Selling a business is usually the largest single transaction of an owner’s working life, and capital gains tax is usually the largest single cost attached to it. The small business CGT concessions in Division 152 of the Income Tax Assessment Act 1997 exist to reduce that cost, and in the right circumstances they can reduce an assessable capital gain to nil. They are also among the most misunderstood provisions in the Australian tax system, because eligibility turns on a set of threshold tests that are applied at a specific moment in time and are easy to fail by accident.

This guide sets out the four concessions, the basic conditions you have to satisfy before you can access any of them, the order they are applied in, and the change that takes effect on 1 July 2027. The numbers matter more than the narrative here, so every threshold below is stated with its current figure and its source.

What are the small business CGT concessions?

There are four, and they are separate. Passing the eligibility gateway does not automatically give you all four, and most business owners who qualify end up using two or three of them together rather than one in isolation.

• The 15-year exemption: disregard the entire capital gain.
• The 50% active asset reduction: halve the remaining capital gain.
• The retirement exemption: disregard up to $500,000 of gain across your lifetime.
• The small business roll-over: defer the gain by acquiring a replacement asset.

All four sit behind the same gate. Before any of them apply, you have to satisfy what the legislation calls the basic conditions.

The Division 152 basic conditions

The basic conditions are the part that decides most cases, and they are where planning either happens or does not. There are three components, and you need all of them.

1. You must be a CGT small business entity, or pass the maximum net asset value test

This is an either/or. You satisfy the entity limb if you are carrying on a business with an aggregated turnover of less than $2 million. Alternatively, you satisfy the asset limb if you pass the maximum net asset value test, which caps the net value of the CGT assets of you, your connected entities and your affiliates at $6 million.

Two details on these figures are worth stating plainly, because they are where the errors cluster.

First, the $2 million turnover figure is specific to the CGT concessions. Most other small business tax concessions, including the instant asset write-off, use a $10 million threshold. Owners who have been told for years that their business is a “small business entity” at $10 million are frequently surprised to find they are not one for CGT purposes. The ATO’s guidance on CGT concession eligibility sets the $2 million figure for these four concessions specifically.

Second, the $6 million maximum net asset value threshold is not indexed for inflation, and it is tested just before the CGT event that produces the gain. Both facts have consequences. A threshold that has not moved with asset prices catches more businesses each year. And because the test bites at a single moment immediately before settlement, the value of everything you and your connected entities own on that day is what counts, which makes the timing of a sale a live planning question rather than an administrative one. The ATO’s maximum net asset value test guidance confirms both the figure and the timing.

Assets used solely for personal use and enjoyment sit outside the test, as does your home to the extent it is used privately, along with superannuation interests and life insurance policies. A home partly used to produce income is counted proportionately. Because the calculation involves market values rather than book values, a defensible business valuation prepared before a sale is often what determines whether the test is passed or failed on paper.

2. The asset must satisfy the active asset test

An active asset is one you or your affiliates use, or hold ready for use, in carrying on a business. It can be tangible or intangible, so goodwill counts.

The test is about duration, not just current use, and the required period depends on how long you have owned the asset. Per the ATO’s active asset test guidance, the asset must have been active for:

• 7.5 years during the test period, if you have owned it for more than 15 years, or
• half of the test period, if you have owned it for 15 years or less.

The periods do not have to be continuous. The test period runs from acquisition to the CGT event, or to the date the business stopped, if that was within the preceding 12 months.

Some assets are excluded by their nature. An asset whose main use is to derive rent is not an active asset, which is the single most common trap for owners holding commercial property. Nor are financial instruments, shares and trust interests that fail the 80% test, or subdivided vacant land. The rent exclusion in particular catches owners who moved a business premises into a separate entity and started charging rent to the operating company, sometimes years before a sale, without realising it changed the asset’s character.

3. Extra conditions apply if you are selling shares or trust units

If the thing being sold is a share in a company or an interest in a trust rather than the business assets themselves, two further conditions attach. There must be a CGT concession stakeholder in the company or trust, meaning a significant individual holding a small business participation percentage of at least 20%, or that individual’s spouse where the spouse holds a participation percentage above zero. And where the seller is itself a company or trust rather than an individual, the CGT concession stakeholders of the entity whose shares or units are being sold must together hold at least 90% participation in that seller.

The company or trust itself must also pass a modified active asset test, under which at least 80% of the market value of its assets are active assets. This is the point at which the sale structure stops being a legal formality and becomes a tax outcome. Whether a deal is written as an asset sale or a share sale can change the CGT position substantially, and it is far cheaper to resolve during business structuring than during a due diligence process with a signed heads of agreement in place.

