Small business tax concessions and mortgage offset account
Due to a recent court decision, small business owners are being urged to have a look at how their home loan account has been structured.
A small business owner has been handed a huge tax bill after the court ruled he was ineligible to access the small business capital gains tax concessions on the sale of his interests in a real estate agency. Small businesses are able to access four small business capital gains tax concessions where their aggregated annual turnover is less than $2 million at the time that the relevant capital gains tax event occurs. If they do not meet this test, they will be subject to the $6 million net asset value test, which applies to the net assets of the business and all their connected and affiliated entities. If they pass this test, they are eligible to access the concessions. The taxpayer in question did not pass the first turnover test, so opted to be classed as a small business entity based on the net asset test. The court has now ruled that he failed this test due to a mortgage offset account his partner used, which was set up as a separate account to the family home loan, rather than combining the two. The mortgage attached to their family home was excluded from the calculations, but as the offset account was separate and in credit, it was included as an asset. If the two accounts were combined, the liability amount would have net off the credit and the taxpayer would have passed the net assets test, and gained access to the concessions.