The small business CGT concessions are four rules in Division 152 of the Income Tax Assessment Act 1997 that can wipe out, halve, or defer the capital gains tax on the sale of a business asset: the 15-year exemption, the 50 percent active asset reduction, the retirement exemption, and the small business rollover. To use any of them you must first pass a basic eligibility gateway (turnover under $2 million or net assets under $6 million), the asset itself must qualify as active, and the concessions must be applied in a set order. Stacked correctly with the general CGT discount, they can bring the taxable portion of a substantial sale close to zero.
Who Qualifies
Two gateways sit in Subdivision 152-A. You only need to pass one.
The Aggregated Turnover Test
Your business qualifies if its aggregated annual turnover is less than $2 million.1Australian Taxation Office. Concessions for Eligible Businesses Aggregated means your turnover plus the turnover of connected entities and affiliates. This is a lower threshold than the $10 million small business entity threshold used for other tax concessions, and the mismatch catches people out.
The Maximum Net Asset Value Test
If turnover is above $2 million, you can still qualify by passing the maximum net asset value (MNAV) test. The total net value of CGT assets owned by you, your affiliates, entities connected with you, and entities connected with your affiliates must not exceed $6 million just before the sale.2Australian Taxation Office. Maximum Net Asset Value Test Liabilities genuinely owed on those assets reduce their value. Personal-use assets like your home and superannuation are excluded from the count.
Connected Entities, Affiliates, and Significant Individuals
An entity is connected with you if you control it. For companies, partnerships, and most trusts, control means you and your affiliates together hold 40 percent or more of voting power, income, or capital distributions.3Australian Taxation Office. Entities Connected With You and Control Relationships Discretionary trusts have a separate test: if the trustee acts or could reasonably be expected to act according to your wishes, you control it regardless of distribution percentages. The Commissioner can determine that you don’t control an entity even when your percentage hits 40, provided it stays below 50 and someone else actually controls it. That discretion is not available for discretionary trusts caught by the influence test.
An affiliate is any individual or company that acts, or could reasonably be expected to act, according to your directions or in concert with you in their business affairs.4Australian Taxation Office. Small Business Affiliates Trusts, partnerships, and super funds cannot be affiliates. A spouse is not automatically an affiliate, nor is a business partner just because you operate together. A special rule applies where your spouse or child under 18 runs a business using an asset you own passively: they are treated as your affiliate for the active asset, MNAV, and turnover tests.
When a company or trust is the seller, the concessions only flow if the entity has at least one significant individual, meaning someone with a small business participation percentage of 20 percent or more, counting direct and indirect interests together.5Australian Taxation Office. Advanced Guide to CGT Concessions for Small Business 2013 – Significant Individual Test This prevents widely held entities from accessing rules designed for closely held businesses.
What Counts as an Active Asset
Passing the gateway is not enough. The specific asset being sold must be an “active asset,” and this filter fails more claims than any other single requirement.
An asset is active if it is used, or held ready for use, in running a business. Tangible property like premises and equipment counts, and so do intangibles like goodwill and intellectual property. It must have been active for at least half the period you owned it if you held it for 15 years or less, or for at least 7.5 years during the test period if you held it longer.6Australian Taxation Office. Active Asset Test The active periods don’t need to be continuous.
An asset whose main use is to earn rent is generally not active, even if you treat the rental activity as a business. Three exceptions apply: the rental use was only temporary, the asset is an intangible whose value grew substantially because of improvements you made, or it is leased to an affiliate or connected entity that uses it in their business. When deciding whether the main use is rental, the key question is exclusive possession. A standard lease granting exclusive possession looks like rent; a licence for specific access without exclusive control usually doesn’t. Personal use by you or an affiliate is excluded from the determination entirely.6Australian Taxation Office. Active Asset Test
The Four Concessions
15-Year Exemption
This is the most generous. It wipes out the entire capital gain. To qualify, you must have continuously owned the asset for at least 15 years, and at the time of the CGT event you (or the significant individual, for a company or trust) must be either 55 or older and retiring, or permanently incapacitated at any age.7Australian Taxation Office. Small Business 15-Year Exemption
The ATO interprets retirement broadly but not loosely. There must be at least a significant reduction in hours worked or a significant change in activities. The CGT event can occur slightly before or after the actual retirement date. If this exemption applies, you stop; the other three concessions have nothing left to work on.
50 Percent Active Asset Reduction
If the 15-year exemption doesn’t apply, the 50 percent active asset reduction halves whatever capital gain remains after any capital losses and the general CGT discount.8Australian Taxation Office. Small Business 50% Active Asset Reduction No extra eligibility test applies beyond the basic conditions. You can choose to skip it and go straight to the retirement exemption or rollover, but almost always it makes sense to take it.
Retirement Exemption
The retirement exemption lets you disregard up to $500,000 in capital gains over your lifetime. That’s a cumulative lifetime limit per individual, not per transaction, so keep track of what you’ve used across all claims.9Australian Taxation Office. Small Business Retirement Exemption When a company or trust claims it, the $500,000 limit applies to each CGT concession stakeholder separately, and the entity must keep written records of each stakeholder’s share.