The four small business CGT concessions in detail

Small business 15-year exemption

The most valuable of the four, because it disregards the whole capital gain. You need to have continuously owned the asset for the 15 years ending just before the CGT event, and be 55 or older with the sale happening in connection with your retirement, or permanently incapacitated at any age.

“In connection with retirement” is not a defined bright line. The ATO’s position is that there must be at least a significant reduction in hours worked or a significant change in activities. A full stop is not required, but nor is a nominal gesture sufficient.

For a company or trust, there must have been a significant individual for a total of at least 15 years of the whole ownership period, though it does not have to be the same person throughout. Where the entity then distributes the exempt amount to a stakeholder, the payment generally has to be made within two years of the CGT event.

Small business 50% active asset reduction

Reduces the remaining capital gain by half. It applies automatically once the basic conditions are met, and unlike the other three it requires no election and no additional conditions. If you would rather not use it, in order to preserve more room under another concession, you can choose to opt out.

This is the concession affected by the 2027 change described below.

Small business retirement exemption

The retirement exemption lets you disregard up to $500,000 of capital gain across your lifetime. That limit is per individual, or per CGT concession stakeholder where a company or trust makes the gain, and it is not indexed, so it does not rise each year.

Despite the name, you do not have to retire. The ATO is explicit that you need not end your employment, your business activities or your office holdings to use it.

The condition that does bite is age. If you are under 55, the exempt amount must be contributed to a complying superannuation fund or a retirement savings account, and the contribution has to be made by the later of the time you make the choice and the time you receive the proceeds. Over 55, the money is yours to keep in your own name.

Two separate numbers get conflated here, so it is worth separating them. The $500,000 is the lifetime cap on the concession itself. The CGT cap amount is the separate limit on how much of these proceeds can be contributed to super without counting against your non-concessional contributions cap, and for 2026-27 that figure is $1,935,000, up from $1,865,000 in 2025-26 (ATO key super rates and thresholds). Unlike the $500,000, the CGT cap is indexed to average weekly ordinary time earnings in $5,000 increments. Getting these two figures the wrong way round is one of the more expensive filing errors in this area.

Small business roll-over

Defers the gain rather than removing it. You have two years from the CGT event to acquire a replacement active asset or make a capital improvement to an existing one.

The deferral is conditional, not permanent. If no replacement asset is acquired in time, CGT event J5 triggers and the deferred gain comes back in full. If a replacement is acquired but costs less than the deferred gain, CGT event J6 brings back the shortfall. If the replacement later stops being an active asset, CGT event J2 can apply. Used deliberately, the roll-over is a useful bridge between one business and the next. Used as a way of postponing a decision, it tends to resurface at an inconvenient moment.

The order the concessions apply in, with a worked example

The sequence is fixed, and applying it in the wrong order produces the wrong number. Capital losses come off first. Then the general 50% CGT discount, if the asset was held for at least 12 months and the taxpayer is an individual or trust. Only then do the small business concessions apply.

The exception is the 15-year exemption. If it is available, the entire gain is disregarded and you never reach the discount or the other concessions at all. Check it first, because the analysis stops there.

Here is how the stack works on a single number. This example is illustrative only and uses simplified figures to show the mechanics.

A Gold Coast civil construction operator sells the business she has run as a sole trader for 12 years. Turnover is $1.6 million, her net assets are comfortably under $6 million, and the goodwill and plant have been used in the business throughout. She is 52. The sale produces a capital gain of $800,000, and she has no capital losses.

1. Capital gain: $800,000
2. Capital losses applied: none, so the gain remains $800,000
3. General 50% CGT discount (individual, asset held over 12 months): reduces to $400,000
4. Small business 50% active asset reduction: reduces to $200,000
5. Retirement exemption applied to the remaining $200,000: reduces to nil

The assessable capital gain is nil. Two consequences follow that are easy to miss. Because she is under 55, that $200,000 must go into super rather than her bank account, and it counts against the $1,935,000 CGT cap rather than her non-concessional cap. And she has now used $200,000 of her $500,000 lifetime retirement exemption limit, leaving $300,000 for any future business sale.

Note that the 15-year exemption was not available here, because she had owned the business for 12 years rather than 15 and is under 55. Had she been three years further along on both counts, the whole $800,000 would have been disregarded at step one and the remaining steps would never have been reached. That gap is precisely the kind of thing a business advisor is looking for when a sale is still two or three years out, and it is why exit planning that starts at the term sheet has usually started too late.

What changes on 1 July 2027

This is the part most current guidance on the topic has not caught up with, and it matters for anyone modelling a sale in the next two years.

The Treasury Laws Amendment (Tax Reform No. 1) Act 2026, which received Royal Assent on 26 June 2026, increases the aggregated turnover threshold from $2 million to $10 million, effective 1 July 2027. The change was announced by the Government on 18 June 2026 as part of the post-Budget tax reform package, bringing the threshold into line with the one used for the instant asset write-off.

