When it comes time to sell your business or business assets, the capital gains tax bill can be significant. Thankfully, the Australian Taxation Office provides a range of small business CGT concessions that may reduce the amount of tax payable. These concessions are designed to help small business owners who have invested years of effort into building their business preserve more of their wealth when it’s time to move on.

Who Can Access the Concessions?

To qualify, you’ll need to meet some basic conditions. You may be eligible if:

• Your aggregated annual turnover is less than $2 million, or

• Your net business assets are valued at $6 million or less, and

• The asset you’re disposing of is an active business asset (used in the business).

In addition, the ATO sets out several extra steps you may need to consider:

Eligible Entity Test – You must be a small business entity (turnover under $2 million) or meet the $6 million net asset value test. In some cases, individuals holding assets used by an affiliate or connected entity may also qualify.

Active Asset Test – The asset must have been used in the course of running a business. Depreciating assets (like equipment already written off for tax purposes) generally don’t qualify.

Shares or Trust Interests – If the asset is a share in a company or an interest in a trust, additional rules apply.

Partnership Situations – If the CGT event involves partnership rights or entitlements (for events after 8 May 2018), special conditions apply.

Visit ATO for more details and example on CGT Concession eligibility.

The Four Key Small Business CGT Concessions

1. 15-Year Exemption
If you’ve owned an active business asset for at least 15 years and you’re aged 55 or over and retiring (or permanently incapacitated), you may qualify for a full CGT exemption on the capital gain.

2. 50% Active Asset Reduction
This concession allows you to reduce the capital gain on an active business asset by 50%. It can also be used together with the general 50% CGT discount for individuals and trusts, providing a substantial overall reduction.

3. Retirement Exemption
You can exclude up to $500,000 of capital gains over your lifetime under this exemption. If you’re under 55, the amount must be contributed into a complying superannuation fund. For those aged 55 and over, it can be taken directly.

4. Rollover
This concession lets you defer all or part of a capital gain for at least two years. The deferral can be extended if you acquire a replacement active asset or make capital improvements to an existing one.

It’s also important to know that:

• The 50% active asset reduction applies automatically if you qualify, unless you choose not to use it.
• The other concessions (15-year exemption, retirement exemption and rollover) must be chosen by the time you lodge your tax return.
• You can apply more than one concession to a single capital gain if the conditions are met, and they interact with both capital losses and the general CGT discount.

For more details explanation and examples on the concessions, please visit ATO: Small business CGT concessions.

Why These Concessions Matter

Used strategically, these concessions can significantly reduce your tax bill and boost your retirement savings. In many cases, business owners are able to preserve tens or even hundreds of thousands of dollars that would otherwise be paid in tax.

It’s also worth remembering the superannuation contributions made under the small business retirement exemption or the 15-year exemption generally don’t count towards your non-concessional contribution caps. This allows many small business owners to strengthen their retirement position while staying within contribution limits.

However, the rules are complex, and the eligibility tests vary depending on your structure, ownership, and personal circumstances. Getting the right advice before you sell is key to maximising the available benefits.

Selling a business is often a once-in-a-lifetime event. To ensure you’re not paying more tax than necessary, it’s important to understand your eligibility and plan ahead. At MKG Partners, we regularly assist clients with their CGT obligations, including the small business CGT concessions. Our experience in handling these matters means we can help you navigate the rules and apply the concessions correctly to your situation.