Before You Sell Your Business, Understand the CGT Concessions That Could Save You Tax
If you’re a small business owner preparing to sell your business or some of its key assets, understanding Capital Gains Tax (CGT) concessions could save you a significant amount of money.
The Australian Taxation Office (ATO) recognises that small businesses can face unique challenges when selling business assets and offers several CGT concessions designed to reduce the tax burden for eligible business owners.
Navigating these concessions can be complex, but with the right advice, you may be able to reduce or even eliminate the capital gains tax payable.
This article breaks down the essentials of small business CGT concessions, helping you understand which concessions may apply and how they could benefit your business.
What does it mean to sell a business?
When people talk about selling a business, they often think of it as selling one thing. From a tax perspective, however, a business sale may involve several different assets.
Depending on how the sale is structured, you may be selling assets such as:
- goodwill
- business name or brand
- customer lists
- plant and equipment
- stock
- business premises, if owned
- intellectual property
- shares in a company
- units in a trust
This matters because CGT does not always apply to the business as one single item. Instead, the tax outcome can depend on what is being sold, who owns those assets, and how the sale price is allocated.
For example, if a sole trader sells their business, part of the sale price may relate to goodwill, equipment and stock. If a company owns the business, the sale may instead involve selling shares in the company. Each structure can have different tax consequences.
The small business CGT concessions may apply to eligible active assets included in the sale, such as goodwill, business premises or other assets used in the business. However, the rules can differ depending on whether you are selling business assets, shares or interests in a trust.
This is why it is important to get advice before signing a sale agreement, not after. The way a business sale is structured can have a major impact on the CGT outcome.
Understanding Capital Gains Tax (CGT)
Capital Gains Tax applies when you make a profit from selling certain assets, including business property, shares or other business assets.
Essentially, if you sell an asset for more than its cost base, the profit may be treated as a capital gain and included in your taxable income.
However, eligible small business owners may be able to access special CGT concessions that reduce the tax payable when they sell business assets.
The general CGT discount
Before we look at the small business CGT concessions, it’s important to understand the general CGT discount.
Under the current rules, individuals, trusts and partnerships may be able to reduce a capital gain by 50% if they have owned the asset for at least 12 months. This means only half of the eligible capital gain is included in taxable income.
Companies are generally not eligible for the general 50% CGT discount.
For example, if you bought a business asset for $100,000 and later sold it for $160,000, your capital gain would be $60,000. If the general 50% CGT discount applies, only $30,000 would be included in your taxable income.
However, business owners should be aware that changes to the general CGT discount were announced in the 2026-27 Federal Budget.
From 1 July 2027, the Government has announced plans to replace the general 50% CGT discount with a discount based on inflation and introduce a minimum 30% tax on gains.
These changes are expected to apply to gains arising after 1 July 2027, so the timing of a business or asset sale may become an important part of tax planning.
Importantly, the general CGT discount is separate from the small business 50% active asset reduction, which is one of the specific small business CGT concessions explained below. In some cases, eligible business owners may be able to apply both concessions, further reducing the taxable gain.
Who qualifies for small business CGT concessions?
To access the small business CGT concessions, your business must meet specific requirements.
Broadly, you may be eligible if:
- your aggregated turnover is less than $2 million per year; or
- your total net assets, including certain connected entities and affiliates, are $6 million or less.
The asset must also generally satisfy the active asset test. This means the asset needs to have been used, or held ready for use, in carrying on your business.
For example, a shop, office, warehouse, business premises or other asset used in the day-to-day operation of your business may qualify.
If you own shares in a company or interests in a trust, additional rules apply.
The four main small business CGT concessions explained
1. The 15-year exemption
This is one of the most generous small business CGT concessions.
If you have owned an active business asset continuously for at least 15 years, you may be able to disregard the entire capital gain. In other words, no CGT is payable on that gain.
To qualify, you generally need to be aged 55 or over and retiring, or be permanently incapacitated at the time of the sale.
2. The 50% active asset reduction
This is a separate concession from the general CGT discount.
If you don’t qualify for the 15-year exemption, the small business 50% active asset reduction may allow you to reduce the capital gain on an eligible active business asset by 50%.
Where the conditions are met, this concession may be used in addition to the general CGT discount. This can significantly reduce the taxable capital gain, although the exact outcome will depend on your structure, the asset being sold and the timing of the sale.
3. The retirement exemption
The retirement exemption allows eligible small business owners to disregard capital gains up to a lifetime limit of $500,000.
You do not necessarily need to retire to use this concession, despite the name.
However, if you are under 55, the exempt amount generally needs to be contributed into a complying superannuation fund or retirement savings account. This can help reduce your tax bill while also building your retirement savings.
4. The small business rollover
The small business rollover allows you to defer paying CGT when you sell an active business asset and replace it with another active asset, or improve an existing active asset.
In general, you have up to two years to acquire a replacement asset or make the relevant improvement.
This does not eliminate the capital gain permanently. Instead, it defers the tax until a later CGT event occurs, such as selling the replacement asset or no longer using it in the business.
Why timing matters
With changes to the general CGT discount announced from 1 July 2027, timing may become an even more important part of CGT planning.
The right strategy will depend on your business structure, the type of asset being sold, how long you have owned it, whether it qualifies as an active asset, and whether you are selling before or after the new rules apply.
For business owners considering a sale, restructure, retirement or succession plan, it is worth seeking advice well before any transaction takes place. Leaving it too late may limit your options.
Important considerations
While the small business CGT concessions can provide significant tax relief, the eligibility rules are detailed and can be complex.
The outcome can depend on your business structure, connected entities, asset ownership, the active asset test, timing, superannuation contribution rules and whether multiple concessions can be applied together.
That’s why it is important to speak with a qualified accountant before selling a business or business asset.
Ready to maximise your small business CGT benefits?
At Bonerath & Co., we help small business owners understand and apply the right CGT concessions for their circumstances.
If you’re considering selling business assets, restructuring, retiring or planning your business succession, contact us for tailored advice before you make your next move.
