What Is Small Business CGT Concession in Australia?

Selling a business, commercial property or another business asset can create a significant capital gain and potentially a substantial tax liability. However, eligible Australian small businesses may be able to reduce or defer some of the capital gain through the small business CGT concessions. Understanding the tax implications early, alongside reliable accounting services, can help business owners make informed decisions before a sale takes place.

These concessions are designed to provide tax relief when qualifying business assets are sold or otherwise trigger a capital gains tax (CGT) event. Depending on the circumstances, an eligible business may be able to reduce a capital gain, disregard it completely or defer it for a period of time.

Understanding the rules before selling an asset is important because eligibility depends on several conditions, including the size of the business, the nature of the asset and how it has been used.

What Are Small Business CGT Concessions?

Small business CGT concessions are special tax concessions available to eligible Australian small businesses. They can apply when a business makes a capital gain from a qualifying CGT asset.

The Australian Taxation Office (ATO) recognises four main small business CGT concessions:

• Small business 15-year exemption
• Small business 50% active asset reduction
• Small business retirement exemption
• Small business rollover

Each concession works differently, and satisfying the general eligibility requirements does not automatically mean every concession will be available.

For example, one business owner may qualify for the 50% active asset reduction, while another may also qualify for the retirement exemption or rollover depending on their circumstances.

Why Do Small Business CGT Concessions Matter?

Capital gains can arise from transactions such as selling a business, commercial premises, business goodwill or certain shares and interests in trusts or companies.

Without appropriate planning, a large capital gain can result in a significant tax liability.

The concessions can potentially reduce the amount of the gain that becomes taxable. This may leave more funds available for retirement, reinvestment, acquiring another business or other legitimate business and financial objectives.

However, these concessions are not automatic tax exemptions. The business and the asset must satisfy specific requirements under Australian tax law.

Who Can Qualify for Small Business CGT Concessions?

The eligibility rules are more detailed than simply being described as a "small business".

Generally, you need to satisfy the basic conditions for the small business CGT concessions. One common pathway is being a small business entity carrying on a business with aggregated turnover of less than $2 million. Alternatively, certain entities that do not meet that turnover test may still qualify under the maximum net asset value test, which has a $6 million threshold.

The ATO also considers connected entities and affiliates when determining aggregated turnover and net asset values. This means a business owner should not assume that only the turnover or assets shown in their own accounts are relevant.

The asset itself generally needs to satisfy the active asset test. Additional conditions can apply where the CGT asset is a share in a company or an interest in a trust.

Because the rules can become complicated where multiple businesses, companies, trusts or related entities are involved, professional advice should be obtained before relying on a concession.

What Is an Active Asset?

An active asset is broadly an asset used or held ready for use in the course of carrying on a business.

Examples can include business premises, machinery, equipment and goodwill, depending on the circumstances.

The active asset test has specific requirements, including rules about how long the asset must have been held and used in the business.

For many concessions, an asset generally needs to have been an active asset for at least half of the relevant ownership period. There are special rules for the 15-year exemption, where the asset generally needs to have been an active asset for at least 7.5 years of the ownership period.

This is one reason why CGT planning should happen before an asset is sold. The way an asset has been used over several years can affect whether the concession is available.

The Four Small Business CGT Concessions Explained

1. Small Business 15-Year Exemption

The 15-year exemption can be one of the most valuable concessions because an eligible capital gain can potentially be completely disregarded.

Generally, the CGT asset must have been continuously owned for at least 15 years and the other basic conditions must be satisfied.

For an individual, the CGT event generally needs to happen when the individual is at least 55 years old and the event occurs in connection with their retirement, or the individual is permanently incapacitated.

There are additional rules for companies and trusts, including requirements concerning significant individuals.

For example, imagine a business owner has operated a business for more than 15 years and is selling a qualifying business asset as part of their retirement. If all relevant conditions are satisfied, the capital gain may potentially be disregarded under the 15-year exemption.

This concession is highly valuable but also highly conditional, so the ownership history and circumstances should be reviewed carefully.

2. Small Business 50% Active Asset Reduction

The small business 50% active asset reduction can reduce a qualifying capital gain by 50%.

This concession is separate from the general CGT discount.

For example, an individual or trust may potentially apply the general CGT discount first, where eligible, and then apply the small business 50% active asset reduction to the remaining gain. This can significantly reduce the taxable capital gain.

Companies, however, cannot generally use the ordinary 50% CGT discount, although a company may still qualify for the small business 50% active asset reduction if the relevant conditions are met.

The calculation and interaction between different concessions should be reviewed carefully rather than assuming that every available percentage reduction can simply be applied.

3. Small Business Retirement Exemption

The retirement exemption can allow an eligible taxpayer to disregard all or part of a qualifying capital gain, subject to specific requirements.

There is a lifetime CGT retirement exemption limit of $500,000 for an individual. Previous amounts that have been exempted under the retirement exemption can reduce the remaining lifetime limit.

