If you sell a business asset in Australia, the small business CGT concessions in Division 152 of the Income Tax Assessment Act 1997 can reduce your capital gains tax to zero. There are four of them: a full exemption for assets you have owned at least 15 years, a 50 percent active asset reduction, a retirement exemption capped at $500,000 over your lifetime, and a rollover that defers the gain when you buy a replacement business asset. You can use them one at a time or stack several on the same sale. Before any of them apply, you have to clear a common set of eligibility tests.
Who Qualifies
Two gateway tests decide whether you are “small” enough. You pass the first if the total net value of CGT assets held by you, your affiliates, and entities connected with you is $6 million or less immediately before the sale. Net value means market value minus related liabilities, and the $6 million figure is not indexed.1Australian Taxation Office. Maximum Net Asset Value Test You pass the second if you carry on a business with an aggregated turnover of less than $2 million, using either last year’s actual turnover or a reasonable estimate of this year’s.2Australian Taxation Office. CGT Concessions Eligibility Overview Passing either one is enough.
The asset itself has to be an active asset, meaning one used or held ready for use in carrying on a business. If you owned it for 15 years or less, it must have been active for at least half of that time. If you owned it for more than 15 years, it must have been active for at least 7.5 years. Assets held mainly to earn rent or interest usually fail this test and are shut out of all four concessions.
Extra Rules for Shares and Trust Interests
Selling shares in a company or an interest in a trust brings two more conditions. The entity must have a significant individual, meaning someone with a small business participation percentage of at least 20 percent, made up of direct and indirect interests. And the entity must pass an 80 percent active asset test: at least 80 percent of its assets by market value must be active.2Australian Taxation Office. CGT Concessions Eligibility Overview A holding company that mostly owns rental properties will fail even if its turnover or net assets are small enough.
The 15-Year Exemption
Subdivision 152-B disregards the whole capital gain. No cap, no partial calculation. It is the most generous of the four and, unsurprisingly, the hardest to qualify for.
You need continuous ownership of the asset for at least 15 years. If you own the asset personally, you must also be aged 55 or over and selling in connection with your retirement, or permanently incapacitated at the time of the sale. If a company or trust owns the asset, it must have had a significant individual for a combined 15 years during the ownership period (not necessarily the same person throughout), and the individual who holds that status immediately before the sale must be 55 or older and retiring, or permanently incapacitated.3Australian Taxation Office. Small Business 15-Year Exemption
A significant individual is anyone with a small business participation percentage of at least 20 percent, taking into account entitlements to income, capital, and voting rights.4Australian Taxation Office. Significant Individual Test Because this concession wipes out the entire gain, it is always the first one to test against. If it applies, you stop there.
The 50 Percent Active Asset Reduction
Under Subdivision 152-C, any remaining gain on a qualifying active asset is cut in half. It stacks on top of the general 50 percent CGT discount that individuals and trusts get on assets held more than 12 months, so together they bring the taxable portion down to 25 percent of the original gain.5Australian Taxation Office. Small Business 50 Percent Active Asset Reduction
Companies are treated differently. A company cannot use the general 50 percent CGT discount at all.6Australian Taxation Office. CGT Discount It still gets the active asset reduction, but the taxable gain after that concession sits at 50 percent of the original, not 25 percent. That gap is one of the standard reasons business owners hold appreciating assets personally or in a trust rather than inside a company.
You can choose not to apply this reduction. Skipping it can make sense if you plan to shelter the whole remaining gain under the retirement exemption or rollover and want more of the gain available for those.
The Retirement Exemption
Subdivision 152-D lets you disregard capital gains up to a lifetime limit of $500,000 per individual. The cap is cumulative across every retirement exemption claim you ever make, and it is not indexed.7Australian Taxation Office. Small Business Retirement Exemption
You do not actually have to retire. The real constraint is age. If you are 55 or older when you claim it, you can keep the exempt amount as cash. If you are under 55, you must pay the exempt amount into a complying superannuation fund or retirement savings account by the later of when you make the choice or when you receive the sale proceeds.8Australian Taxation Office. Small Business Retirement Exemption Missing that super contribution disqualifies the exemption entirely.
When a company or trust claims the retirement exemption, it must pay the exempt amount, or the capital proceeds if lower, to at least one of its CGT concession stakeholders, and generally within seven days of making the choice or receiving the proceeds. Where proceeds arrive in instalments, payments to the stakeholder must be made as each instalment comes in. Late payment can void the concession.
The Small Business Rollover
Subdivision 152-E defers rather than eliminates the gain. You reinvest in a replacement active asset, and the tax on the original gain is postponed until you sell that replacement or it stops being active.
The replacement window runs from one year before the last CGT event in the income year you chose the rollover to two years after that event. Within that period you need to acquire a replacement active asset or make capital improvements to an existing one.9Australian Taxation Office. Small Business Roll-Over The Commissioner has discretion to extend the window if you apply and show genuine reasons.10Australian Taxation Office. Extensions of Time
Two things bring the deferred gain back into your assessable income. First, failing to acquire a replacement within the window (without an extension). Second, the replacement later ceasing to be an active asset, which commonly happens when a property drifts from business use into rental income.
How the Concessions Stack
You are not forced to pick just one. The ATO sets a fixed order for combining them, and applying that order correctly is what produces the biggest reduction.2Australian Taxation Office. CGT Concessions Eligibility Overview
- Test the 15-year exemption first. If it applies, the whole gain is gone and you stop.
- Offset current-year and prior-year capital losses against the gain.
- Apply the general 50 percent CGT discount if you qualify (individuals and trusts holding the asset at least 12 months; companies are out).
- Apply the 50 percent active asset reduction.
- Apply the retirement exemption, the rollover, or both on different portions of what remains.
A worked example makes the arithmetic concrete. An individual sells a business asset with a $400,000 capital gain. The general CGT discount cuts that to $200,000. The active asset reduction halves it again to $100,000. Applying the retirement exemption to the remaining $100,000 uses $100,000 of the $500,000 lifetime cap and brings the tax bill to zero, with $400,000 of the cap still available for future sales.
When you have several capital gains in a single year, each active asset is assessed for eligibility on its own, and you can mix concessions across assets.
Records You Need to Keep
CGT records have to be kept for the entire period you own the asset plus five years after you dispose of it.11Australian Taxation Office. Records You Need to Keep for Longer Than Five Years For a long-held business asset that can easily mean 20 years or more. What matters most:
- Purchase contracts, settlement statements, and cost base evidence.
- Business activity statements, financial accounts, and anything else showing active use throughout ownership.
- Aggregated turnover calculations or net asset valuations proving you met the gateway tests at the time of the CGT event.
- Written records of concession elections, particularly the retirement exemption choice and the rollover choice.
The retirement exemption specifically requires a written record of the amount you chose to disregard.8Australian Taxation Office. Small Business Retirement Exemption If you claimed it while under 55, you also need proof the super contribution was made in time. If the paperwork is missing during an audit, the ATO can deny the concession and tax the full gain.