How to Access Small Business CGT Concessions: A Step-by-Step Guide for Australian Entrepreneurs
Selling a business asset can be an exciting milestone, but the resulting capital gains tax often comes as an unwelcome surprise. Many Australian small business owners are unaware they could significantly reduce—or even eliminate—their capital gain liability through available small business CGT concessions. These business CGT concessions represent one of the most valuable small business tax concessions for business owners, potentially saving hundreds of thousands of dollars when implemented correctly.
Understanding Small Business CGT Concessions
Small business CGT concessions are specific tax breaks designed to help business owners reduce or eliminate capital gains tax when selling business assets. These concessions acknowledge the significant contribution small businesses make to the Australian economy and provide tax relief to support business growth and succession planning.
The Australian Taxation Office (ATO) offers four distinct small business CGT concessions that can be applied individually or combined for maximum benefit. Each has specific eligibility criteria, but when used strategically, they can dramatically reduce your assessable income or even eliminate your entire capital gain.
The Four Types of Small Business CGT Concessions
15-Year Exemption: This is the most generous concession and essentially provides a complete exemption from capital gains tax. If you’ve owned an active asset for at least 15 continuous years and you’re retiring (aged 55 or older) or permanently incapacitated, you can sell the asset completely tax-free. For example, a 57-year-old business owner selling a graphic design studio purchased 15 years ago could disregard a $600,000 capital gain entirely.
50% Active Asset Reduction: This concession allows you to reduce your capital gain by 50% for active assets owned for at least 12 months. It can be combined with other concessions for even greater tax savings.
Small Business Retirement Exemption: This provides a lifetime limit of up to $500,000 in CGT exemption. If you’re under 55, you must contribute the exempt amount to your superannuation fund to qualify for this concession.
Small Business Rollover: Need more time? This concession lets you defer your capital gain for up to two years while you acquire a replacement asset or make improvements to existing assets.
Potential Tax Savings from CGT Concessions
The real power comes from combining these concessions. Consider this example: on an original capital gain of $200,000, you could first apply the 50% general discount (if the asset was owned for more than 12 months), reducing the gain to $100,000. Then apply the 50% active asset reduction, bringing it down to $50,000. Finally, applying the small business retirement exemption could potentially reduce your taxable gain to zero.
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Basic Eligibility Requirements
Before you can access any of these small business CGT concessions, you must satisfy several basic conditions. Understanding these requirements is crucial as they form the foundation for accessing these valuable business CGT concessions and ensuring you pay the correct amount of income tax in the relevant income year.
To qualify for small business CGT concessions, you need to meet these basic conditions:
A CGT event has occurred relating to a CGT asset, which could include the sale of business assets, property, or even depreciating assets used to provide services or generate money for your business.
The event would result in a capital gain, after taking into account any capital losses you may have made during the income year.
The disposed asset qualifies as an active asset, meaning it was genuinely used in the business to produce assessable income rather than being held as a personal asset.
You satisfy either the $2 million aggregated turnover test or the $6 million maximum net assets value test, ensuring your business is considered a small business entity for tax purposes.
The Active Asset Test
For an asset to qualify as “active” it must have been used in your business (or an affiliate’s or connected entity’s business) for at least half of the ownership period or 7.5 years, whichever is shorter. This is a crucial test that eliminates personal assets and passive investment assets from eligibility. Depreciating assets, such as equipment or machinery used to provide services or generate money, can also meet this test if they were actively used in the business.
Interestingly, property may qualify if it’s used in a connected entity’s business. For example, if you own a commercial property leased to a company owned by your spouse for their business, the property might qualify as an active asset despite generating rental income.
The Small Business Entity Tests
To access the concessions, your business must meet either:
$2 Million Aggregated Turnover Test: Your aggregated turnover (including that of connected entities and affiliates) must be less than $2 million. This includes all money received from the sale of goods or services during the income year.
