in light of the heightened ATO compliance activity in this area. 

 

However, if you are thinking of selling your business, please speak to your Nexia adviser so that we can assist you in determining whether you could qualify for the small business CGT concessions when you eventually sell your business. 

We can also perform a financial health check on your business and assist with any potential succession plans / business exit strategies that you may want to talk about.