Small Business CGT Concessions Explained

Written by Joshua Josiah  |  Associate Director

How to Maximise Your Benefits

The small business capital gains tax (CGT) concessions provide valuable tax relief for eligible business owners when selling or disposing of business assets.

Understanding how these concessions work, and applying them strategically can result in substantial tax savings and long-term financial advantages.

Overview of the Four Key CGT Small Business Concessions 

• 15-Year Exemption: 
  If you have owned an active business asset for at least 15 years and are aged 55 or over and retiring (or permanently incapacitated), you may be able to disregard the entire capital gain from the sale of that asset. This is the most generous concession, allowing you to exit your business completely tax-free under qualifying conditions.
• 50% Active Asset Reduction: 
  If you do not qualify for the 15-year exemption, you may still reduce the capital gain by 50% under this concession. For individuals, the general 50% CGT discount can also apply first, meaning that only 25% of the total gain may ultimately be taxable.
• Retirement Exemption: 
  You can disregard up to $500,000 of capital gains per individual if the proceeds are used for retirement purposes. If you are under 55, the exempt amount must be contributed to a complying superannuation fund or retirement savings account.
• Small Business Roll-Over: 
  This concession allows you to defer the capital gain if you acquire a replacement active asset or make a capital improvement to an existing one. The deferred gain only becomes taxable if the replacement or improved asset is later sold or its use changes.

Eligibility Criteria 

To access these concessions, you must satisfy certain conditions:

• Small Business Entity Test: You must be a CGT small business entity (with aggregated turnover of less than $2 million), or
• Net Asset Value Test: Your total net assets (including connected entities) must not exceed $6 million.
• Active Asset Requirement: The asset must be actively used in the course of carrying on a business.
• Additional Conditions: Apply to passively held assets and to shares or trust interests.

Maximising the Benefits 

1. Apply Concessions in the Optimal Sequence
   Offset capital losses first, then apply the general CGT discount (if applicable), followed by the small business concessions in the order that provides the best result for your circumstances.
2. Leverage Superannuation Opportunities
   Amounts exempted under the 15-year or retirement exemptions can be contributed to superannuation under the CGT cap, which is separate from the usual non-concessional contribution cap, offering a powerful retirement planning opportunity.
3. Plan Ahead
   Eligibility must be met at the time of the CGT event, so early planning is essential. Review ownership structures, asset usage, and retirement timelines in advance.
4. Maintain Comprehensive Records
   Keep accurate and detailed documentation to substantiate eligibility and the correct application of concessions, this will be vital if the ATO reviews your claim.

Common Pitfalls 

• Failing to satisfy the active asset test or other eligibility criteria at the time of the CGT event.
• Overlooking additional conditions for shares or trust interests.
• Assuming eligibility without formal testing or professional review.

Conclusion

The small business CGT concessions can deliver significant tax savings and support effective business succession and retirement planning. However, the rules are complex, and eligibility must be carefully managed.

Strategic planning, accurate record-keeping, and professional advice are essential to ensure you maximise your benefits and avoid costly errors.

For tailored advice or further information, please contact Tony D’Agostino or Ashley Staunton.  Our team can guide you through the application of the small business CGT concessions in your specific circumstances.

📞 Or call us on +61 7 3666 0091 to arrange a consultation.

Useful Resources:

EOFY Small Business Tax Planning Tips

Understanding the Tax on Super

Contact Us

Give Us a Call on +61 7 3666 0091

Email us at email@mobilityas.com.au

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