Tax

Small Business CGT Concessions Australia: The Complete 2026 Guide

15 June 2026 · 9 min read

Quick Answer

Australia's small business CGT concessions can reduce or eliminate capital gains tax when you sell a qualifying business asset. There are four concessions — the 15-year exemption, 50% active asset reduction, retirement exemption, and rollover — and you must meet two basic eligibility tests before you can access any of them. Getting the order right and meeting the asset threshold (net assets under $6 million, or turnover under $2 million) is critical.

Capital gains tax can take a serious bite out of the proceeds when you sell a business, a business asset, or shares in a company that runs a business. For many sole traders and small business owners in Australia, the gain can easily run into hundreds of thousands of dollars — and without planning, a large chunk goes straight to the ATO.

The good news is that the tax law contains four specific concessions designed for small businesses. Used correctly, they can reduce your capital gain to zero. Used incorrectly — or missed entirely — you pay full tax on a gain you were legally entitled to shelter. The ATO estimates that thousands of small business owners miss these concessions every year simply because they don't know they exist or leave the planning too late.

This guide explains every concession in plain English, walks through the eligibility tests, and tells you the exact order to apply them. Whether you're selling a property used in your business, transferring shares to a family member, or winding up after 20 years of trading, understanding these rules before settlement day is non-negotiable.

What Are the Small Business CGT Concessions?

The small business CGT concessions live in Division 152 of the Income Tax Assessment Act 1997. They are a set of four separate concessions that can reduce or completely eliminate the capital gains tax liability on the sale of an active business asset. They apply to individuals, companies, trusts, and partnerships — but the eligibility conditions differ slightly depending on your structure.

These concessions are separate from the general 50% CGT discount that applies when you hold an asset for more than 12 months. You can stack some concessions on top of each other — for example, apply the general discount first, then layer the small business 50% active asset reduction on top — which can make the effective tax rate on a qualifying gain very close to zero.

The four concessions are: (1) the 15-year exemption, which makes the entire gain tax-free if you have held the asset for at least 15 continuous years; (2) the 50% active asset reduction, which cuts the remaining gain in half; (3) the retirement exemption, which shelters up to $500,000 of lifetime gains linked to retirement; and (4) the small business rollover, which defers the gain for up to two years while you buy a replacement asset.

You must satisfy the basic eligibility conditions before any of the four concessions apply. Skipping this step is the most common mistake.

The four concessions at a glance

15-year exemption — full gain exempt, no tax payable
50% active asset reduction — halves the capital gain after other discounts
Retirement exemption — up to $500,000 lifetime cap, tax-free if contributed to super
Small business rollover — defers the gain, not a permanent exemption

The Two Basic Eligibility Tests You Must Pass First

Before you can access any of the four concessions, you must satisfy at least one of two basic eligibility tests set out in section 152-10 of the ITAA 1997. Test one is the maximum net asset value test: the net value of the CGT assets that you and your affiliates (connected entities, associates) own must be $6 million or less just before the CGT event. Test two is the small business entity test: you must be carrying on a business with an aggregated annual turnover of less than $2 million.

The $6 million net asset threshold catches out many business owners who assume the test only looks at business assets. It includes all CGT assets you own — personal assets, investment properties, and the assets of connected entities — minus liabilities directly linked to those assets. Importantly, your main residence and personal use assets are excluded from the calculation, but investment properties are included at their market value.

Passing either test is enough — you don't need to pass both. Most sole traders and small businesses with turnover under $2 million will satisfy the small business entity test without needing to worry about the net asset calculation. But if your turnover has grown above $2 million, run the net asset test carefully before assuming you're locked out.

If your business has had a good few years and turnover has crept above $2 million, do not assume you fail. The $6 million net asset test is a separate lifeline — check both before ruling yourself out.

Eligibility checklist

Net assets of $6 million or less (you + affiliates + connected entities) — OR
Aggregated annual turnover under $2 million (small business entity test)
Assets tested at market value just before the CGT event date
Personal main residence is excluded from the $6M net asset calculation
Investment properties are included at market value — a common trap

The Active Asset Test: The Condition That Trips People Up Most

Even after passing the basic eligibility test, the asset you're selling must qualify as an 'active asset' under section 152-35 of the ITAA 1997. An active asset is one used or held ready for use in carrying on a business. This includes goodwill, business premises, equipment, and — in some circumstances — shares in a company or interests in a trust that carries on a business.

The active asset test has a timing component. If you've owned the asset for 15 years or less, it must have been active for at least half the period you owned it. If you've owned it for more than 15 years, it must have been active for at least 7.5 years. This catches rental properties used partly for business — if the property sat vacant or was rented to unrelated tenants for most of your ownership period, it may not pass.

Shares and trust interests are treated as active assets only if at least 80% of the market value of the entity's assets are active assets. This is a critical condition for business owners who hold their operating business inside a company or trust — you need to value the entity's assets and check the 80% threshold before sale. If the entity is holding excess cash or passive investments, the shares may fail the active asset test even though the business itself is thriving.

Passive rental income does not make a property an active asset. If your business property is partly leased to a third party, get a tax agent to test the active asset conditions before you sign a contract of sale.

How to Apply the Four Concessions — In the Right Order

The order in which you apply the concessions matters because they interact with each other. The ATO sets out the intended sequence in the Tax Office's small business CGT guide, and applying them in the wrong order can mean you lose some of the benefit or miscalculate your taxable gain.