$6 Million Net Assets Value Test: The total net assets owned by you, your connected entities, and affiliates must not exceed $6 million just before the CGT event. This calculation includes the value of business assets, property, and depreciating assets, but excludes certain personal assets and any capital losses that are disregarded for this purpose.
Step-by-Step Process to Access the Concessions
Accessing small business CGT concessions requires methodical planning and careful execution. Following these steps will help ensure you correctly apply the concessions and maximise your tax savings.
Step 1: Determine If You Have a Capital Gain
First, establish whether you have a capital gain by calculating the difference between the asset’s cost base (including acquisition and improvement costs) and its sale proceeds. Remember that only business assets held for business purposes are eligible—personal assets are excluded.
Step 2: Check Basic Eligibility
Verify that you meet all basic conditions by:
Confirming the asset was actively used in your business
Ensuring you satisfy either the aggregated turnover test or the net assets value test
Verifying ownership period and retirement status if aiming for the 15-year exemption
Step 3: Identify Which Concessions Apply to Your Situation
Determine which small business CGT concessions are most beneficial for your circumstances. Start by checking eligibility for the 15-year exemption, as this provides complete exemption from capital gains tax. If this doesn’t apply, consider combinations of the other concessions.
For business structures involving companies or trusts, additional requirements apply. For example, when selling shares in a company or units in a trust, you’ll need to satisfy the modified active asset test (the 80% test) and meet CGT concession stakeholder requirements.
Step 4: Apply the Concessions in the Right Order
The order in which you apply small business CGT concessions matters significantly:
Apply the 15-year exemption first (if eligible)
If not eligible for the 15-year exemption, apply the 50% general CGT discount (for individuals and trusts)
Then apply the 50% active asset reduction
Finally, apply either the small business retirement exemption or small business rollover (or a combination of both) to the remaining gain
Step 5: Document and Report Your Claim
Document all aspects of your claim thoroughly to support your position if questioned by the ATO. Report the concessions correctly in your tax return using the appropriate concession codes. Different business structures have different reporting requirements—sole traders report in the individual tax return, while companies and trusts use the CGT schedule.
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Special Considerations
While the basic framework applies to most situations, certain scenarios require additional attention and planning to ensure compliance and maximise benefits.
Selling Shares or Units in a Business
When selling shares in a company or units in a trust rather than direct business assets, additional requirements apply. The shares or units must satisfy the modified active asset test, which requires at least 80% of the company’s or trust’s assets to be active assets.
Additionally, just before the CGT event, you must have been a “CGT concession stakeholder” with at least a 20% interest in the business, or a spouse with some interest.
Using the Concessions for Retirement Planning
These small business CGT concessions offer exceptional opportunities for retirement planning. Proceeds from the 15-year exemption and the small business retirement exemption can potentially be contributed to superannuation under the CGT cap, which doesn’t count toward your non-concessional contributions cap.
The lifetime limit for these CGT cap contributions is $1.780 million in 2024/25, with a $500,000 sublimit specifically for contributions related to the small business retirement exemption.
Common Mistakes to Avoid
The ATO has identified several common errors when claiming these concessions:
Misunderstanding eligibility criteria (particularly around whether you’re carrying on a business)
Incorrect application of concession codes
Using incorrect dates when calculating ownership periods
Inappropriately applying the CGT discount or small business rollover
Conclusion
Small business CGT concessions represent one of the most significant tax-saving opportunities available to Australian entrepreneurs. By carefully considering the eligibility criteria and strategically applying the concessions, you can substantially reduce or even eliminate capital gains tax on the sale of business assets.
Proper planning is essential—ideally starting years before you intend to sell. Given the complexity of these small business CGT concessions and their substantial impact on your assessable income, we strongly recommend seeking tailored tax advice for your circumstances.
Contact ACT Tax Group today to discuss how we can help you implement these business CGT concessions as part of your business exit strategy. Our team specialises in helping small business owners understand the rules, meet the additional conditions, and achieve the best possible tax outcome when selling business assets.