Capital Gains Tax concessions upon the death of a business owner
Having a loved one pass away is very difficult. If your loved one had their own business and now the business has been passed on to you, there will be a change of ownership of the business. A change of ownership is considered a Capital Gains Tax event where you may have to pay taxes upon becoming the new owner of the business. However, there are capital gains tax concessions that you may be entitled to where you may not have to.
When is capital gain or loss disregarded?
Your ownership as the legal personal representative (LPR) of the deceased, or as the beneficiary, or as the surviving joint tenant will start on the date of death of the business owner.
Any capital gain or loss from acquiring a business as is any capital gain or loss that you make as the LPR is ignored when the asset passes to a beneficiary in the estate. In addition, any capital gain or loss that is made as a result of the asset being received by a surviving joint tenant is disregarded.
Normally, the cost of the asset when it was bought and other costs associated with acquiring, holding and disposing of the asset (cost base) would be transferred to you. However, if the asset was obtained before 20 September 1985, the current market value of the business will be used.
Essentially, with the disregarding of any capital gain and transferring the cost base upon the death of the owner, any recorded profit that resulted from owning the business will be deferred until a later sale of the asset.
Conditions of the CGT concessions
As the legal personal representative or the beneficiary, you will be eligible for CGT concessions if the business is sold within two years from the date of death of the original owner. However, you can request an extension of time with the Australian Taxation Office (ATO) as they may allow an extension.
Furthermore, if the deceased sold their assets immediately before their death, the assets will qualify for the small business capital gains tax concessions. These CGT concessions are also applicable to the beneficiary of the deceased’s estate.
The CGT concessions would also be available to the trustee of a trust mentioned on the will of the deceased, a beneficiary of that particular trust, and the surviving joint tenant if any as long as these conditions are met.
As for the retirement exemption, you don’t need to pay the amount into a super fund even supposing your loved one was 55 years old or younger at the time of their death.
Furthermore, you can also use the 15-year exemption if the business was continually owned as an active asset for 15 years and the deceased was 55 years or older when they passed away. Doing this will ensure you won’t have an assessable capital gain if you decide to sell the asset or business.
Disclaimer: Note that this information is general in nature. Requirements may differ depending on your situation.Also, Taxation, Superannuation, and business rules are constantly changing.
If you need more assistance or clarification, seek out advice from a Chan & Naylor tax specialist.