The small business CGT concessions are four tax concessions that can reduce, defer, or eliminate the gain when your client sells an active business asset. Before using any of them, you must first confirm that your client meets the basic eligibility conditions.
When advising clients, you need to know not just what the available concessions are. You also need to know which one applies, whether they can be used together, and the order in which to apply them. In this article, we break down the small business CGT concessions as laid out by the Australian Tax Office (ATO).
Key takeaways
- There are four CGT small business concessions: the 15-year exemption, the 50% active asset reduction, the retirement exemption, and the small business rollover.
- To access them, you must first check that your client satisfies the basic eligibility tests: the small business entity test or maximum net asset value test, the active asset test, and some additional conditions if your client’s asset is a share or interest in a trust.
- The concession can be combined, reducing your client’s tax burden.
- Order matters. Applying these concessions in the right sequence can help maximise benefits.
What are the small business CGT concessions?
Under Division 152 of the Income Tax Assessment Act 1997, the small business CGT concessions offer eligible small businesses four ways to reduce or eliminate tax when they sell a business asset.
Here’s a summary of these four concessions:
| Concession | What it does | Main point to check |
| 15-year exemption | Disregards the entire capital gain | Ownership period, age, retirement, or permanent incapacity conditions |
| 50% active asset reduction | Reduces the capital gain by 50% | Basic conditions and active asset requirements |
| Retirement exemption | Disregards eligible capital gains up to a lifetime limit of $500,000 | Lifetime limit and payment or superannuation requirements |
| Small business rollover | Defers all or part of a capital gain | Replacement asset or capital improvement requirements |
Remember, these concessions aren’t mutually exclusive. Where appropriate, your client may use more than one concession on the same gain.
When advising, it helps to shift your thinking from “Which CGT concession does my client qualify for?” to “Does my client meet the basic conditions? If so, what is the most appropriate sequence of concessions for this gain?”
The best outcome isn’t always achieved by just applying every available concession. Order matters.
Who is eligible for small business CGT concessions?
To qualify for small business CGT concessions, your client needs to meet three main requirements: the small business entity test or the maximum net asset value test, the active asset test, and extra rules if the asset is a share or an interest in a trust.
1. The small business entity or maximum net asset value test
You first need to confirm that your client qualifies as a small business entity. That means satisfying one of these two tests:
- Small business entity test: Your client’s aggregated turnover must be less than $2 million (or $10 million, starting 1 July 2027).
- Maximum net asset value test: The total net value of your client’s CGT assets (plus related entities and affiliates) must be $6 million or less
Tip: Check whether the client has any related businesses or entities, as their figures may also count towards the test.
2. The active asset test
Your client’s asset should be an “active asset”, meaning it’s used or held ready for use in running their business for the required period of time.
The asset must be active for:
- At least half of the ownership period if it was owned for 15 years or less.
- At least 7.5 years if it was owned for more than 15 years.
3. Extra conditions for shares and trust interests
For a share in a company or an interest in a trust, additional conditions apply. These can include:
- The underlying company or trust meeting the 80% active asset test.
- The taxpayer meeting relevant ownership and participation requirements.
- The taxpayer being a CGT concession stakeholder, where required.
Tip: Selling shares has different eligibility rules from selling a business asset directly. Check the company or trust’s underlying assets and your client’s ownership interest before applying the concessions.
4 small business CGT concessions, with examples
Once your client meets basic conditions, check which concessions apply and how you can combine them to strategically reduce your client’s tax.
1. The 15-year exemption
This concession allows your client to pay zero CGT on the sale of an active asset. To qualify for this exemption, your client must meet these conditions:
- They must have owned the asset for at least 15 years without a break.
- They also must be at least 55 and retiring, or permanently unable to work when they sell.
Example: Anne, aged 56, wants to sell her commercial warehouse after owning and using it in her business for 16 years. Since she meets the 15-year rule, is over 55, and is retiring, her entire capital gain will be tax-free.
2. The 50% active asset reduction
This concession reduces the capital gain on active assets by 50%. It applies automatically once the basic conditions are met, though your client can opt not to apply it. It applies after capital losses and the general 50% CGT discount, where available. However, the 50% CGT discount be replaced with a new discount for inflation and a 30% minimum capital gains tax rate.
Example: Michael makes a $200,000 capital gain on an eligible business asset. The gain falls to $100,000 after the 50% CGT discount, then to $50,000 after the 50% active asset reduction. Again, this calculation will change after new CGT rules come into effect on 1 July 2027.
3. The retirement exemption
This concession lets your client make up to $500,000 in capital gains tax-free over their lifetime. How they use this rule depends on their age:
- Under 55: They must put the exempt amount into a superannuation fund or retirement savings account (RSA).
- 55 and over: They can take the money tax-free without adding it to their super.
Take note that despite its name, this concession doesn’t require your client to retire to be applicable.
Example: Joe, aged 45, sells a business asset and has a $150,000 capital gain left. Since he’s under 55, he must put the full amount into his super fund to ignore the gain for tax. This amount counts toward his $500,000 lifetime limit, so he’ll have $350,000 left.
4. The small business rollover
This concession lets your client delay paying tax on all or part of a capital gain for up to two years. To do this, your client must buy a new active asset or improve existing ones within the allowed time. This time frame starts one year before and ends two years after the CGT event. If the CGT rollover rules aren’t followed, the deferred gain will be taxed.
