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Disclaimer

This is not advice. Items herein are general comments only and do not constitute or convey advice per se. The information contained in these articles is for guidance only and should not be relied upon without obtaining professional advice having regard to your direct circumstances.

 

Capital Gains Tax Issues

MAIN RESIDENCE CGT EXEMPTION

The dwelling in which you live will be exempt from CGT if you own it. The term “dwelling” includes a flat, home unit, caravan, house boat or other mobile home and includes the land on which it is built up to a maximum of two hectares.

If you have to leave your home for a period, but intend to return to it (for example, a move interstate or overseas for a few years), you can still claim the exemption provided you are not claiming any other residence as your residence. If you are renting out the premises the period should not exceed six years.

If you purchase vacant land and erect your main residence on it and actually live in the residence for at least three months, you can claim main residence exemption on the vacant land for a period of up to four years.

If you purchase a second home before disposing of the former, both residences can be taken to be the main residence for up to six months.

SMALL BUSINESS CGT EXEMPTION - ACTIVE ASSET

A 50% CGT active asset exemption is available on the disposal of all active assets of small businesses with net assets of up to $5 million.

This measure applies in addition to the 50% discount available to individuals and also in addition to the small business rollover relief or retirement exemption.
If you are an individual operating a small business you may be eligible for:
• The 50% CGT discount on the gain
• The 50% active asset exemption on the balance of the capital gain
• The remaining 25% of the gain can either be rolled over into replacement assets or be applied towards the retirement exemption (limit of $500,000).

The eligibility criteria are as follows:
• The asset must be an active asset (i.e. the asset is used in the course of carrying on your business or in the business of an associate)
• The net value of your group’s CGT assets do not exceed $6 million
• Where the entity disposing of the asset is a company or trust, from 1 July there must be a “significant individual” who has at least a 20% interest in the income or capital of the entity. Up to 30 June 2006 the “controlling individual” test (a 50% interest) applies
• Note that if the asset is a membership interest of an entity, at least 80% of the entity’s total assets must be active assets for at least half of the period that the assets were owned.

CAPITAL GAINS TAX ROLLOVERS

Many CGT rollovers are available, including:
1. Transfer of an asset from an individual, partnership or trust to a wholly-owned company. This rollover is useful if you are reorganising your investment structures.
2. Purchase of a replacement asset from moneys received as a result of the loss, destruction or compulsory acquisition of an asset.
3. The renewal or extension of a statutory license, including licenses granted for broadcasting, taxis, import and export quotas, fishing permits or quotas, oyster farming licenses, milk quotas, wool quotas and liquor licenses.
4. Conversion of ownership of a home unit or apartment into strata title ownership.
5. Exchange of shares in the same company. Allows you to change the share capital structure of your company, perhaps in preparation for introducing a new investor.
6. Interposing a new company. Allows you to interpose a new company between the shareholders and an existing company. This is also useful if you are contemplating introducing a new investor into the existing company.
7. Scrip-for-scrip takeovers. Takeovers of a company can be tax free to the shareholders to the extent the consideration received is shares in the purchaser company.
8. Transfer of all assets from a fixed trust to a company. This is not available for discretionary trusts.
9. Transfer of assets under a marriage breakdown settlement. This must be approved by a court. Although the Government has announced changes to extend this rollover relief.

 


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