The CGT Retirement Exemption Concession: A Major Advantage for Small Business Owners

If you’re running a small business and decide to sell it – or dispose of some of its assets – the Capital Gains Tax (CGT) retirement exemption can be a game-changer. This concession can significantly reduce, or even eliminate, the tax payable on the capital gain.

Interestingly, despite the name, you don’t actually need to retire to use the CGT retirement exemption.

How the Retirement Exemption Works

• Under 55 years of age – The exempt gain must be contributed into your superannuation fund. The good news is that this amount is excluded from the non-concessional contributions cap.
• 55 or older – You can receive the gain directly in your own hands completely tax-free.

For those under 55, there’s also the option of using the CGT rollover concession, which allows you to defer paying tax on the gain for up to two years. This could enable you to reapply the retirement exemption once you reach 55 or older, creating an even better outcome.

The Lifetime Limit

One important restriction is that the retirement exemption has a lifetime cap of $500,000. This applies whether the amount goes into super, is received personally, or is distributed as a stakeholder payment from a company or trust.

By contrast, if you qualify for the 15-year exemption, that concession must be used first and it exempts the entire capital gain, no matter the size – making it even more powerful than the retirement exemption.

Special Rules for Companies and Trusts

When a company or trust makes the capital gain, additional payment rules apply before the retirement exemption can be used. These include:

• Payments to stakeholders must be made within seven days of the company or trust lodging its return.
• Payments do not need to match the stakeholder’s ownership percentage – which opens up excellent tax planning opportunities.

If these conditions aren’t met, the retirement exemption will not be available, so compliance is critical.

Key Takeaways

• The retirement exemption provides up to $500,000 lifetime CGT relief.
• It applies whether gains are taken personally tax-free (55+) or contributed to super (<55).
• When combined with other CGT small business concessions, especially the 15-year exemption, it can deliver substantial tax savings.
• Strict rules apply for companies and trusts, especially around payment timing.

Final Word

The CGT retirement exemption concession can deliver huge benefits, but only if you meet the strict eligibility and timing requirements. If you’re planning to sell your small business, it’s essential to seek advice first. The right strategy will help you maximise tax savings and ensure you don’t miss out on this valuable opportunity.