Small Business CGT Concessions: What Business Owners Need to Know Before They Sell

Sally Preston

Selling a business can be one of the largest financial events in a business owner’s life. Whether the sale is to a key employee, a family member or an unrelated third-party buyer, the tax outcome can have a significant impact on what the owner ultimately retains. No business owner wants to pay more tax than is necessary, and this is where the small business capital gains tax (CGT) concessions can be extremely valuable.

However, these concessions are not simple. They are some of the most technical rules in the Australian tax system and often require specialist advice before a sale is documented. I regularly assist accountants and business owners to work through these rules, test eligibility and identify whether the transaction structure can be improved before it is too late.

Key message: The small business CGT concessions are powerful, but they are not automatic. Eligibility should be tested before a term sheet or sale contract is signed, as the ownership structure, assets being sold and sale terms can affect whether the concessions are available.

Why the rules are complex

The concessions can significantly reduce, defer or even eliminate a capital gain, but the eligibility rules require careful analysis. Common areas of complexity include:

·       whether the taxpayer satisfies the $2 million aggregated turnover test or the $6 million maximum net asset value test

·       which entities and individuals must be grouped as connected entities or affiliates

·       whether the asset is an active asset and whether it has been active for the required period

·       whether the sale involves business assets, shares, units, partnership interests, trading stock or depreciating assets

·       whether additional conditions apply because the business is operated through a company or trust.

The four concessions

·       15-year exemption – can disregard the entire gain if the asset has been owned for at least 15 years and the relevant retirement, incapacity and significant individual conditions are met.

·       50% active asset reduction – can reduce an eligible capital gain by 50%, in addition to the general CGT discount where that discount is available.

·       Retirement exemption – can disregard up to a lifetime limit of $500,000 per eligible individual or CGT concession stakeholder. Special contribution rules apply for individuals under 55.

·       Small business roll-over – can defer a capital gain where replacement active assets are acquired or capital improvements are made within the required time frame.

Basic eligibility conditions

Before considering any specific concession, the taxpayer must generally satisfy the basic conditions. These include being a CGT small business entity with aggregated turnover of less than $2 million, satisfying the maximum net asset value test, or meeting another qualifying pathway. The asset must also satisfy the active asset test. Additional conditions apply for shares, trust interests and certain partnership situations.

Common traps

·       Testing eligibility too late in the transaction

·       Incorrectly calculating connected entities and affiliates

·       Failing the active asset test

·       Assuming passive assets qualify

·       Not identifying significant individuals and CGT concession stakeholders

·       Forgetting the retirement exemption contribution rules for individuals under 55

·       Selling shares or units without testing the extra conditions

Why planning matters

The structure used to own the business, the way the sale is documented, the treatment of goodwill and separate business assets, and the timing of retirement or replacement asset decisions can all affect the tax outcome. In some cases, different sale scenarios may produce very different tax results. This is why the review should ideally be completed before the parties agree in principle to the sale structure.

2026 reform watch

The broader CGT reform package has now been enacted through the Treasury Laws Amendment (Tax Reform No. 1) Act 2026, which received Royal Assent on 26 June 2026. The four small business CGT concessions have been retained. From 1 July 2027, the turnover threshold for the 50% active asset reduction will increase from $2 million to $10 million. The broader CGT changes, including the move away from the flat 50% CGT discount for post-commencement gains, should be considered when planning future transactions.

Pre-sale checklist

☐ Identify who owns the asset being sold

☐ Calculate aggregated turnover and maximum net asset value

☐ Confirm whether the asset is an active asset

☐ Review connected entities and affiliates

☐ Model each available concession

☐ Review superannuation contribution timing

☐ Consider whether a restructure is needed before sale

☐ Document advice before contracts are signed

Need help?

Smart Solutions Tax Advisory can assist business owners, accountants and advisers with small business CGT concession reviews, pre-sale tax modelling, transaction structuring and practical implementation support before contracts are signed.

Disclaimer: This article contains general information only and should not be relied on as tax or legal advice.

References / Useful links

ATO small business CGT: Small business CGT concessions | Australian Taxation Office

ATO CGT eligibility: CGT concessions eligibility overview | Australian Taxation Office

Treasury CGT reform explainer: Capital Gains Tax and Discretionary Trusts Reform: Small business explainer | Treasury.gov.au