Small business CGT concession: The complete 2026 guide for Australian business owners

Selling a business or a major business asset is often the culmination of decades of hard work. In Australia, the small business CGT concessions (Capital Gains Tax concessions) are among the most powerful tax planning tools available, potentially allowing you to reduce, defer, or even entirely eliminate the tax on your capital gains.

However, these concessions are notoriously complex. With high ATO scrutiny and strict "order of operations" rules, navigating them requires a clear roadmap. This guide provides a comprehensive breakdown of how CGT concessions work, the eligibility steps you must follow, and how they integrate with your superannuation strategy.

What are the small business CGT concessions?

The small business CGT concessions are found in Division 152 of the Income Tax Assessment Act 1997. They apply when you dispose of an "active asset" and meet specific financial thresholds.

The Four Primary Concessions

Small business 15-year exemption: If you have owned an active asset for 15 years and are retiring or permanently incapacitated, you may pay zero CGT on the sale.

Small business 50% active asset reduction: This allows you to reduce the capital gain by 50%. This is in addition to the general 50% CGT discount (for individuals/trusts).

Small business retirement exemption: You can exempt up to $500,000 (lifetime limit) of capital gains. If you are under 55, this amount must be paid into a complying super fund.

Small business rollover: This allows you to defer a capital gain for two years (or longer if you acquire a replacement asset).

Small business CGT concession eligibility: The 4-step test

Before you can apply any of the specific concessions, you must pass the "Basic Conditions." If you fail these, you cannot access the small business CGT concessions, though you may still be eligible for the general CGT discount.

Step 1: Determine if you are an eligible entity

You must satisfy at least one of the following:

• Small business entity: To qualify as a small business entity, your aggregated turnover, including that of any connected or affiliated businesses, must be less than $2 million. Maintaining precise records is critical to meeting these requirements and mitigating the risk of an ATO audit. Our professional online bookkeeping team keeps your accounts clean, accurate, and ready to substantiate your eligibility at a moment's notice.
• Net asset test: Even if your turnover is high, you qualify if the total net value of the CGT assets owned by you, your affiliates, and any connected entities is $6 million or less just before the CGT event occurs.

• Passively-held assets: You can also qualify if you do not run a business yourself, but your asset is used by a small business entity that is:

  • Your affiliate: An individual or company that acts in accordance with your directions or wishes.
  • A connected entity: An entity you control, or that controls you.
  • A partnership: A partnership in which you are a partner.

Step 2: The active asset test

The asset must be an "active asset"

• Ownership < 15 Years: It must have been active for at least half of the period you owned it.
• Ownership > 15 Years: It must have been active for at least 7.5 years.
• Exclusions: Assets held primarily to derive rent, interest, or royalties (like a passive residential investment property) generally do not qualify as active assets.

Step 3: Additional conditions for shares or trust interests

If the asset you are selling is a share in a company or an interest in a trust, there are extra hurdles:

• You must be a CGT concession stakeholder (holding at least 20% participation) or meet the 90% test (where 90% of the entity is owned by stakeholders).
• The company or trust must meet the 80% test, meaning at least 80% of its assets (by market value) must be active assets or cash/financial instruments inherently connected to the business.

Step 4: Partnership interests

Specific rules apply to the creation or transfer of rights to partnership income or capital. If your transaction involves a partnership, ensure the interest was a "membership interest" immediately before or after the event.

Order of applying small business CGT concessions

You cannot simply pick and choose concessions at random. The ATO dictates a specific sequence to ensure the math is consistent.

1. Small business 15-year exemption

This is the most effective tax concession available. To qualify:

• You must meet the basic eligibility conditions.
• You must have owned the asset continuously for at least 15 years.
• You must be 55 years or older, and the sale must be "in connection with your retirement," OR you must be permanently incapacitated.

The Benefit: The entire gain is ignored. You do not even need to apply capital losses or other discounts against this specific gain.

2. Small business 50% active asset reduction

This concession applies automatically if you meet the basic conditions, unless you specifically choose for it not to apply. It provides an additional 50% reduction after the general CGT discount has been applied.

Sometimes, business owners choose not to use this reduction and instead use the Retirement Exemption for the full remaining amount. This is often done to maximise the amount of money that can be contributed to superannuation under the CGT cap.

3. Small business retirement exemption

Despite the name, you do not strictly have to "retire" from the workforce to use this.

• Lifetime Limit: $500,000 per individual.
• Age rule: If you are under 55, the exempt amount must be paid into a complying superannuation fund or retirement savings account. If you are 55 or older, you can choose to keep the cash tax-free.
• Entity rules: Companies and trusts can also access this by identifying "significant individuals" and making the required payments to them or their super funds.

4. Small business roll-over

This provides a safety net if you intend to stay in business but are changing assets.

• It allows you to defer a capital gain for two years.
• The deferral can become permanent if you acquire a replacement "active asset" (or improve an existing one) within a window starting one year before and ending two years after the CGT event.