Step one: if you qualify for the 15-year exemption, stop there. The entire capital gain is disregarded. You don't need to apply any other concession. If the 15-year exemption doesn't apply, move to step two.

Step two: apply the general 50% CGT discount if you are an individual or trust and have held the asset for more than 12 months. This cuts the gain in half. Step three: apply the 50% active asset reduction to what remains — halving it again. At this point, an individual who has held an asset for more than 12 months has reduced a $1,000,000 gain to $250,000. Step four: apply the retirement exemption or the rollover (or both) to reduce or defer the remaining amount. You can use the retirement exemption to make the remaining gain tax-free up to your $500,000 lifetime cap. If you are under 55, the exempt amount must be contributed to a complying super fund.

A $1 million gross gain on a qualifying asset held 12+ months can be reduced to $0 using the general discount + active asset reduction + retirement exemption — legally. This requires upfront structuring, not post-settlement scrambling.

Correct order of application

1st — 15-year exemption (if applicable, full gain gone, stop here)
2nd — General 50% CGT discount (individual/trust, asset held 12+ months)
3rd — 50% active asset reduction (halves the discounted gain)
4th — Retirement exemption (up to $500K lifetime cap) and/or rollover

The Retirement Exemption: $500,000 Lifetime Cap Explained

The retirement exemption under Subdivision 152-D allows you to disregard a capital gain up to a lifetime limit of $500,000 per individual. It does not require you to actually retire — the name is misleading. You simply nominate an amount up to your remaining lifetime cap and that amount becomes exempt from CGT. If you are 55 or over at the time of the CGT event, the amount is immediately tax-free and you can keep the cash. If you are under 55, the exempt amount must be paid directly into a complying super fund as a non-concessional contribution.

For business owners approaching retirement, this is often the most powerful concession available — particularly when combined with the active asset reduction. A 58-year-old sole trader selling a business with $400,000 in remaining gain after applying the discount and active asset reduction can use the full $400,000 retirement exemption, pay zero CGT, and keep the proceeds.

The $500,000 cap is cumulative across your lifetime. If you used $200,000 of the cap on a previous business sale in 2019, you only have $300,000 remaining. The ATO does not maintain a public register of your used cap — you need to track it yourself, or ensure your tax agent has the records. Companies and trusts can also access the retirement exemption, but the exempt amount must be paid to the entity's significant individual within seven days.

Under-55 owners: the retirement exemption still applies, but the exempt amount must go into super as a non-concessional contribution. Check your super fund's acceptance rules before settlement.

Common Traps and ATO Audit Triggers

The ATO's small business CGT concession claims are a known audit focus area. The most common errors the ATO identifies are: claiming the concessions on assets that fail the active asset test, misidentifying affiliates when running the net asset value test, applying the concessions out of sequence, and failing to lodge the correct election forms by the required deadline.

Timing is a hard constraint. Most elections and choices relating to the small business CGT concessions must be made in the income tax return for the year the CGT event occurred, or by a specific date set by the ATO. Missing the deadline is not fixable — you lose the concession for that event. If you're selling an asset in the 2025–26 financial year, your return due date (or your tax agent's lodgement date) is the deadline for making these elections.

Record-keeping is the other major risk. You need to be able to demonstrate — with documents — the market value of assets at the relevant test date, the period of active use of the asset, and the calculation of net assets across all affiliated entities. If you can't document it, the ATO can disallow the concession on audit. Store your business valuations, ownership records, and entity asset schedules alongside your tax return workpapers permanently — not just for five years.

If you are selling a business or major business asset in FY2026, speak to a registered tax agent before you sign heads of agreement — not after settlement.

Top 5 ATO audit triggers on CGT concession claims

Active asset test failed — asset used for passive income rather than active business
Affiliate/connected entity assets not included in the $6M net asset test
Elections not lodged in time — no amendment rights after the deadline
Super fund did not accept the retirement exemption contribution (under-55 owners)
Incorrect sequencing of concessions leading to over-claimed reduction

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Frequently asked questions

Can a sole trader access the small business CGT concessions?

Yes. Sole traders are explicitly eligible provided they pass either the $2 million turnover test or the $6 million net asset value test and the asset being sold is an active asset. The retirement exemption and the 15-year exemption are both available to individuals operating as sole traders.

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

No — the name is misleading. You simply nominate an amount up to your $500,000 lifetime cap to be exempt from CGT. If you are under 55 at the time of the sale, the nominated amount must be contributed to a complying super fund; if you are 55 or over, you can keep the cash.

Does the 15-year exemption apply to commercial property used in my business?

It can, provided you have owned it for at least 15 continuous years, it has been an active asset for the relevant period, and you meet the basic eligibility test. You must also have been a CGT concession stakeholder in the business for the 15-year period — meaning you must have been the significant individual running the business.

Can I use the small business rollover and the retirement exemption together?

Yes, on the same CGT event you can apply the rollover to part of the remaining gain and the retirement exemption to another part — as long as the total does not exceed the actual gain and you stay within your $500,000 lifetime retirement exemption cap. Your tax agent needs to document the split clearly in the return.

What assets are excluded from the $6 million net asset value test?

Your main residence (to the extent it is used as a home), assets used solely for personal use, and certain superannuation fund assets are excluded. All other CGT assets you and your affiliates own — including investment properties, shares, and business assets held in connected entities — are included at market value.