In a recent notice on its website, the ATO listed a range of tax concessions on capital gains available to small businesses that arise on the disposal of business assets.
Such concessions could include the 15-year exemption, the 50 per cent active asset reduction, the retirement exemption and the small-business rollover.
APPLYING THE CGT CONCESSIONS CORRECTLY
The ATO suggested ways for small businesses to manage risks around CGT concessions.
It advised to retain documentation for each CGT asset for which the small business CGT concessions were claimed, and ensure to document details such as the asset you sold, the date on which you sold it, the sale price, the date on which you purchased it and who the buyer was.
If there are any affiliates or connected entities, businesses should analyse how this has affected the application of the concessions.
The ATO also said it was worthwhile for businesses to get an independent third-party valuation of the relevant assets where they were sold to a related party or connected entity.
If there was an earn-out clause or equivalent in the contract of sale, the ATO recommended businesses to get a third-party valuation of the earn-out.
Further, the ATO reminded businesses to keep records that show how they satisfied the conditions for the small-business CGT concessions.
“If the small-business entity test was met, show how you determined your aggregated turnover,” the ATO said.
“If the maximum net asset value test was met, record details of the net market value of assets connected with yourself and the business and those of any affiliates and connected entities just before the CGT event.”
In cases where the CGT asset disposed of was shares in a company or an interest in a trust, the ATO added that further details need to be kept, such as the full name and date of birth of each CGT concession stakeholder and their participation percentage.
In addition, if a business is required to roll over an amount of capital gain to their superannuation fund in order to make use of the concession, the ATO said they should ensure that the correct amount is calculated and contributed to their superannuation fund, and that they’ll also need to make a capital gains tax election and provide it to the fund’s trustee.
Source: MyBusiness