If you’ve read our the first two instalments of our CGT series, you’ll be aware of the concessions and rollovers available. Depending on your eligibility, there are also two key exemptions that can be applied for: the Retirement Exemption and the 15-Year Exemption.
The Retirement Exemption is designed to provide tax relief for individuals who are retiring or intending to retire and dispose of certain active business assets by allowing eligible taxpayers to disregard or reduce the capital gain from the sale or disposal of their assets.
To be eligible for the Retirement Exemption, you must meet the following criteria:
a) Age Requirement: you must be 55 years or older and retiring or permanently incapacitated.
b) Small Business Test: the assets being disposed of must have been used in a small business.
c) Ownership Period: you must have owned the asset for at least 15 years.
d) Active Asset Test: the asset must have been an active asset for at least half of the ownership period.
e) Maximum Lifetime Limit: there is a lifetime limit of $500,000 on the total amount of capital gains that can be exempted under the Retirement Exemption.
The Retirement Exemption is also available to companies and trusts if the basic conditions are satisfied, the entity satisfies the significant individual test, and the “company or trust” conditions are satisfied.
To apply for the Retirement Exemption, you will need to complete the necessary sections of your income tax return and provide any supporting documentation required by the ATO. It is recommended to seek the assistance of a qualified tax advisor who can guide you through the application process and ensure compliance with all requirements.
The 15-Year Exemption offers relief for individuals who have owned a business for at least 15 years and have continuously owned it throughout that period. This makes all capital gain from the sale or disposal of the business exempt, offering a significant advantage to eligible taxpayers.
To qualify for the 15-Year Exemption, the following conditions must be met:
a) You satisfy the basic eligibility criteria for a small business in relation to Capital Gains Tax Concessions.
b) Ownership Period: you must have owned the business for a continuous period of at least 15 years.
c) You or the significant individual (if company or trust) are 55 years or older, and the event happened in connection with your retirement, or you are permanently incapacitated
The Retirement Exemption and 15-Year Exemption provide valuable opportunities to reduce or disregard capital gains. However, it’s vital to meet the specific eligibility criteria and follow the correct application procedures outlined by the ATO. Both of these CGT exemptions are required to be reported on your income tax return, and you must retain all relevant documents to support your claim.
For the best outcome, it is strongly advised to seek advice from a professional tax advisor, like our team here at PCR. We will assist in assessing your eligibility and submitting your claim to make sure all requirements are met while maximising your tax benefits. For more information about these CGT exemptions, get in touch with our CGT specialists at PCR Accounting & Advisory today.
Owner of PCR Accounting & Advisory, Peter Marmara-Stewart is a top-tier accountant and financial advisor dedicated to helping clients reach their business goals and achieve financial freedom. Peter is highly regarded for his client-focused approach and entrepreneurial spirit, catering to a diverse range of professionals across a wide scope of industries all across the country. Peter’s expertise can help you plan effectively, set goals, maximise profits and protect your assets. Get in touch today on (03) 9847 7516.