Capital Gains Tax Relief for Small Businesses in Western Australia
What Is Capital Gains Tax And What Does It Mean For West Australian Businesses?
Capital Gains Tax (CGT) is a critical consideration for small business owners in Western Australia, especially when selling or transferring assets. Understanding the relief options available can significantly impact your financial outcomes.
CGT applies when you sell an asset for more than its original purchase price. The profit, known as a "capital gain," is included in your taxable income.
CGT Relief Options For Western Australians
For small businesses, including those in agribusiness, there are four key CGT relief options under the Income Tax Assessment Act that can help minimise tax liabilities.
To qualify, your business must meet the "small business" threshold, meaning the total net value of CGT assets owned by you, your affiliates, and connected entities is less than $6 million.
Fifteen-Year Exemption
If you’ve held a CGT asset continuously for at least 15 years, you may disregard the capital gain entirely, provided:
You are at least 55 years old.
The CGT event is connected to your retirement or permanent incapacitation.
This exemption is particularly beneficial for long-standing small businesses planning for retirement.
50% Active Asset Exemption
This exemption allows small business owners to reduce the taxable portion of their capital gain by 50%. When combined with other exemptions, such as the general 50% CGT discount for individuals, only 25% of the total capital gain may be subject to tax.
Retirement Exemption
Small business owners can disregard up to $500,000 in capital gains over their lifetime if the proceeds are used for retirement purposes. To access this exemption, individuals must be:
Aged 55 or older at the time of receiving the proceeds.
Retiring as part of the transaction.
This exemption provides a tax-efficient way to transition out of business ownership.
Rollover Relief
If you plan to reinvest the proceeds from a CGT event into replacement assets, you may defer some or all of your capital gains liability. This option is available after applying the 50% active asset exemption and can help maintain cash flow while growing your business.
Why Seek Professional Advice?
Navigating CGT relief options is complex and requires careful planning to ensure compliance with the tax law and optimisation of your financial position. Failing to structure transactions correctly could result in missed opportunities for significant tax savings.
At Granich Partners, we specialise in tax, estate, and succession planning for small businesses in Western Australia. With our in-depth expertise, we ensure your interests are protected and that you maximise the available tax benefits.
Contact us today for tailored advice on CGT relief options and how they fit into your business or estate planning strategy.