When small business owners sell their business or retire, the tax cost on the sale of their assets can be significant. The Small Business Capital Gains Tax (CGT) Concessions in Division 152 of the Income Tax Assessment Act 1997 allow eligible taxpayers to reduce, disregard, or defer that capital gain — and, in many cases, use the proceeds to boost their retirement savings in superannuation.
But to use these concessions effectively, it’s crucial to understand the eligibility tests first, and then how the rules differ when selling shares or units compared with selling ordinary business assets.
This guide explains how the concessions work, the three key ownership percentages (20%, 40% and 80%), and how the rules link to superannuation through the CGT cap contribution.
1. Why the Small Business CGT Concessions Exist
The small business CGT concessions recognise that many small business owners build their wealth inside their business rather than through superannuation or investments. When they eventually sell the business, the tax impact could otherwise erode years of effort.
The concessions allow them to:
- Keep more of the sale proceeds by reducing or disregarding the capital gain; and
- Transfer some or all of the proceeds to superannuation under a special CGT contribution cap, separate from the usual concessional and non-concessional limits.
For many business owners nearing retirement, these rules are the key to turning business success into long-term financial security.
2. The Eligibility Conditions
The basic conditions in s.152-10 must be satisfied before any concession applies:
- A CGT event happens that would result in a capital gain.
- The asset is an active asset — used or ready for use in the course of carrying on a business.
- The taxpayer is a small business — either: a). a small business entity (aggregated turnover < $2 million, including turnovers of connected entities and affiliates), or b). satisfies the maximum net asset value test (total net assets < $6 million, including connected entities and affiliates).
- If the asset is not owned directly by the business operator, it must be used in the business of a connected entity or affiliate.
2.1 The Active Asset Test
An asset is active if it is used or held ready for use in a business carried on by the taxpayer, an affiliate, or a connected entity.
To satisfy the test, the asset must have been active for:
- At least half the ownership period if owned for less than 15 years; or
- At least 7½ years if owned for more than 15 years
Importantly, certain assets are excluded — for example, investment properties rented to unrelated tenants are not active assets, even if they qualify as business real property for superannuation purposes.
2.2 The 40% Control Test (Connected Entities)
Under s.328-125, an entity is connected with another if one controls the other, or both are controlled by the same person. Control generally means holding 40% or more of voting rights, income, or capital entitlements.
Once control exists, the connected entity’s entire assets (not just 40%) are included when applying the $6 million net-asset test; the connected entity’s total turnover (not just 40%) is included when applying the $2 million turnover test.
2.3 Affiliates
An affiliate is an individual or company that acts in accordance with, or in concert with, another person’s business decisions. Spouses and children can often be treated as affiliates, but partnerships, trusts and SMSFs cannot.
100% of the assets and turover will participate in the eligibility test.
2.4 The Significant Individual (20%) Test
If the entity claiming the concession is a company or trust, it must have at least one significant individual — someone with a 20% or greater interest in the company’s voting, dividend, and capital rights (or, for a trust, 20% of income or capital entitlements).
This ensures that the concessions only benefit entities with real individual ownership.
3. The Four Small Business CGT Concessions
3.1. 15-Year Exemption
- Description: This is the most generous concession, allowing the entire capital gain to be disregarded (zero tax) if the asset was continuously owned for at least 15 years.
- Lifetime or Timing Limit: None – full exemption of the gain is provided. The concession is available if the owner is aged 55 or over and is retiring, or is permanently incapacitated.
3.2. 50% Active Asset Reduction
- Description: This concession reduces the remaining capital gain by 50%. It is typically applied after any general 50% CGT discount (for individuals/trusts holding the asset for over 12 months) but before the Retirement Exemption or Small Business Roll-Over.
- Lifetime or Timing Limit: Optional – can be skipped if a better result is achieved by moving straight to the Retirement Exemption or Roll-Over. There is no monetary limit, as it is a percentage reduction.
3.3. Retirement Exemption
- Description: This concession allows an individual to disregard a capital gain up to a lifetime limit of $500,000. If the individual is under the age of 55, the exempt amount must be contributed to a complying superannuation fund or retirement savings account. If they are 55 or older, the amount does not need to be contributed to super.
- Lifetime or Timing Limit: $500,000 per person (a lifetime monetary limit).
3.4. Small Business Roll-Over
- Description: This concession defers the capital gain for at least two years. The gain is not included in assessable income until a later event, such as a replacement active asset not being acquired within the required time (typically two years) or the replacement asset later being sold or its use changed.
- Lifetime or Timing Limit: Deferred until later event (a minimum deferral of two years if no replacement asset is acquired). There is no monetary limit on the amount that can be deferred.
These concessions can be applied in combination, but only after passing the eligibility rules. The 15-year exemption, if available, overrides the others and is always applied first.
4. Applying the Concessions in the Correct Order
The order in which the concessions apply affects both the amount of CGT and the amount that can be contributed to super.
- Apply the 15-Year Exemption first.
If it applies, the capital gain is fully disregarded and no further concessions are needed. - Apply any capital losses.
