The small business CGT concessions are intact. The general discount is changing. Here is how to think about a business sale across the next several years.
For most business owners, the sale of the business is the largest single financial event of a working life. The value built across decades crystallises in a transaction that often runs to seven figures, sometimes to eight, and the tax outcome on that transaction can move the net proceeds by hundreds of thousands of dollars.
Under the right structure, the right concessions, and the right timing, the capital gains tax on a small business sale can be reduced significantly. Under the wrong structure or with the wrong timing, the same sale can leave a substantially larger bill than was necessary. The four small business CGT concessions, contained in Division 152 of the Income Tax Assessment Act 1997, are the most valuable single set of tax provisions available to most Australian business owners.
The May 2026 Budget changed the broader CGT landscape but left the small business concessions intact. For business owners who qualify, the concessions continue to operate as they always have. For business owners who do not qualify, the loss of the 50 percent CGT discount from 1 July 2027 has direct dollar implications. This article walks through how the concessions work, who qualifies, how to structure a sale to maximise eligibility, and how the broader changes affect exit planning.
CGT When You Sell a Business
When a business is sold, the transaction can trigger one or more CGT events depending on how the sale is structured. A sale of business assets, such as goodwill, customer lists, and equipment, triggers CGT on each asset separately. A sale of shares in a company that owns the business triggers CGT on the share disposal. A sale of units in a trust that operates the business triggers CGT on the unit disposal.
Each structure has different tax consequences. A sale of business assets often produces different outcomes for the seller and the buyer than a share sale. The buyer typically prefers an asset sale because it allows them to step up the cost base and capture depreciation on acquired assets. The seller often prefers a share sale because it can simplify the tax position and access certain concessions more easily. The negotiation between these preferences is part of how sale transactions are typically structured.
Once the CGT event is identified, the calculation runs through a sequence. The capital proceeds, generally the sale price, are reduced by the cost base, generally the original acquisition cost plus capital improvements and incidental costs. The resulting capital gain is then subject to any applicable discounts or concessions, applied in a specific order. The remaining gain is added to taxable income and taxed at the seller’s marginal rate.
The 4 Small Business CGT Concessions
Division 152 of the Income Tax Assessment Act 1997 contains four small business CGT concessions. They are designed to recognise that a small business is often the owner’s primary wealth asset and that the sale of the business is often the basis for retirement. The concessions are designed to be used together where eligible, and the order of application matters.
| Concession | Details |
|---|---|
| The 15 Year Exemption | Where the asset has been an active asset of the seller for at least 15 years and the seller is 55 or older and retiring, or is permanently incapacitated, the entire capital gain is disregarded. No CGT is payable. The 15 year exemption is the most generous of the four concessions and is applied first where eligible. The full gain can be contributed to superannuation without affecting the seller’s contribution caps, subject to the lifetime CGT cap. |
| The 50% Active Asset Reduction | Where the 15 year exemption does not apply, the active asset reduction reduces the remaining capital gain by 50 percent. This is in addition to the general 50 percent CGT discount available to individuals and trusts under the current rules. The two discounts apply sequentially, which means an eligible individual can reduce a $400,000 capital gain to $100,000 before any further concessions are considered. |
| The Retirement Exemption | The retirement exemption allows up to $500,000 of capital gains to be disregarded across a seller’s lifetime. The exemption is not limited to actual retirement, despite the name. Sellers under 55 must contribute the exempt amount to a complying superannuation fund. Sellers 55 and over have the choice to contribute or to receive the amount directly. The $500,000 lifetime cap is per person, which means a couple can potentially access $1 million between them where both qualify as CGT concession stakeholders. |
| The Small Business Rollover | The rollover concession allows the capital gain to be deferred for two years, or longer if a replacement active asset is acquired within a window starting one year before and ending two years after the CGT event. Where a replacement asset is acquired, the deferral can become permanent for the portion of the gain reinvested. The rollover is particularly valuable for business owners who are not retiring but are restructuring, selling one business to acquire another, or transitioning between asset categories. |
Used together, the concessions can reduce or eliminate the CGT on most qualifying small business sales. A $1 million capital gain on a sale that qualifies for the 50 percent active asset reduction, the general 50 percent discount, and the retirement exemption can produce zero CGT, depending on the seller’s circumstances.
Eligibility: The Basic Conditions
To access the small business CGT concessions, a seller must satisfy several basic conditions. These are the gateway tests that determine whether the concessions are available at all. Beyond the basic conditions, each individual concession has its own additional eligibility requirements.
| Test | Details |
|---|---|
| The Size Test | The seller must either be a small business entity with aggregated turnover under $2 million, or satisfy the maximum net asset value test of $6 million in net assets. Aggregated turnover includes the turnover of the seller, any affiliates, and any connected entities. The $6 million net asset value test is based on net assets, meaning assets less liabilities, and similarly aggregates across affiliates and connected entities.Many profitable Australian businesses operate just inside or just outside these thresholds. A business with $2.5 million in turnover may fail the turnover test but pass the net asset value test. A business with strong revenue and modest net assets may fail one and pass the other. Where neither test is satisfied, the small business concessions are unavailable and the seller falls back on the general CGT rules. |
| The Active Asset Test | The asset being sold must have been an active asset of the seller for at least half of the ownership period, or at least 7.5 years where the asset has been owned for more than 15 years. An active asset is one used in the course of carrying on a business by the seller, an affiliate, or a connected entity. Goodwill is typically active. Business premises used by the business are typically active. Passive rental properties are typically not active, with limited exceptions.The active asset test does not require continuous active use. The total active asset days across the ownership period are what matter. This means an asset that was passive for part of its life can still qualify if it has been active for enough of the rest. Periods of business cessation also have specific rules that can allow the active asset status to be preserved temporarily. |
| The Significant Individual Test | Where the asset being sold is a share in a company or an interest in a trust, additional tests apply. The seller must be a CGT concession stakeholder, broadly meaning the seller or their spouse holds at least a 20 percent interest in the entity, directly or through a chain of trusts and companies. Where the entity is a discretionary trust, additional rules apply to determine which beneficiaries can qualify as CGT concession stakeholders. |
Get the Ownership Structure Right Early
The structure that owns your business determines how concessions apply. Setting up the right structure early, or restructuring at an early stage is significantly easier than changing things close to exit.
