The ATO recently reported that small business owners were repeatedly making common mistakes when applying for capital gains tax (CGT) concessions eligibility tests.
A taxpayer may qualify for the CGT concessions if they:
– own a business with an annual aggregated turnover of less than $2 million;
– are involved in a partnership that owns a CGT asset;
– own active business assets that are used by an associated small business;
– satisfy the maximum $6 million net asset value test;
– satisfy the active asset test. This test requires the asset to be active for seven and a half years if owned for more than 15 years, or half the period of the ownership if owned for 15 years or less.
Business owners were recording the settlement date of the CGT event, instead of the contract date. As a result of this error, the asset may not be active for the required period or the 15-year exemption concession may not be applied correctly.
Many businesses struggled with the maximum net asset value test, where a business cannot own more than $6 million at the time the CGT event occurs. The net value is the total market value of a business’s assets and any entities and affiliates connected to those assets. The ATO revealed a prevailing error was the failure to identify liabilities related to the asset. In addition, business owners were also:
– not including the calculation of the CGT asset sold
– valuing assets at historical cost instead of market value, and
– not including calculations for goodwill assets.