The four concessions that can reduce or eliminate a capital gain when you sell a business asset — who qualifies, how each one works, and how to stack them.
If you sell a business and make a capital gain, the tax bill can be substantial. The small business CGT concessions exist to soften that hit — and in many cases eliminate it entirely. They are some of the most generous provisions in the Australian tax system, but they come with specific eligibility conditions and a mandatory application order. Getting either wrong means you could miss out, or worse, claim something you're not entitled to. This guide walks through all four concessions in plain language, sourced from the ATO's small business CGT concessions guidance.
Before any of the four concessions can apply, you need to satisfy two basic conditions: a size test and an active asset test.
You meet the size test if either of the following applies just before the CGT event:
The first way is to be a CGT small business entity, meaning your aggregated annual turnover — including the turnover of any connected entities and affiliates — is less than $2 million. The second way is to pass the maximum net asset value test. This test looks at the total net value of all CGT assets owned by you, your connected entities, your affiliates, and your affiliates' connected entities. If that combined figure is $6 million or less, you pass. Critically, this test is not restricted to business assets — it includes everything from investment properties to shares to other non-business assets, though it does exclude your main residence (up to a threshold), certain personal use assets, and your superannuation interest.
If your turnover has grown past $2 million, the net asset value test gives you a second chance. It is a snapshot test — you only need to pass it at the time of the CGT event, not throughout the year.
The asset you're selling must pass the active asset test. Broadly, a CGT asset is active if it was used or held ready for use in a business carried on by you, a connected entity, or an affiliate. The test requires the asset to have been active for more than half of your ownership period. If you've owned the asset for more than 15 years, the test only needs to be satisfied for at least 7.5 of those years.
Physical business assets — equipment, commercial premises, intellectual property, and goodwill — almost always pass. Shares and trust interests can also qualify, but only if additional conditions are met (at least 80% of the company's or trust's assets must themselves be active assets). Purely passive investments, like shares in a listed company you hold for investment purposes, or a residential rental property, generally won't pass the active asset test.
This is the most powerful of the four. If you qualify, the entire capital gain is disregarded — you pay nothing. The conditions are that the CGT small business entity (or you, as an individual) has continuously owned the asset for at least 15 years, and you either were permanently incapacitated at the time of the CGT event, or you were at or above preservation age (currently 60) and you retired. For a company or trust, there must be a CGT concession stakeholder who meets those individual conditions.
Because the 15-year exemption wipes the entire gain, you don't need to apply any other concession if you qualify. The ATO's application steps say to check this one first — if you pass, stop there.
This concession reduces the remaining capital gain by 50%. Unlike the other three, it applies automatically once the basic conditions are met — you don't have to elect it. You can, however, choose not to apply it if you'd prefer to use the retirement exemption or roll-over instead (sometimes the maths favours that).
An important interaction: if the asset was held for more than 12 months, you can also apply the standard 50% CGT discount before applying the active asset reduction. That means a single gain can be halved twice — first by the CGT discount, then again by the active asset reduction — leaving you with 25% of the original amount before any further concessions.
The retirement exemption lets you disregard all or part of a remaining capital gain, up to a lifetime limit of $500,000 per individual. This limit is cumulative — it applies across all years and all businesses. You need to keep a written record of the amount you choose to disregard.
There's one important condition tied to age. If you are under 55 when you apply the exemption, the exempt amount must be contributed directly to a complying superannuation fund or retirement savings account. If you are 55 or over, the contribution is optional. Either way, the amount counts as a CGT exempt contribution to super, sitting outside the standard non-concessional contributions cap — more on this below.
Rather than eliminating the gain, the roll-over defers it. You can roll over all or part of the remaining capital gain if you acquire one or more replacement assets, or if you incur capital expenditure on an existing active asset, within two years of the original sale. If the replacement asset is eventually sold at a gain, that deferred gain revives and must be reported.
The roll-over is useful when you're reinvesting the proceeds into a new business and can't make a super contribution (perhaps because you're already over the contribution caps for the year). It buys time and can shift the gain into a future year when your other income may be lower.
The ATO specifies a mandatory sequence. Working through it correctly can stack concessions to dramatic effect.
| Step | Action | Result if applied |
|---|---|---|
| 1 | Check 15-year exemption | Entire gain disregarded — stop here |
| 2 | Apply capital losses | Reduces the gain dollar for dollar |
| 3 | Apply CGT discount (if asset held 12+ months) | Remaining gain reduced by 50% |
| 4 | Apply 50% active asset reduction | Remaining gain reduced by a further 50% |
| 5 | Apply retirement exemption or roll-over | Remaining gain reduced to zero or deferred |
A worked example makes this concrete. Imagine you sell a business asset you've owned for more than 12 months, making a capital gain of $400,000. You're 58 years old and meet all eligibility conditions. You have no capital losses. Working through the steps: after the 50% CGT discount, the gain becomes $200,000. After the 50% active asset reduction, it falls to $100,000. You then apply the retirement exemption to disregard the remaining $100,000 — and because you're over 55, you're not required to contribute to super (though you could choose to). Your taxable capital gain is zero.
One of the most important — and often overlooked — features of the small business CGT concessions is that certain amounts can be contributed to superannuation outside the standard contributions caps. Amounts from the 15-year exemption and the retirement exemption are classified as CGT exempt contributions, which count against a separate CGT cap rather than your annual non-concessional contributions cap. This allows small business owners who are winding down their businesses to make significant super top-ups that wouldn't otherwise be possible.
To make use of this, you need to provide your super fund with a valid CGT cap election form before or when you make the contribution. Speak to a tax adviser about whether your super balance and the CGT cap rules allow the contribution in your specific year.
The ATO lists small business CGT concessions as a focus area for compliance. Common issues they see include applying the concessions to assets that don't genuinely pass the active asset test — for example, a property leased to a third party that is not connected to the business. They also see related-party transactions that aren't conducted at arm's length, where the gain is artificially inflated or deflated to manipulate the outcome. Claiming the concessions on depreciating assets that were fully claimed under the capital allowances system is another error: those gains generally arise under the balancing adjustment rules, not as capital gains, and can't use the concessions.
Disclaimer: This article provides general information about the small business CGT concessions and is not financial or tax advice. Eligibility rules are complex, depend on your specific circumstances, and interact with other tax provisions. Always refer to the ATO's small business CGT concessions pages for the latest guidance, and consult a registered tax agent before making decisions about your business sale.