Honest Harry recently retired, aged 60, and as a result sold his car yard in June 2025 for $2 million. He purchased the car yard in 2014 for $500,000.

His accountant has verified that he qualifies for the small business concessions.

What amount will be included as a capital gain when he lodges his tax return?

Question

Honest Harry recently retired, aged 60, and as a result sold his car yard in June 2025 for $2 million. He purchased the car yard in 2014 for $500,000.

His accountant has verified that he qualifies for the small business concessions.

What amount will be included as a capital gain when he lodges his tax return?

BlackTom AI · Accepted Answer

Capital gain = sale price − cost base = $2,000,000 − $500,000 = $1,500,000.

Relevant knowledge points:
- An individual who holds a CGT asset for more than 12 months is eligible for the general 50% CGT discount (Subdivision 115‑A).
- Small business CGT concessions include the 50% active asset reduction (reduces a capital gain by 50% for eligible active assets) and the retirement exemption (which can exempt an amount up to the lifetime cap of $500,000 per individual when the owner is retiring or satisfies the contribution conditions).
- The taxpayer must meet the small business eligibility tests (the question states he qualifies) and the retirement exemption rules (owner aged 60 and retiring qualifies without needing to route proceeds into superannuation).
- The 15‑year exemption (full exemption for owners 55+ who retire and owned the asset for 15+ years) does not apply here because the asset was owned from 2014 to 2025 (11 years).

Step-by-step calculation and reasoning:
1. Compute the raw capital gain: $2,000,000 − $500,000 = $1,500,000.
2. Apply the general 50% CGT discount (asset held > 12 months): $1,500,000 × 50% = $750,000 remaining gain.
3. Apply the small business 50% active asset reduction (eligible as it was an active business asset): $750,000 × 50% = $375,000 remaining gain.
4. Apply the small business retirement exemption up to the lifetime cap of $500,000. The remaining gain $375,000 is fully covered by this $500,000 cap, so the entire remaining gain is exempt.

Why the correct answer is “None”:
After sequentially applying the general 50% discount, the small business 50% active asset reduction, and then the retirement exemption (lifetime cap $500,000), the entire capital gain of $1,500,000 is reduced to zero for tax purposes. The 15‑year full exemption is not needed and in any case does not apply (ownership <15 years), but the retirement exemption plus the reductions are sufficient.

Why other options would be incorrect:
- Any answer that reports a positive included gain ignores one or more of the applicable concessions (general 50% discount, 50% active asset reduction, or the $500,000 retirement exemption).
- The 15‑year exemption is not available, so answers relying on that full-exemption route would be incorrect.

Conclusion: The amount to be included as a capital gain on his tax return is None. This matches the provided answer.

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