The SMSF Professionals’ Association of Australia (SPAA) Technical Director Graeme Colley says: “The CGT small business concessions are important tools for small business owners planning to retire.
 
“But business owners need to appreciate that the provisions in Division 152 of the Income Tax Assessment Act 1997 (especially the eligibility criteria for the concessions) are complex, and that the conditions that need to be satisfied to secure the concessions must be met just before the relevant CGT event occurs.
 
“These conditions include the small business entity test, the maximum net asset value test, the significant individual test, and the active asset test, highlighting the critical importance of people who are moving into retirement to get professional advice.”
 
Colley says a recent Administrative Appeals Tribunal (AAT) case illustrated the adverse outcome for a small business owner where poor timing when selling an asset increased the taxable income by more than $700,000.
 
“Timing was critical in this case. The taxpayer was selling his share in a business entered into a Heads of Agreement for sale on 7 August 2008 and the final contract of sale for the business was executed just over four months later on 19 December 2008.
 
“The taxpayer used the CGT discount and small business concessions to reduce the $704,129 capital gain made from the business sale to zero.
 
“But the ATO amended the taxpayer’s 2008-09 tax return to include the $704,129 capital gain in the taxpayer’s assessable income on the basis that the taxpayer did not qualify for the CGT small business concessions.
 
“The Commissioner of Taxation contended that the taxpayer did not satisfy the conditions to access the small business concessions at the time of the CGT event, which the Commissioner viewed as being when the Heads of Agreement was finalised, and the AAT upheld the Commissioner’s decision.”

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