Selling a business or its assets can trigger a significant Capital Gains Tax (CGT) liability. Fortunately, Australian tax law provides four key CGT concessions designed to help small business owners reduce or eliminate this tax burden. Understanding these concessions, along with the eligibility criteria, is essential for effective tax planning and maximising financial outcomes.
Basic Eligibility Criteria
Before applying any CGT concession, your business must meet a few basic conditions to qualify:
The entity making the capital gain must meet one of the following two tests:
- Aggregated Turnover Threshold: Your business, together with any affiliated entities, must have an aggregated annual turnover of less than $2 million.
OR
- Maximum Net Asset Value Test: If your business does not meet the turnover threshold, it may still qualify if the combined net assets of your business and related entities do not exceed $6 million.
Additionally, the asset being sold must be an ‘active asset’. To oversimplify, the asset being sold must have been actively used in the business or held ready for use for at least half of the ownership period.
Whilst there are many complications and exceptions contained in the rules, once it is confirmed the basic criteria are met, you are eligible to access the CGT concessions and plan your tax strategy effectively.
The Four CGT Concessions
Australian tax law provides four main CGT concessions for small business owners:
1. 15-Year Exemption
If you’ve owned the asset for at least 15 years and are retiring (aged 55 or older), you may be able to disregard the entire capital gain. This is the most generous concession, potentially resulting in zero CGT payable. If the asset is held by a company or trust, a significant individual must have held the asset for at least 15 years to qualify.
2. 50% Active Asset Reduction
This concession allows you to reduce the capital gain by 50% on eligible business assets. It applies automatically once the basic conditions are met and can be used in combination with other concessions, providing additional flexibility in tax planning.
3. Retirement Exemption
The retirement exemption allows you to disregard up to $500,000 of capital gains over your lifetime.
- If you are under 55, the exempt amount must be paid into a complying superannuation fund or retirement savings account.
- If you are 55 or older, you can access the exempt amount directly, with no requirement to contribute to super.
This makes the retirement exemption particularly attractive for older business owners looking to access funds tax-free during retirement.
4. Small Business Roll-Over
The small business roll-over concession allows you to defer the capital gain for up to two years, or longer if you acquire a replacement active asset or make qualifying improvements. The gain only becomes taxable when the replacement asset is sold or ceases to be active, giving business owners flexibility to manage cashflow and investment timing.
Strategic Use of CGT Concessions
These concessions can be combined to maximise tax relief. For example, a business owner might first apply the 50% active asset reduction, then use the retirement exemption on the remaining gain, and finally defer any leftover amount using the roll-over concession. Careful planning allows small business owners to structure asset sales in a way that minimises CGT and supports long-term financial goals.
Tips and Traps
While these concessions can be very generous, there are numerous rules, checks and balances that you are required to tick off before accessing them. Small business CGT concessions are also a high attention area of the ATO which means you need to be equipped with solid advice and ensure eligibility before the ATO conducts a review. Timing is crucial here, do not leave it until it is time to lodge a tax return, seek advice as soon as you are thinking of selling.
Examples of when concessions may apply
| Scenario | Eligible? |
| Selling a residential rental property | No |
| Selling commercial property, no business attached | No |
| Selling commercial property with business renting | There is a chance, let’s talk |
| 10% shareholder selling shares in the business | No |
| 40% shareholder selling shares in the business | There is a chance, let’s talk |
| Company or trust selling the business with turnover of $5ml | There is a chance, let’s talk |
| Company or trust selling the business with the turnover of $1.9ml | There is a chance, let’s talk |
| Business with $10ml turnover transferred from parents to kids as part of succession planning | There is a chance, let’s talk |
Expert Guidance from Hoffman Kelly
At Hoffman Kelly, we specialise in helping small business owners navigate the complexities of the Australian tax system. Our approach ensures that you can maximise available concessions while maintaining a strong financial foundation.
Whether you are preparing for retirement, considering a restructure, or planning ahead, we provide clear, practical, and stress-free guidance. By working with us early, you can ensure your CGT obligations are managed efficiently and your business strategy is optimised.