Manage the Size Test Across the Ownership Period
A business that grows past the $2 million turnover threshold may still qualify under the $6 million net asset value test. Tracking both tests over time can preserve your eligibility at the point of sale.
Treat Business Premises with Structural Care
Where premises are owned by a related entity, the connection between that entity and the operating business must be properly established. The right structure means the sale can access concessions – the wrong one means it cannot.
Plan the Order of Application
The concessions are applied in a specific order and the choice of which to use matters. The interaction between the retirement exemption cap, the lifetime CGT cap, and your broader wealth strategy all influence the optimal sequencing.
Why Timing the Sale Matters
Timing has always mattered for business sales, and the May 2026 Budget changes have made the timing question more interesting. Several elements of timing intersect.
The Age 55 Threshold
Several of the concessions have different consequences depending on whether the seller is 55 or older at the time of sale. The 15 year exemption requires retirement and age 55 or older. The retirement exemption allows direct receipt of funds where the seller is 55 or older, rather than requiring the funds to be contributed to super. For sellers in their early to mid 50s, the timing question is whether to sell now or to wait until the 55 threshold is reached.
The 15 Year Ownership Threshold
The 15 year exemption requires 15 years of active asset ownership. Sellers approaching the 15 year mark have a clear timing consideration: the difference between selling at year 14 and year 15 can be the entire CGT bill. Where the timing is close, deferring the sale by months can produce substantial value.
The 1 July 2027 CGT Regime Change
From 1 July 2027, the general CGT regime changes. For sellers who do not qualify for the small business concessions, the loss of the 50 percent discount and the introduction of the 30 percent minimum tax on real gains is significant. The current transition window, between now and 1 July 2027, is one in which the existing rules continue to apply.
For sellers who do qualify for the small business concessions, the 1 July 2027 change is less direct, because the concessions remain. The interaction between the small business concessions and the general discount matters, however, because the 50 percent active asset reduction is in addition to the general CGT discount, and the general discount is the one being replaced. The combined effect for partial qualifying sales requires specific modelling.
For business owners in the position of being close to a sale, the next 12 to 24 months are an unusually rich window for tax planning. The combination of an unchanged small business concession regime, a general CGT regime that is changing, and the various age and ownership thresholds creates several different pathways that should be modelled before a decision is made.
Example: A Family Business Sale at 58
Consider a business owner aged 58 selling an active business that has been in continuous active use for 22 years. The business sells for $1.8 million, with the gain attributable to the share sale calculated at $1.4 million. The seller is the sole director and shareholder, the spouse is also a CGT concession stakeholder, and aggregated turnover is $1.6 million.
The 15 year exemption applies because the business has been active for at least 15 years and the seller is retiring at age 58. The entire $1.4 million capital gain is disregarded. No CGT applies to the sale. Up to the lifetime CGT cap, the proceeds can be contributed to superannuation as a CGT cap contribution that does not count against the seller’s ordinary contribution caps.
The structural conditions that made this outcome possible were established years earlier. The active asset test required at least 15 years of active use. The size test required either turnover under $2 million or net assets under $6 million. The ownership structure determined which concessions were available. The retirement test required the seller to be 55 or older and ceasing the active role in the business. Each condition was satisfied because the structure had been set up correctly and reviewed regularly across the ownership period.
Working with 360 ONE on Exit Planning
Exit planning is one of the areas where the integrated 360 ONE service model delivers the largest value. The decisions involved span the advisory function (overall exit strategy and timing), the accounting function (structure and tax outcomes), the wealth function (post sale wealth planning and super contribution strategy), and the succession function (estate, family, and continuity considerations).
For business owners within ten years of a potential sale, a comprehensive exit planning review covers current eligibility for the small business concessions, structural changes that would improve eligibility, timing scenarios across the various thresholds, the impact of the May 2026 Budget changes on the specific situation, and the integration of the sale proceeds into the broader wealth and retirement plan.
The work delivers a clear picture of the available pathways, the value at stake in each one, and the decisions that need to be made between now and the eventual sale to capture the best outcome. For owners ten years out, the most valuable conversations are often about structure and active asset categorisation. For owners three to five years out, the conversations move to specific transition planning and the interaction between business decisions and personal financial decisions. For owners within 12 to 24 months of a sale, the work focuses on execution.
About 360 ONE
360 ONE is a complete strategic partnership firm offering advisory, accounting, wealth, books, and succession services to ambitious business owners and their families. Established in 2007 and based in Bacchus Marsh, Victoria, our accounting practice serves clients across Australia and internationally. Contact us today to find out how we can help you with your CGT position.