Many small business owners see their business as their ‘super' and plan to fund their retirement through the sale of their business.

Selling your practice to fund your retirement has its advantages.  The government has generous allowances for eligible small business owners to claim capital gains tax exemptions.  This means that if you sell your veterinary practice, you may be able to receive beneficial tax treatment on the capital gains from that sale.

Capital Gains Tax (CGT) Concessions For Small Business - Overview

What are the CGT concessions?

There are four small business CGT concessions.

§    Small business 15-year exemption

If your business has owned an asset for 15 years and you are aged 55 years or over and are retiring, or if you are permanently incapacitated, you won't have an assessable capital gain when you sell the asset.

§    Small business 50% active asset reduction

You can reduce the capital gain on a business (active) asset by 50%.

§    Small business roll over

If you sell a small business asset, you can defer your capital gain until a later year.  This means you don't include the gain in your income until a change in circumstances causes a CGT event to happen that crystallises the gain - for example, you don't acquire a replacement asset within the required period, or you later sell that replacement asset or stop using it in your business. When a CGT event crystallises the gain you have previously deferred, all or part of the gain that you deferred becomes assessable.

§    Small business retirement exemption

A capital gain from the sale of a business asset will be exempt up to a lifetime limit of $500,000.  If you are under 55 years of age, the exempt amount must be paid into a complying superannuation fund or a retirement savings account to obtain the exemption.

Retirement exemption - capital gains tax concession for small business

This concession can exempt a capital gain on a business asset, up to a lifetime retirement exemption limit of $500,000.  For an individual choosing the retirement exemption, there is no requirement to terminate any activity or cease business.  This concession allows you to provide for your retirement.

There are other capital gains tax (CGT) small business concessions, in addition to this concession, that may also apply to reduce your capital gain.  You can apply as many concessions as you are entitled to until the capital gain is reduced to nil.  This allows you to achieve the best tax result for your circumstances.

There are rules about the order you apply the CGT small business concessions, any current year or prior year capital losses and the CGT discount.

Basic conditions

To qualify for the small business retirement exemption you must satisfy the basic conditions that apply to all the CGT small business concessions.  You must then satisfy the additional conditions that apply specifically to the retirement exemption.

Additional conditions

If you are a sole trader or a partner in a partnership, you can use the small business retirement exemption to exempt all or part of a capital gain if:

the amount you are choosing to be exempt does not exceed your remaining CGT retirement exemption limit.  An individual's lifetime CGT retirement exemption limit is $500,000.  Your $500,000 limit is reduced by any previous amounts you have chosen to be exempt under the retirement exemption.  The amount you choose to exempt is called your exempt amount, and

you contribute the exempt amount into a complying superannuation fund or retirement savings account (RSA) if you were aged under 55 years just before you chose to use the retirement exemption.  If you were aged 55 or more just before you chose to use the retirement exemption, you don't have to pay any amount into a complying superannuation fund or RSA, even though you may have been under 55 years when you received the capital proceeds.

For more information about the basic conditions, see Capital gains tax concessions for small business - overview