If you are planning to sell your business, retire, or bring in a partner by selling part of your stake, the capital gains tax bill can be the single biggest number in the whole transaction. Four small business CGT concessions exist specifically to reduce or eliminate that tax, and used properly they can cut a gain by 75% or more. Get the eligibility wrong, though, and it is exactly the kind of thing the ATO reviews closely after the fact.
The 15-year exemption disregards the entire capital gain if you have owned the asset for at least 15 years, you are 55 or older, and you are retiring or permanently incapacitated. Where it applies, it takes priority over everything else. The 50% active asset reduction cuts the remaining gain by a further 50%, with no age or retirement requirement. The retirement exemption disregards gains up to a $500,000 lifetime cap per individual, again with no requirement to actually stop working. The small business rollover defers the gain if you reinvest in a replacement active asset, generally within two years.
Before any of the four concessions come into play, you need to pass one of two basic tests. Either your aggregated turnover is under $2 million (the CGT small business entity test), or the net value of your CGT assets, combined with any connected entities and affiliates, is under $6 million (the maximum net asset value test). The asset being sold also needs to pass the active asset test: owned as an active asset for at least half the ownership period if you have held it 15 years or less, or at least 7.5 years if you have held it longer than 15 years. An active asset is one genuinely used in running the business, not one held mainly to earn passive rent or interest.
The order matters. A capital gain first gets the general 50% CGT discount (for assets held over 12 months), then the 50% active asset reduction is applied to what is left, then the retirement exemption or rollover can eliminate some or all of the remaining balance. Combining the general discount with the active asset reduction alone can already cut a gain by up to 75%, before the retirement exemption or 15-year exemption is even applied.
If you are under 55 when you choose to apply the retirement exemption, the exempt amount has to be paid into a complying superannuation fund, and a CGT cap election form has to be lodged with the fund by the time you make the contribution. Miss that step and the contribution can instead count against your non-concessional contributions cap, creating a separate problem. If you are 55 or over, there is no requirement to put the money into super at all.
From 1 July 2027, the turnover threshold for the 50% active asset reduction specifically is set to rise from $2 million to $10 million. That change applies only to that one concession. The 15-year exemption, retirement exemption and rollover are staying at the existing $2m turnover / $6m net asset value thresholds for now. If you are selling before 30 June 2027, all of the current thresholds apply as they always have, so it is not something to plan around yet.
Thinking about selling your business, or bringing in a partner, in the next year or two? Book a free call and we will work out which concessions you actually qualify for before you sign anything.
Treating a passive asset as active. An asset held mainly to earn rent or interest generally will not pass the active asset test, even if it sits inside a business structure.
Forgetting connected entities. The $2m turnover and $6m net asset tests include affiliates and connected entities, not just the entity making the sale. This is one of the most common reasons a claim gets challenged.
Applying the 15-year exemption without meeting both conditions. Fifteen years of ownership on its own is not enough. You also need to be 55 or over and retiring, or permanently incapacitated.
Missing the CGT cap election form deadline. If you are under 55 and using the retirement exemption, this form has to be lodged with your super fund at the time of contribution, not sorted out later.
The four small business CGT concessions can eliminate a large part, or all, of the tax on selling your business, but only if you genuinely meet the turnover or net asset value tests and the active asset test, and apply them in the right order. The ATO actively reviews these claims, so it is worth getting the eligibility checked properly before the sale happens, not after.
We help business owners plan the tax side of a sale well before settlement, with fixed fees agreed upfront. Book your free call here.
This article is general information only and does not take into account your personal circumstances. Please seek advice tailored to your situation before acting.
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