The critical qualification, and the one to watch for in commentary that summarises this change loosely, is that the increase applies to the 50% active asset reduction only. The 15-year exemption, the retirement exemption and the small business roll-over all keep the $2 million turnover threshold. The $6 million maximum net asset value test is unchanged and continues to operate as the alternative gateway for all four.

So from 1 July 2027, a business turning over $7 million that fails the $6 million net asset test will be able to halve its capital gain, but will not be able to use the retirement exemption or the 15-year exemption. For businesses sitting between $2 million and $10 million in turnover, that distinction is the difference between a partial concession and a full one, and it makes the maximum net asset value test more important for those owners rather than less.

Until 1 July 2027, the $2 million threshold applies to all four concessions. If you are planning a sale that straddles that date, the interaction between the two regimes is worth modelling properly before you commit to a settlement date.

Where business owners get caught out

The concessions are generous, and the ATO reviews claims accordingly. Small business CGT concession claims sit on the ATO’s published small business focus areas. The recurring problems are consistent.

• Rent kills the active asset test. A premises held in a separate entity and rented to the operating business is generally not an active asset, however integral it is to the business.
• Connected entities and affiliates are counted, and they are frequently missed. The $6 million test reaches into your spouse’s entities, your family trust and companies you control. Owners routinely test only the business being sold.
• The test date is the day before the CGT event, not year end. A valuation prepared for a different purpose at a different date will not necessarily support the position.
• Contingent liabilities are contested territory. What can be deducted in calculating net asset value is not always obvious, and the case law is not uniformly helpful.
• Concession codes are entered incorrectly on the return. A mechanical error, but one that reliably attracts attention.
• Earn-outs complicate the timing. Deferred consideration affects when gains arise and when replacement asset periods run.

Almost all of these are fixable in advance and almost none are fixable afterwards. The concessions reward owners who plan the structure of a sale, and they penalise owners who discover the rules during the transaction. For businesses in building and construction, where operating entities, plant holding entities and property structures often sit side by side, the connected entity trap in particular is worth testing well before a sale is contemplated.

Frequently asked questions

Who is eligible for the small business CGT concessions?

You need to satisfy the basic conditions: carrying on a business with aggregated turnover under $2 million, or passing the $6 million maximum net asset value test, and the asset being sold must satisfy the active asset test. If you are selling shares or trust units rather than business assets, additional conditions apply around significant individuals and the 80% active asset composition of the entity.

Do I have to actually retire to use the retirement exemption?

No. The ATO states that you do not need to end your employment, your business activities or your office holdings. The condition that does apply is age based: if you are under 55, the exempt amount must be paid into a complying superannuation fund or retirement savings account rather than taken personally.

Can I use more than one concession at the same time?

Yes, and most eligible owners do. The general 50% CGT discount, the 50% active asset reduction and the retirement exemption stack in that order, which is how an $800,000 gain can reduce to nil. The 15-year exemption is the exception, because it disregards the entire gain on its own and the other concessions are never reached.

Does the $2 million turnover test include GST?

Aggregated turnover is calculated on GST-exclusive income, and it includes the annual turnover of any entities connected with you or affiliated with you, not just the business being sold. That aggregation is what pushes many owners over the line unexpectedly.

Can I claim the concessions on an investment property?

Generally not. An asset whose main use is to derive rent is specifically excluded from being an active asset, so a standard investment property will not qualify. A property used in your own business operations is a different matter and can qualify, which is why the ownership and leasing structure around business premises deserves attention long before a sale.

What is the lifetime limit for the retirement exemption?

$500,000 per individual, or per CGT concession stakeholder where a company or trust makes the gain. It is not indexed. It is a lifetime limit rather than a per-sale limit, so amounts used on an earlier business sale reduce what remains available.

Next steps

The small business CGT concessions are worth more than almost any other planning available to an Australian business owner, and access to them is decided by conditions that are tested on a single day, often years after the decisions that determined the outcome were made. The owners who get the full benefit are the ones who checked the position while there was still time to change it.

If a sale, a succession or a restructure is on your horizon, it is worth confirming where you sit against the $2 million, $6 million and active asset tests now rather than at settlement. Our team can model the position across both the current rules and the post-July 2027 rules, and identify what would need to change to improve it. Get in touch with New Wave Accounting to talk it through, or read more about our business advisory services and how we support owners through a transaction.

This article contains general information only and does not take into account your objectives, financial situation or needs. It is not tax, financial or legal advice. Thresholds and rules are current as at 11 September 2026 and are subject to change. The worked example is illustrative and uses simplified figures. You should seek advice specific to your circumstances before acting on any information in this article.