CGT concession calculation examples

To understand how these concessions work in real-world scenarios, here are two examples using different business structures and eligibility paths.

Example 1: Individual operator (The "step-by-step" method)

Leo is a small business operator who sells his workshop in February 2026.

• Total capital gain: $100,000.
• Prior year capital loss: $10,000.
• Eligibility: He has owned the asset for 8 years (doesn't qualify for the 15-year exemption) and his turnover is under $2 million.

Leo applies the concessions in the mandatory order:

CGT concession calculation example (Individual operator)
Step	Calculation	Remaining Gain
Initial Gain	Start with the gross gain	$100,000
Offset Losses	$100,000 - $10,000 (Loss)	$90,000
CGT Discount	$90,000 × 50% (General discount)	$45,000
Active Asset Reduction	$45,000 × 50% (Small business reduction)	$22,500
Retirement Exemption	Leo chooses to disregard the final $22,500	$0

Outcome: Leo's taxable gain is $0. If Leo is under 55, he must pay the $22,500 into his super fund. If he is 55 or older, he can keep the cash tax-free.

Example 2: The 15-year "Total exemption"

Sarah (Age 60) has operated her landscaping business since 2010. In March 2026, she sold her business premises to retire.

• Total capital gain: $800,000.
• Ownership period: 16 years.

Eligibility: She meets the basic conditions and the 15-year continuous ownership rule.

Because Sarah meets the criteria for the Small Business 15-Year Exemption, the calculation is significantly simpler:

15-Year "Total CGT Exemption"
Step	Action	Result
15-Year Exemption	Disregard the entire gain immediately	$0

Outcome: Sarah pays no tax on the $800,000 gain. Unlike Example 1, she does not even need to use her capital losses against this gain; she can save those losses to offset other future capital gains (like the sale of personal shares).

Comparison of results
Feature	Example 1 (Standard)	Example 2 (15-Year)
Taxable Gain	$0	$0
Super Contribution	Required (if under 55)	Optional (but high-cap available)
Losses Used?	Yes	No (Saved for future)
Complexity	High (Multiple steps)	Low (Single exemption)

How do small business CGT concessions affect super contributions?

One of the most significant benefits of these concessions is the ability to bolster your superannuation balance beyond the standard contribution caps.

The CGT lifetime cap

For the 2025-26 financial year, the lifetime CGT cap is $1,865,000.

Amounts contributed to super under the 15-year exemption or the retirement exemption do not count toward your "non-concessional" contribution caps. This allows high-net-worth individuals to move substantial sale proceeds into the low-tax environment of superannuation.

Crucial requirement: To use the CGT cap, you must provide the "Capital Gains Tax election form" to your super fund on or before the time you make the contribution.

Common risks and ATO scrutiny

The ATO actively monitors small business CGT concession claims due to the high dollar values involved. Common "red flags" include:

• Incorrect asset valuation: Overstating or understating net assets to fall under the $6 million MNAV threshold.
• The "Main Use" Test: Claiming a property is an active asset when its primary use was actually deriving rent.
• Aggregated Turnover errors: Forgetting to include the turnover of "connected entities" (entities you control or that control you).
• Record keeping: Failing to keep a written record of the retirement exemption choice or missing the 7-day payment window for companies/trusts.

How can Cleanslate help with the small business CGT exemption?

The small business CGT concession rules are generous, but complex. Eligibility thresholds, active asset tests, participation requirements, and strict ordering rules mean that small mistakes can lead to significant tax exposure.

As a registered tax accountant, we focus on ensuring the concessions are applied correctly, strategically, and in full compliance with Division 152.

We assist with:

• Confirming eligibility under the $2 million turnover or $6 million net asset value tests
• Reviewing active asset status, including property used by related entities
• Calculating capital gains and applying concessions in the correct legislative order
• Advising on the 15-year exemption, retirement exemption, or rollover options
• Structuring superannuation contributions under the CGT lifetime cap
• Preparing required elections and documentation to manage ATO scrutiny

Most importantly, we provide advice before contracts are signed, when planning opportunities still exist. Early engagement allows us to optimise outcomes, minimise tax, and ensure full compliance.

If you are considering selling your business or a significant business asset, Cleanslate can help you navigate the small business CGT concessions with confidence and clarity.

CGT exemption conclusion

The small business CGT concession framework is a generous but rigid system. Navigating the $2 million turnover or $6 million asset tests, ensuring your asset is truly "active," and applying the concessions in the correct order are vital steps to protecting your wealth.

Because the rules for companies, trusts, and individuals differ significantly, and because the timing of payments to superannuation is critical, it is highly recommended to seek professional advice at least 12 months before you intend to sell.

Don't leave your hard-earned business gains to chance. Our specialists at CleanSlate are ready to help you structure your exit for maximum tax savings and a seamless transition into retirement. Book a call with our accountant today.