Small Business CGT Concessions Overview

Selling a business, or a major business asset, is often the largest financial event of an owner's life — and without planning, capital gains tax can take a serious bite out of the proceeds. The small business CGT concessions exist for exactly this situation, but they are among the most technical rules in the tax system, and eligibility is never automatic.

The four concessions

If the basic conditions are met, four separate concessions may be available, and some can be stacked:

• 15-year exemption — the gain can be fully disregarded if the asset has been owned continuously for at least 15 years and the owner is 55 or over and retiring, or is permanently incapacitated.
• 50% active asset reduction — reduces the remaining gain by half, on top of the general 50% CGT discount where that applies.
• Retirement exemption — exempts gains up to a lifetime cap of $500,000; if you are under 55, the exempt amount must be paid into superannuation.
• Rollover — defers the gain if you acquire a replacement active asset within the allowed window.

Who can use them

Before any concession applies, the basic conditions must be satisfied. Broadly, the business must have aggregated turnover under $2 million, or the net value of relevant assets (including those of connected entities and affiliates) must not exceed $6 million. The asset must also pass the active asset test — generally, it must have been used in carrying on a business for more than half the ownership period. Selling shares in a company or units in a trust adds further conditions again.

What we commonly see go wrong

• Assuming eligibility without testing it — the $6 million net asset test counts assets of connected entities and affiliates, which catches many owners by surprise.
• Applying the concessions in the wrong order — capital losses and the general CGT discount come before the small business concessions, and the sequence changes the result.
• Missing the superannuation contribution step of the retirement exemption for owners under 55.
• No contemporaneous valuations or working papers to support the net asset position at the time of the sale.

A worked example

Say a business owner sells goodwill for a capital gain of $800,000 and meets the basic conditions. As an illustration only: after the general 50% CGT discount the gain is $400,000, and after the 50% active asset reduction it is $200,000. That remaining amount may then be dealt with under the retirement exemption or the rollover — subject to the caps and conditions, and every case turns on its own facts.

When to get advice

The critical time is before contracts are signed, because the date of the CGT event and the asset position on that date drive eligibility. Restructuring, repaying loans or moving assets after a deal is agreed rarely fixes a failed condition. These concessions are also a known ATO review area, so the working papers matter as much as the outcome.

Do the small business CGT concessions apply to any asset I sell?

No — the asset must be an active asset used in carrying on a business, and the basic conditions must be met at the time of the CGT event. Passive investments such as rental properties generally do not qualify.

Can I combine more than one concession on the same sale?

Often yes — the concessions are applied in a set order after capital losses and the general CGT discount, and the combination chosen can change the outcome. It is worth modelling the options before the sale, not after.

Does the 15-year exemption require me to fully retire?

The CGT event generally needs to happen "in connection with retirement" (or permanent incapacity) for owners 55 or over. A significant reduction in working hours can be relevant, but it is a facts-based test rather than a bright line.