Importantly, using this concession does not necessarily mean the business owner must actually stop working or wind up the business.

If an individual is under 55 immediately before choosing the retirement exemption, the exempt amount generally needs to be paid into a complying superannuation fund or retirement savings account, subject to the relevant rules. If the individual is 55 or older when making the choice, this superannuation payment requirement does not apply.

The rules are different for companies and trusts because payments may need to be made to CGT concession stakeholders.

4. Small Business Rollover

The small business rollover can allow an eligible business to defer all or part of a capital gain rather than paying tax on the gain immediately.

Generally, the gain can be deferred for at least two years. If a qualifying replacement asset is acquired or an existing asset is improved within the relevant replacement asset period, the gain may remain deferred until a later CGT event occurs.

For example, a business may sell one qualifying business asset and use the proceeds to acquire another asset for the ongoing business. If the relevant conditions are satisfied, the rollover may help defer the capital gain.

It is important to understand that a rollover is generally a deferral, not necessarily a permanent exemption. The deferred gain may become assessable later if the replacement asset is sold or certain other events occur.

A Simple Example of How the Concessions Can Work

Suppose an eligible business owner sells a qualifying active business asset and makes a $200,000 capital gain.

If the owner satisfies the relevant requirements, the small business 50% active asset reduction could potentially reduce the gain to $100,000.

If the individual is also eligible for another concession, such as the retirement exemption, further relief may potentially be available.

The actual tax outcome depends on factors including the taxpayer's structure, capital losses, CGT discount eligibility, asset ownership period, active asset status and the specific concession being used.

This is why simply applying a "50% reduction" to a sale price is not an appropriate way to calculate CGT.

How Business Structure Can Affect CGT Concessions

The structure through which a business operates can have a significant impact on CGT planning.

Sole traders, partnerships, companies and trusts can have different tax consequences when business assets are sold. Companies, for example, cannot access the general 50% CGT discount, while individuals and trusts may potentially qualify where the relevant conditions are satisfied.

Companies and trusts can also have additional requirements when accessing certain small business CGT concessions, including rules relating to CGT concession stakeholders and significant individuals.

This is why business accounting and tax planning should not be considered separately when a major business asset or the business itself is being sold.

Common Mistakes to Avoid

One of the biggest mistakes is waiting until after the sale to consider CGT concessions.

Other common issues include assuming that turnover alone determines eligibility, overlooking connected entities, failing to establish whether an asset meets the active asset test, or choosing a concession without considering how it interacts with other available concessions.

Business owners should also keep appropriate records showing ownership, asset use, purchase costs, improvement costs, sale proceeds and other information needed to calculate the capital gain.

Good record keeping can make the process significantly easier when preparing an income tax return and supporting the position taken in relation to a CGT event.

How Professional Tax Planning Can Help

CGT concessions involve detailed rules, and the best outcome is not always achieved by simply choosing the concession that appears to provide the largest immediate reduction.

A professional can review the proposed transaction, business structure, asset history and financial position before the sale occurs.

This is where tax accounting and strategic tax planning can be particularly useful. Reviewing the transaction in advance may identify potential issues and allow the business owner to understand the likely tax consequences before committing to a sale.

For businesses considering a sale, restructure or major asset transaction, obtaining advice early can be much more effective than trying to correct a tax position after the CGT event has already happened.

Conclusion

The small business CGT concessions can provide significant tax relief for eligible Australian business owners when selling qualifying business assets. The four main concessions — the 15-year exemption, 50% active asset reduction, retirement exemption and rollover — each have different eligibility requirements and tax consequences.

The most important point is to plan before the CGT event occurs. Business structure, asset ownership, active asset history, turnover, connected entities and the intended use of sale proceeds can all affect the outcome.

If you are considering selling a business or a significant business asset, professional tax accounting and planning can help you understand the available options and prepare for the associated ATO requirements. The rules are complex, so advice should be based on your specific circumstances rather than a general assumption that a concession will apply.

Also read: 20 Tax Deductions Australians Can Claim in 2026

Frequently Asked Questions

Is the small business CGT concession available to every small business?

No. Being a small business does not automatically make you eligible. You generally need to satisfy the basic conditions and any additional requirements that apply to the specific concession and asset.

What is the small business CGT turnover limit?

A common eligibility pathway is an aggregated turnover of less than $2 million. However, certain businesses may qualify through the maximum net asset value test instead. Connected entities and affiliates can also affect the calculation.

What is the $6 million CGT asset test?

The maximum net asset value test generally requires the total net value of relevant CGT assets not to exceed $6 million immediately before the relevant CGT event. The calculation can involve connected entities and affiliates.

Can I use more than one small business CGT concession?

Potentially, yes. Depending on the circumstances, different concessions can apply to the same capital gain, although there are rules governing how they interact and the order in which they are applied.

Is the small business rollover a permanent tax exemption?

Generally, no. The rollover usually defers the capital gain. The deferred gain can become assessable when certain future CGT events occur, although another concession may potentially be available at that time.