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.