What is the CGT Active Asset Reduction?


The Active Asset Reduction is one of the CGT concessions available to small business entities. If your CGT asset passes the relevant tests, you can reduce the capital gain of the asset by 50%. For assets such as land/buildings, this can mean big $$$ savings.

To be able to claim this concession you must be a Small Business Entity (SBE) with an aggregated turnover is less than $2,000,000 and pass the Active Asset test.

An asset is an ‘Active Asset’ if:

  • You use the asset, or hold the asset ready for use in the course of carrying on a business; or

  • The asset is an intangible asset connected to the business you carry on;

  • Or either of the above and connected with an affiliate to you, a spouse of child under 18, or an entity connected with you.

Certain assets also cannot be an active asset. For example, an asset which is used to derive rental income (unless rented to an affiliate or connected entity).

Your CGT asset will satisfy the Active Asset test if the CGT asset is an “active asset” over the test period. The test period is the period from when the asset is acquired to the CGT event (or when the business ceased if it ceased within 12 months of the CGT event).

The test is satisfied if:

  • The asset is held for at least half of the period of ownership (if owned less than 15 years)

  • The asset is an active asset for at least seven and a half years (if owned for more than 15 years)

The period of being an “active asset” does not have to be over a continuous period, but rather must accumulate up to the minimum amount needed to pass the test.

Remember, whether an asset can be classified as an “active asset” is dependent on individual case circumstances.

Disclaimer

This information is not to be relied upon without speaking to your accountant, tax agent or financial adviser depending on the advice

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