- Apply the general 50% CGT discount (for individuals and trusts).
- Apply the 50% active asset reduction (if chosen).
- Apply the retirement exemption and/or roll-over relief to any remaining gain.
This sequencing is essential because it determines how much of the gain is disregarded — and only disregarded gains can be contributed under the CGT cap.
5. Selling Shares or Units in a Company or Trust
Selling an active business asset (like goodwill or property) is relatively straightforward once the basic tests are met. But when the asset sold is shares or units, additional rules apply because the underlying asset sits within another entity.
5.1 The Modified Active Asset Test (80% Rule)
When selling shares or units, you don’t look at whether the share itself is used in business. Instead, you “look through” to the underlying entity’s assets.
To satisfy the modified active asset test, at least 80% of the total market value of the entity’s assets must relate to:
- Active assets used in the business, or
- Cash and financial instruments inherently connected to that business
5.2 80% CGT Concession Stakeholder Tests
When selling shares or units, the underlying entity must already meet the significant individual (20%) test described earlier. Beyond that, at least 80% of ownership must be held by CGT concession stakeholders — being those significant individuals and/or their spouses.
A CGT concession stakeholder in a company or trust is:
- Any significant individual of that company or trust (i.e. someone with ≥ 20 % interest); and
- The spouse of a significant individual, if the spouse holds any interest (even 1 %) in that company or trust.
The law wants to make sure that the small-business concessions only benefit entities genuinely owned by small-business people — not by passive investors.
5.3 The 90% Interposed-Entity Test
If an interposed entity (for example, a holding company or trust) sells the shares, a further test applies.
The rule is satisfied if at least 90% of the ownership of the selling entity is ultimately held by the same individuals who are CGT concession stakeholders in the underlying company or trust.
This ownership can be held directly or indirectly through multiple entities.
5.4 Modified Active-Asset Period
For shares or units, the 80% active-asset condition must be met for at least half of the ownership period (or 7½ years if owned for more than 15 years).
6. How the Concessions Differ by Structure
| Entity Type | Who Applies the Concession | Who Receives the Benefit | Notes |
|---|---|---|---|
| Individual | Applies directly. | The individual. | Can use general 50% discount + small business concessions. Can contribute disregarded gains to super under CGT cap. |
| Company | Company applies. | Individual shareholders (CGT concession stakeholders). | No general 50% discount. Must pay exempt amount to shareholders within 7 days for the retirement exemption to be valid. |
| Trust | Trust applies. | Beneficiaries who are CGT concession stakeholders. | Must distribute exempt amount within 7 days. Discretionary trusts must track past distributions to identify significant individuals. |
If a company applies the retirement exemption for a $500,000 gain, it must pay that $500,000 to its CGT concession stakeholders (usually the shareholders) within seven days. Those individuals can then contribute the amount to super under the CGT cap.
7. The Link Between CGT Concessions and Superannuation
The 15-year exemption and retirement exemption can both create opportunities to transfer the sale proceeds into superannuation without breaching the usual contribution caps.
7.1 The CGT Cap Contribution
The CGT cap is a lifetime limit (currently $1.865 million for 2025-26) that allows eligible individuals to contribute disregarded gains to super outside the normal caps.
- If using the 15-year exemption, the entire sale proceeds can count towards the cap (not just the gain).
- If using the retirement exemption, the amount contributed is limited to the disregarded gain (maximum $500,000 lifetime).
- A CGT cap election (NAT 71161) must be lodged with the super fund before or at the time of contribution.
7.2 Contribution Timing Rules
- Individuals: Contribution must be made by the later of the tax return due date for that year or 30 days after receiving the proceeds.
- Companies or trusts: Must pay the exempt amount to stakeholders within two years (15-year exemption) or seven days (retirement exemption). The stakeholder then has 30 days to contribute their share to super.
Contributions are always non-concessional, and funds must still comply with age-based acceptance rules (e.g., members aged 75+ generally cannot contribute).
7.3 Practical Planning Points
- The 15-year exemption can allow older business owners to contribute up to the full CGT cap amount, even if their total super balance exceeds $1.9 million.
- The retirement exemption can help younger owners (under 55) start building super earlier, the contribution is compulsory if under 55.
- Both can be used in combination with standard concessional and non-concessional caps for additional planning flexibility.
8. Key Takeaways
- Always test eligibility first — small business size, active-asset use, and ownership structure must all align before any concession can apply.
- The 20%, 40%, and 80% (and occasionally 90%) thresholds serve different purposes:
-
40% = control (connected entities for the net-asset test)
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20% = significant individual (ownership threshold for eligibility)
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80% (or 90%) = ensures concessions mainly benefit those active in the business.
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- When selling shares or units, the additional 80% and 90% rules are crucial — they don’t apply to sales of ordinary business assets.
- The order of concessions matters: 15-year exemption first, then losses, discount, 50% reduction, and retirement exemption.
- The CGT cap contribution transforms these tax concessions into powerful superannuation strategies — but only if timing and documentation are correct.