Example: Sandra sells her business premises and makes a $300,000 capital gain. She uses the small business rollover and has two years from the sale to buy another commercial property. After 18 months, she buys a new shopfront for her business. This means the $300,000 gain is transferred to the new asset, so her tax is still deferred.
How the concessions work together: sequencing matters
When combining these concessions, note the sequence laid out by the ATO, because each step reduces the base amount for the next concession.
Below is the sequence, applied after the basic conditions for the CGT concessions are met:
| Step | Concession | Impact on capital gain | What to consider |
| 1 | 15-year exemption | Disregards the gain | Check 15-year ownership and retirement requirement (55 years or older, retiring, or permanently incapacitated). |
| 2 | Capital losses | Reduces the gain | Apply available losses first. |
| 3 | General 50% CGT discount | Halves the gain | Available to individuals and trusts with assets held 12+ months. Changes on 1 July 2027 to a min. 30% tax on capital gains. Companies excluded. |
| 4 | 50% active asset reduction | Halves the remaining gain | Applies automatically if base conditions are met. Can opt out. |
| 5 | Retirement exemption or rollover relief | Disregards some or all of the gain, or defers the remaining balance up to limits | You can choose the order or combine these two to handle remaining capital gain. |
Each step changes the amount available for the next concession. For example, a $2 million capital gain could fall to $1 million after the general CGT discount, then to $500,000 after the 50% active asset reduction. This qualifies the gain for the retirement exemption, allowing the remaining gain to be disregarded.
Tip: Don't assess each concession in isolation. Compare the available options and how they interact before finalising your tax treatment.
You can use these tips as part of your broader tax planning strategy. See our guide, 11 tax planning strategies for Australian accountants, for more tax planning strategies.
Common mistakes to avoid
When applying CGT small business concessions, common mistakes to avoid include failing a basic condition, getting the active asset test wrong, missing the rollover window, and misunderstanding the retirement exemption limit.
1. Failing a basic condition
To avoid this mistake, make sure to assess your client’s turnover, net assets, specific asset, and ownership structure before applying concessions. Related entities, affiliates, and connected entities can affect the turnover and net asset tests, while the asset and ownership structure can affect eligibility.
2. Getting the active asset test wrong
Common mistakes here include assuming any business-owned asset qualifies, overlooking periods when the asset wasn’t used or held ready for use in the business, or failing to check whether it was active for the required period.
3. Missing the rollover window
You may miss the CGT rollover window by assuming the replacement asset can be acquired at any time, missing the two-year deadline, or assuming any new asset automatically qualifies. To avoid this mistake, track when the relevant CGT event occurred and make sure your client acquires or improves the replacement asset within the allowed time period.
4. Misunderstanding the retirement exemption limit
The retirement exemption has a $500,000 lifetime limit, not an annual limit. Always check how much your client has previously used and, if they are under 55, whether the required amount needs to be contributed to their super.
5. Applying the concessions to depreciating assets
The CGT concessions for small businesses do not apply to gains from depreciating assets. Qualify the assets accordingly before applying concessions.
6. Not recording the choice.
You must choose to apply the 15-year exemption, retirement exemption, or rollover before lodging the return for that year. For the retirement exemption, make sure to keep a written record of the amount disregarded.
How ChangeGPS helps
ChangeGPS helps model CGT outcomes and document the concession analysis as part of your client planning. For example, the Tax Advice Bundle lets you compare different CGT scenarios, model potential outcomes, and turn the analysis into client-ready advice rather than relying on a single calculation.
It’s also designed for accounting workflows. That means you can do your CGT analysis alongside broader tax planning and business structure considerations, which helps you stay consistent across multiple engagements.
FAQ
Small business CGT concessions
What are the four small business CGT concessions?
The four concessions are the 15-year exemption, 50% active asset reduction, retirement exemption, and small business rollover. They help reduce or eliminate a capital gain where the relevant conditions are met.
What are the basic conditions for the CGT concessions?
Your client’s aggregated turnover must be less than $2 million. When the CGT tax reforms kick in on 1 July 2027, that goes up to less than $10. Alternatively, their maximum net asset value should be around $6 million or less immediately before the relevant CGT event. Also, their asset should be “active.” Additional conditions apply if their asset is a share in a company or an interest in a trust.
Can you use more than one CGT concession?
Yes. You can stack CGT small business concessions to the same capital gain if they’re eligible. Stacking these concessions in the right order can help maximise your client’s benefits.
What is the small business CGT rollover?
It's a concession that lets an eligible taxpayer defer all or part of a capital gain by acquiring a replacement active asset or making a qualifying capital improvement. The standard replacement asset period generally starts one year before and ends two years after the last CGT event in the relevant income year.
What is the lifetime CGT retirement exemption cap?
The CGT retirement exemption has a $500,000 lifetime limit for each person. That means if your client has previous disregarded amounts, they’ll reduce the amount available for future use. So, always check how much of the lifetime limit your client has already used when tax planning.
Do the concessions apply to the sale of shares?
They can, with additional conditions. Where the CGT asset is a share in a company or an interest in a trust, the underlying entity must satisfy relevant active asset requirements, and the taxpayer must meet additional ownership and CGT concession stakeholder conditions.
