Small Business CGT Concessions Explained

Navigating small business Capital Gains Tax (CGT) concessions can materially affect the net proceeds when you sell a business asset. According to reports, there are roughly 2.7 million small businesses in Australia, which make up close to 97% of all businesses, so these concessions are widely used, particularly by families planning for retirement and many of our clients have benefited first hand from the concessions.

Small business CGT concessions reduce tax where a small business disposes of an asset that has increased in value. Eligibility usually requires meeting one of two tests:

Aggregated turnover test: generally less than $2 million, or

Net asset value test: net assets under $6 million (subject to exclusions).

The asset sold generally must be an “active asset” used in the course of the business or held ready for use in connection with it.

The four main concessions

15Year Exemption: If an active asset has been owned for at least 15 continuous years and the owner is aged 55+ and retiring (or permanently incapacitated), the capital gain can be disregarded.

50% Active Asset Reduction: Reduces a capital gain on a qualifying active asset by 50%. This sits alongside the general 50% CGT discount for individuals (held >12 months); statutory ordering rules determine how they interact.

Retirement Exemption: Exempts capital gains up to a lifetime limit. If you’re under 55 when claiming it, the exempt amount generally must be contributed to a complying super fund; if you’re 55 or older you may take it as cash or contribute to super (subject to preservation rules).

Rollover Relief: Allows deferral of a capital gain where sale proceeds are reinvested in a replacement active asset or used to improve an existing qualifying asset (subject to timeframes and conditions).

Lifetime CGT cap

The amount available under the retirement exemption is subject to an indexed lifetime cap — $1.865 million for 2025/26. A $500,000 limit (non-indexed) also applies to CGT cap contributions that relate to the retirement exemption.

Practical examples

15 Year Exemption (Mark): Mark, age 62, sells goodwill and plant for $600,000. The initial cost was $150,000, meaning the capital gain is $450,000. He has owned and used the assets for 18 years and meets the tests, so the $450,000 gain is disregarded under the 15year exemption — no CGT arises.

50% Active Asset Reduction + Retirement Exemption (Erica): Erica, 58, sells equipment for $120,000 bought initially purchased this for $70,000, resulting in a capital gain $50,000. The asset qualifies as active. Applying the 50% active asset reduction reduces the gain to $25,000, and she then uses her retirement exemption to exempt that remaining $25,000.

(These examples assume the relevant active use, ownership and small business tests are met. Ordering of concessions can alter outcomes and should be modelled.)

Why professional advice matters

The concessions can deliver large tax savings but the rules are technical. Key pitfalls include:

Failing the active asset test or not having appropriate evidence of use and ownership dates.

Prior use of lifetime caps which reduces available exemption.

Incorrect ordering of concessions, which changes final tax outcomes.

Superannuation implications and preservation rules when using the retirement exemption.

If you’re considering selling a business asset, have your accountant and wealth adviser model the options together as timing and structure often matter.

Disclaimer: This article is general information only and does not take into account your personal circumstances. Before acting on any information here, consult a registered tax agent and your financial adviser.