Published on 07 May 2025
When you’re running a small business, selling a business asset can sometimes result in a large capital gain, which means you may face a significant Capital Gains Tax (CGT) bill. Many business owners worry about how much tax they’ll need to pay when they sell a property, equipment, or even their business itself. The good news? There are small business CGT concessions available that can help you reduce, or even eliminate, the capital gains tax you might otherwise owe. In this article, we’ll break down what these business CGT concessions are, who can use them, and how you can take advantage of them to keep more of your hard-earned money.
What Are the Main Small Business CGT Concessions?
Understanding how small business CGT concessions work can make a big difference when it comes to reducing the tax you pay on a capital gain from selling a business asset. The Australian Taxation Office (ATO) has set out four main concessions that small businesses can use, each with its own set of basic conditions and benefits.
These concessions are designed to help small business owners keep more of their money when a CGT event occurs, such as the sale of an active asset. An active asset is one that your business uses in its operations, rather than a personal asset or something held for investment purposes.
The 15-Year Exemption
If you’ve owned an active asset for at least 15 years and you’re aged 55 or over and retiring, or if you’re permanently incapacitated, you may be able to disregard the entire capital gain from the sale. This means you won’t pay any capital gains tax on that asset at all. For example, if you started your business 20 years ago and are now ready to retire, selling your business premises or goodwill under these circumstances could result in a complete exemption from CGT.
The 50% Active Asset Reduction
If you don’t qualify for the 15-year exemption, the 50% active asset reduction can still halve the capital gain on the sale of an eligible business asset. This reduction applies after you’ve met the basic conditions for small business CGT concessions. Combined with the general 50% CGT discount for individuals and trusts who have owned the asset for more than 12 months, you could end up paying tax on only a quarter of the original capital gain.
The Small Business Retirement Exemption
The small business retirement exemption lets you disregard up to $500,000 of capital gains from the sale of business assets over your lifetime. If you’re under 55, the exempt amount must be contributed to your superannuation fund. If you’re 55 or older, you can choose to receive the payment directly or contribute it to your super. This concession is especially useful for business owners planning for retirement, as it allows you to boost your superannuation while reducing your tax.
The Small Business Rollover
The small business rollover concession allows you to defer paying capital gains tax when you sell an active asset and use the money to acquire a replacement asset. The capital gain is not disregarded, but the payment of tax is delayed until a later CGT event-such as when you sell the replacement asset. This can help with cash flow and give you more flexibility to reinvest in your business.
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Who Can Use Small Business CGT Concessions?
While these concessions can be very generous, not every small business is eligible. There are specific eligibility criteria and additional requirements you must satisfy before you can take advantage of these tax-saving options.
Your business must be a small business entity, meaning it has an aggregated turnover of less than $2 million, or the net value of your assets (including those of connected entities and affiliates) must be less than $6 million.
The asset you’re selling must be an active asset, used in your business for at least half the period you’ve owned it (or for at least 7.5 years if you’ve owned it for more than 15 years).
If you’re selling shares in a company or interests in a trust, there are additional requirements, such as the 80% test, which checks that most of the company or trust’s assets are active assets.
The CGT event (such as the sale) must occur during an income year in which you meet these conditions.
It’s important to note that personal assets, such as your family home or car, are not eligible for these concessions. Only business assets that meet the active asset test can be considered.
How Do the Concessions Work Together?
Small business CGT concessions can often be combined, allowing you to reduce your capital gain in stages. For example, you might first apply the 50% active asset reduction, then use the small business retirement exemption for some or all of the remaining gain. In some cases, you might also be able to defer any leftover gain using the small business rollover.
Let’s look at an example: You sell an active asset for a $400,000 capital gain. You apply the 50% active asset reduction, reducing the gain to $200,000. If you’re eligible, you could then use the small business retirement exemption to disregard up to $200,000 of the remaining gain. If you have already used part of your lifetime limit for the retirement exemption, you could defer the rest using the rollover concession by acquiring a replacement asset.
Planning Ahead: Strategies for Small Business Owners
Taking advantage of small business CGT concessions requires good planning and a clear understanding of your circumstances. Here are some practical tips to help you get the most benefit:
Review your business structure and assets regularly to ensure you meet the eligibility criteria for small business CGT concessions.
Keep detailed records of when you acquired each asset, how it was used in your business, and the dates of any CGT events.
If you’re approaching retirement or considering selling, check whether you’re close to the 15-year ownership period or age 55, as this could make you eligible for the entire capital gain exemption.
Consider the timing of asset sales to ensure you meet the basic conditions in the relevant income year.
If you plan to reinvest in your business, think about using the small business rollover to defer tax by acquiring a replacement asset within two years.
Remember that depreciating assets are not eligible for these concessions, so check how each asset is classified.
Common Mistakes and How to Avoid Them
Many small businesses miss out on valuable tax savings because they misunderstand the rules or don’t keep the right records. Here are some common pitfalls:
Not including all connected entities and affiliates when calculating aggregated turnover or net assets.
Failing to show that an asset was actively used in the business, rather than being a personal asset or held for investment.
Applying the wrong date for ownership periods or not meeting the active asset test.
Overlooking the need to contribute the exempt amount to superannuation when under 55 and using the retirement exemption.
Forgetting to consider capital losses, which can be used to offset capital gains before applying the concessions.
Working with Professionals for Peace of Mind
Because the rules around business CGT concessions can be complex, it’s a good idea to work with a qualified tax professional. They can help you check your eligibility, ensure you’re applying the concessions correctly, and keep your records in order. This support can give you peace of mind and help you avoid costly mistakes.
A professional can also help you with the paperwork required for each concession, such as completing the CGT cap election form if you’re making a contribution to superannuation or reporting the right information in your tax return for the relevant income year.
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Conclusion
Small business CGT concessions offer significant opportunities to reduce the tax you pay when selling business assets. By understanding the eligibility criteria, keeping good records, and planning ahead, you can take full advantage of these rules to boost your retirement savings, reinvest in your business, or simply keep more of your money. If you’re thinking about selling an asset or planning for retirement, now is the time to review your circumstances and see which concessions could apply to you.
