Key Takeaways
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There are four concessions, namely the 15-year exemption, the 50% active asset reduction, the retirement exemption and the small business roll-over.
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Eligibility depends on the basic conditions and the requirements of each concession. The $2 million aggregated turnover and $6 million maximum net asset value tests are important entry points, but are not the complete assessment.
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The retirement exemption has a $500,000 lifetime limit per person, and owners under 55 must pay the amount into superannuation.
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Eligible individuals may combine the general CGT discount with some small business concessions. The result depends on the asset, ownership structure and available exemptions.
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Structure, ownership history and contract timing all affect eligibility, so the accountant’s work usually starts before listing.
Before selling, understand what you may keep after tax. Small business capital gains tax concessions can reduce a qualifying gain, but eligibility needs to be assessed before you commit to the transaction.
The concessions are set out in Division 152 of the Income Tax Assessment Act 1997 and administered by the Australian Taxation Office (ATO). They can reduce the taxable gain on a sale to a fraction of the headline figure, or to nil. Much of the work to qualify happens before the business is listed.
Speak with your accountant or registered tax agent early, so the proposed sale structure and timing can be reviewed before you sign a contract.
What the Concessions Do
Selling a business asset can give rise to a capital gain. The taxable result depends on the asset’s cost base, any capital losses, available discounts and concessions, and the seller’s circumstances.
They apply to the capital gain, not the whole sale price. Plant, equipment and stock fall under separate tax rules, so the concessions matter most where goodwill is a large share of the value, which is typical in hospitality, fitness and medical practices.
Types of CGT Concession
Some of the concessions can be used together, and they are applied in a set order:
15-Year Exemption
The 15-year exemption can disregard a qualifying capital gain where the asset has been owned continuously for at least 15 years and the relevant conditions are met. For an individual, these include being aged 55 or over with the event connected to retirement, or being permanently incapacitated. Companies and trusts have additional requirements.
50% Active Asset Reduction
The capital gain on an active asset is reduced by 50%. This applies automatically once the basic conditions are met, unless you choose not to use it, and it can be combined with the retirement exemption and the roll-over.
Retirement Exemption
You can disregard capital gains up to a lifetime limit of $500,000 per individual. Where you are under 55 just before choosing the exemption, the exempt amount must be contributed to a complying superannuation fund or retirement savings account. At 55 or over, you can keep it. You do not have to retire to use it.
Small Business Roll-Over
The small business roll-over can defer a qualifying capital gain. Replacement asset and improvement rules, deadlines and later CGT events affect how long the deferral lasts. It is not an automatic permanent exemption, and a tax adviser should confirm the requirements before you rely on it.
Basic Eligibility Conditions
Before any concession applies, the sale must satisfy the ATO’s basic eligibility conditions:
Turnover or Net Asset Test
Two common routes are being a CGT small business entity with aggregated turnover below $2 million, or meeting the maximum net asset value test of $6 million or less just before the CGT event. Other eligibility pathways and additional conditions can apply, including where assets are used by a related business.
Connected entities and affiliates can affect both tests. The net asset test has specific inclusion and exclusion rules, so it should not be assessed from the business balance sheet alone. Ask your adviser to map the relevant interests and assets.
Active Asset Test
An asset generally needs to have been used or held ready for use in a business for the required part of its ownership period. The usual test is at least half the ownership period, or at least 7.5 years if owned for more than 15 years. Goodwill, property, shares and trust interests require their own assessment; rental assets can be excluded, subject to exceptions.
Companies and Trusts
The conditions differ by concession and by whether assets, shares or trust interests are sold. Significant individual and CGT concession stakeholder rules can apply, particularly to the 15-year and retirement exemptions. These are not a blanket requirement for every company or trust concession. Payment and superannuation deadlines also need individual advice.
Stacking With the General Discount
Illustration only: assume an eligible Australian resident individual has a $1 million capital gain, no capital losses, has held the asset for at least 12 months and qualifies for both the general 50% discount and the 50% active asset reduction. The remaining gain would be $250,000. A retirement exemption could reduce it further if its separate conditions and available lifetime limit are met. This is a simplified calculation, not a prediction of a seller’s tax outcome.
Companies cannot use the general discount, so the maths differs by structure. A free business appraisal can give an accountant a likely sale price to model.
Why Timing and Structure Matter
Most eligibility problems are historical. Ownership period, turnover and active asset history are fixed by the time an offer arrives. A few things can still be managed with an early start:
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Check the net asset value test across every connected entity, including investment companies and family trusts, before listing.
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Decide whether the deal will be an asset sale or a share sale. The entity making the gain changes, and so does the concession analysis.
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Check the additional company, trust, shareholder and stakeholder requirements relevant to the concessions being considered.
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Time the contract signing with the financial year in mind. The CGT event usually happens when the contract is entered into, not at settlement.
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Record stakeholder ages, ownership history and any retirement connection required for the particular exemption. Retirement itself is not required for the retirement exemption.
Many sellers meet their accountant or tax adviser before the business goes to market, and again before signing the contract. The rules are detailed, and on a scale like the $1 million example, the difference between qualifying and missing out may run to hundreds of thousands of dollars.
Plan Before Signing
An early tax assessment helps you compare the likely net proceeds of different sale structures. Revisit that assessment when the price and contract terms are known.
Bond Business Brokers can prepare a realistic price range for your accountant to use when modelling the tax outcome of a sale.
Common Questions
Does selling shares change the assessment?
Yes. Selling shares or trust interests involves additional conditions and a different taxpayer from a sale of assets by the operating entity. Ask your tax adviser to compare the proposed structure before the contract is signed.
Do I have to retire to use the retirement exemption?
Retirement itself is not required. The lifetime limit, age-related superannuation requirements and other conditions still apply.
When should I speak to my accountant?
Before listing where possible, and again before signing the sale contract. Eligibility, the contract date and the allocation of the price can affect the tax outcome.
This article provides general information only. Obtain advice from appropriately qualified advisers about your circumstances before entering into a transaction or relying on tax, legal or regulatory information.