Generous CGT concessions available but conditions apply for companies only renting out investment properties
3 March 2021
If you are selling a small business that has an aggregated annual turnover under $2 million or with net assets equal to or less than $6 million, you may be able to receive generous small business Capital Gains Tax (CGT) concessions provided you satisfy certain other conditions.
The CGT concessions you may be able to access include:
Full exemption of capital gains.
Partial $500,000 exemption of capital gains.
Rollover of capital gains.
50% discount on the capital gains.
However, one of the conditions to qualify for these small business CGT concessions is the asset sold must be an active asset or, in other words, an asset owned by the taxpayer and used in the business.
Although the ATO acknowledges in TR 2019/1 that a company, and not an individual, partnership or trust, may be considered to be carrying on a business in a general sense, if the company’s only or main activity is to derive rental income from investment properties, according to TD 2021/2, the asset cannot be an active asset because assets whose main use is to derive rental income are specifically excluded from being active assets (see s152-40(4)(e) of the Income Tax Assessment Act 1997).
Therefore, where the only or main activity of the company is to rent out investment properties and these investment properties are then sold, such a company would not qualify for the small business CGT concessions on the sale of such investment properties because the investment properties are not active assets.
However, if the main activity of the company was not to rent out investment properties, and/or deriving rent from investment properties was only temporary, such investment properties may be active assets of the business (TD 2006/78).
If your company is renting out investment properties and you require assistance determining whether you may be able to qualify for the small business CGT concessions on the eventual sale of those properties, please speak to your adviser or get in touch with the Findex Tax Advisory team.