Small Business CGT Concessions in Australia: How to Reduce Your Tax Liability

For small business owners in Australia, selling a business or business asset can trigger a hefty Capital Gains Tax (CGT) liability. However, the Australian Taxation Office (ATO) provides Small Business CGT Concessions, which can significantly reduce or even eliminate your tax liability. These concessions are powerful tools, but many business owners either aren’t aware of them or don’t fully understand how to apply them correctly.

This article explains the key small business CGT concessions, eligibility requirements, and how you can leverage them to legally minimise your tax liability when selling your business or its assets.

What Are Small Business CGT Concessions?

Small Business CGT Concessions are tax relief measures that help business owners reduce their capital gains tax when selling an eligible business asset. If you meet the criteria, you could significantly lower the amount of CGT payable – or even avoid paying it altogether.

The four main CGT concessions are:

1. 15-Year Exemption – If you’re 55 or older and retiring (or permanently incapacitated), and you’ve owned an active business asset for at least 15 years, you may be able to sell it without paying any CGT.
2. 50% Active Asset Reduction – This allows you to reduce your capital gain by 50%, lowering your CGT liability.
3. Retirement Exemption – You can exempt up to $500,000 of capital gains from tax. If you’re under 55, the exempt amount must be paid into a complying superannuation fund.
4. Rollover Relief – If you sell an active asset, you can defer the capital gain for up to two years and offset the capital gain against the purchase of a replacement asset.

Each of these concessions has its own eligibility requirements and can be applied in a specific order to maximise tax savings.

Who Qualifies for Small Business CGT Concessions?

To access these concessions, your business must meet at least one of the following basic eligibility tests:

• Small Business Entity Test – Your business has an aggregated annual turnover of less than $2 million.
• Maximum Net Asset Value Test – The net value of all you and all your associate's business and personal assets (excluding your home, personal use assets, and superannuation) is less than $6 million.

Additionally, the asset you are selling must pass the Active Asset Test, meaning it was actively used in your business for at least half of the ownership period or a minimum of 7.5 years if you’ve owned it for more than 15 years.

Suppose you are selling shares in a company or an interest in a trust. In that case, further conditions apply, including the requirement that you were a significant individual (holding at least 20% of shares) in the business.

How to Apply Small Business CGT Concessions to Reduce Your Tax

Step 1: Determine Your Eligibility

Before you start applying concessions, ensure you meet the basic eligibility requirements (turnover test or net asset test) and that the asset qualifies as an active asset.



Step 2: Consider the 15-Year Exemption

If you qualify, you can eliminate the capital gain entirely.

Step 3: Apply Capital Losses

If you have any capital losses (from previous years or other investments), offset these against your capital gain to reduce the taxable amount.

Step 4: Apply the CGT Discount

If you’ve owned the asset for more than 12 months, individuals and trusts can apply a 50% CGT discount, reducing the capital gain by half.

Step 5: Apply the 50% Active Asset Reduction

If eligible, you can reduce the remaining capital gain by another 50%.

Step 6: Apply the Retirement Exemption

If applicable, you can exempt up to $500,000 from tax. If you’re under 55, you must contribute the exempt amount into your superannuation.

Step 7: Use Rollover Relief

If you’re reinvesting in another business asset, you may be able to defer your capital gain for up to two years and ultimately offset the capital gain against the purchase of a new active asset.

The order in which you apply these concessions is crucial, as it can significantly impact your final tax liability.

Example: How the CGT Concessions Work in Practice

Let’s break it down with an example:

• You sell an active business asset for $800,000.
• Your original purchase price (cost base) was $200,000.
• Your capital gain is, therefore, $600,000.

Now, let’s apply the concessions in order:

1. 50% CGT Discount → Reduces taxable capital gain to $300,000.
2. 50% Active Asset Reduction → Further reduces taxable gain to $150,000.
3. Retirement Exemption (if eligible) → Exempts $150,000, bringing taxable gain to $0.

Result: No CGT is payable!

By correctly applying the available CGT concessions, the business owner in this example legally avoids paying any tax on the sale.

Common Mistakes to Avoid

Many business owners miss out on tax savings due to simple mistakes. Here are some pitfalls to avoid:

• Misunderstanding eligibility criteria – Ensure your business meets the asset and turnover tests.
• Failing the Active Asset Test – The asset must have been used in the business for the required period.
• Applying concessions in the wrong order – The sequence in which you apply these matters.
• Not consulting an accountant – A tax professional can help you maximise savings and ensure compliance.

Why You Should Plan Ahead

Tax planning is crucial when considering the sale of a business or an asset. By planning ahead, you can structure your sale to take full advantage of CGT concessions, ensuring you pay the least amount of tax legally possible.

Key actions to take:

• Maintain accurate financial records – Track asset purchases, improvements, and business use.
• Structure your business correctly – Ensure your setup allows you to access CGT concessions.
• Consult a tax professional – An accountant can help you apply these concessions strategically.
• Consider superannuation contributions – If you are under 55, rolling tax-free gains into super can be beneficial.

Final Thoughts

At Synergy Accountants, we know how overwhelming it can feel trying to navigate small business CGT concessions on your own. But with the right guidance and a clear strategy, you could reduce — or even eliminate — the capital gains tax you owe when selling your business or its assets.

We’re here to help you make sense of the rules, apply the concessions correctly, and structure your sale in a way that works in your favour. If you're thinking about selling, let's chat about how we can help you maximise your tax benefits and keep more of your hard-earned profit.

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