If you are under 55, the exempt amount must go into a complying superannuation fund or retirement savings account. If you are 55 or older, the contribution is optional and you can keep the proceeds. You make the choice when you lodge your return, and if you choose the exemption after already receiving the capital proceeds, the super contribution only needs to happen after you make the choice.
Small Business Rollover
The rollover defers your capital gain rather than eliminating it. You delay recognising the gain and then acquire a replacement active asset, or make capital improvements to an existing one, within the replacement asset period. That period starts one year before the last CGT event in the income year and generally ends two years after it.10Australian Taxation Office. Small Business Roll-Over
The Commissioner can grant an extension, but you need to apply before the period expires. If the window lapses without a qualifying replacement or improvement, the deferred gain returns to your assessable income for that later year, with interest attached.
Order of Applying the Concessions
The concessions run in a mandatory sequence. Get the order wrong and you can invalidate the claim.
- Step 1: Check whether the 15-year exemption applies. If it does, the entire gain is disregarded and you stop.
- Step 2: Offset current-year capital losses, then prior-year capital losses, against the gain.
- Step 3: Apply the general 50 percent CGT discount if you are an individual or trust that held the asset for at least 12 months. Companies cannot access this discount.11Australian Taxation Office. CGT Discount
- Step 4: Apply the small business 50 percent active asset reduction to halve whatever remains.
- Step 5: Apply the retirement exemption, the rollover, or both to what’s left.
The stacking effect is powerful. An individual who held an asset for over 12 months can reduce a gain by 50 percent under the general discount, then by another 50 percent under the active asset reduction, and then shelter the residue under the retirement exemption.12Australian Taxation Office. Order in Which to Apply the Discount and Concessions Where you have both active and non-active capital gains in the same year, apply losses against the non-active gains first.
Super Contributions and the CGT Cap
When concession proceeds go into superannuation, either because you must contribute them (retirement exemption, under 55) or because you choose to (15-year exemption), they can be excluded from the standard non-concessional contributions cap under a separate lifetime CGT cap. For 2025–26 the CGT cap is $1,865,000. For 2026–27 it rises to $1,935,000.13Australian Taxation Office. Contributions Caps
Both the retirement exemption and the 15-year exemption count toward that single lifetime cap. If you’ve used part of your cap on an earlier sale, only the unused balance remains. Exceeding the cap means the excess is treated as a standard non-concessional contribution and may trigger excess contributions tax, so track your cumulative position over the course of your career.
If the Owner Has Died
A legal personal representative, beneficiary, or surviving joint tenant can still access the concessions on a deceased owner’s assets, provided the asset is disposed of within two years of the date of death.14Australian Taxation Office. Death and Small Business CGT Concessions The Commissioner can extend that window on request.
The test is whether the asset would have qualified if the deceased had sold it immediately before death. If so, even the 15-year exemption may be available, and the ATO does not require the CGT event to have been connected with the deceased’s retirement.15Australian Taxation Office. Death and Small Business CGT Concessions If two years pass with no sale and no extension, the active asset test moves to whoever inherited the asset. Unless they continued the business or used the asset in one of their own, that test will usually fail.
Records and How to Claim
You claim the concessions when you lodge your annual income tax return, through myTax or a registered tax agent. The capital gains tax schedule inside the return is where you enter the gross gain and step it down through each concession you’re entitled to.
For CGT assets you must keep records for as long as you hold the asset and then for five years after you dispose of it.16Australian Taxation Office. Records to Keep Longer Than Five Years Purchase contracts, valuations, evidence of the asset’s active use throughout your ownership, and the sale contract all need to be kept. If you rely on the MNAV test, retain the valuations showing you were under $6 million at the time of the CGT event. For the retirement exemption, keep a written record of the amount you chose to disregard along with evidence of any super contribution made from the proceeds. If you took the rollover, keep documentation showing when the replacement asset was acquired and how it qualifies as active.
Penalties for Getting It Wrong
An incorrect claim, whether from genuine error or aggressive interpretation, can result in the ATO reversing the concession and treating the full gain as assessable in the relevant year. Two extra costs then apply on top of the tax owed.
The general interest charge accrues on the unpaid tax from the original due date. For the April–June 2026 quarter the GIC rate is 10.96 percent per annum, compounding daily.17Australian Taxation Office. General Interest Charge (GIC) Rates On a large gain that was exempted or deferred years earlier, accumulated interest alone can be substantial.
The ATO can also impose administrative penalties based on the behaviour that caused the shortfall:
- Failure to take reasonable care: 25 percent of the shortfall.
- Recklessness: 50 percent of the shortfall.
- Intentional disregard of the law: 75 percent of the shortfall.
Penalties apply to the difference between what you should have paid and what you did pay.18Australian Taxation Office. Penalties for Making False or Misleading Statements A common trigger is failing to acquire a replacement asset inside the rollover window, which brings the deferred gain back into assessable income automatically. Another is failing the MNAV test because connected entities or affiliates weren’t properly counted toward the $6 million.