For many business owners, the CGT on a business sale is the single largest tax event of their financial life. It can also be one of the most manageable if you plan for it early.
 The Australian tax system has four small business CGT concessions. They can reduce or even eliminate a capital gain. Used correctly, they’re among the most powerful tax tools available to eligible business owners. Used incorrectly or not at all they’re an expensive missed opportunity.
This article explains CGT, the four concessions, and why planning before you sell matters. For the full exit process, see our guide on how to sell a business in Australia, or head straight to our Selling a Business service page.
How CGT Works on a Business Sale
Selling a business asset or company shares may trigger a capital gain. The gain is the difference between what you receive (the capital proceeds) and your cost base (broadly, what you paid for the asset plus eligible costs).
You include the gain in your assessable income for the sale year. You then pay tax at your marginal rate.
The starting point is getting the numbers right which is where a proper Business Valuation and a clear understanding of your cost base both matters. The sale structure, asset sale vs share sale, affects how you calculate CGT and which concessions apply.
The General 50% CGT Discount
Before the small business concessions come into play, there’s a general CGT discount available to individuals and trusts who have held the asset for more than 12 months. The discount reduces the capital gain by 50% before you calculate tax.
This is available regardless of whether you’re a small business it applies broadly. For many sellers, this alone significantly reduces the tax bill. The small business concessions then apply on top of it, potentially reducing the gain further.
Companies are not eligible for the 50% general discount. This is one reason the structure of ownership matters so much when planning an exit, the same business held in a trust versus a company can have very different CGT outcomes.
The Four Small Business CGT Concessions
To access the small business CGT concessions, you need to satisfy the basic eligibility conditions. Broadly, you need to be a small business entity (aggregated annual turnover under $2 million) or satisfy the maximum net asset value test (net assets under $6 million). The asset you sell must also qualify as an active business asset.
Eligibility is specific and the rules interact with each other. This is squarely business tax planning territory not something to work through without advice. Here’s how each concession works:
1. The 15-year exemption
If you’ve continuously owned an active business asset for at least 15 years and you’re aged 55 or older (or are permanently incapacitated), the entire capital gain may be exempt from tax. There is no cap on the amount.
This is the most generous concession available. If you qualify, the other concessions are largely irrelevant the gain is gone entirely. The 15-year clock runs from when you acquired the asset, so the earlier you started, the closer you may already be.
2. The 50% active asset reduction
If you satisfy the basic eligibility conditions and the asset is an active asset, you can reduce the capital gain by 50%. The 50% CGT discount can also apply. An eligible individual or trust may reduce the gain by up to 75%.
Example: a $1 million capital gain, after the 50% general discount becomes $500,000. After the 50% active asset reduction, it becomes $250,000. That’s the taxable amount a significant reduction from the starting position.
3. The retirement exemption
The retirement exemption lets you exclude up to 500,000 AUD in qualifying capital gains. If you’re under 55, you must contribute the exempt amount to a complying super fund or retirement account.
The $500,000 limit is a lifetime cap it applies across all uses of the retirement exemption, not just this sale. If you’ve used some of it previously, the remaining amount may be less. If you’re considering an SMSFcontribution, model the concession and contribution caps together.
4. The rollover
If you sell an active business asset and intend to acquire a replacement active asset (or shares in a company that will acquire one), you can defer the capital gain under the small business rollover. The gain is not eliminated. You defer it until you sell the replacement asset.
This concession is useful when you’re selling one business to buy another and don’t want the CGT event to land in the current income year. The conditions and timing requirements are specific.
You can use the four concessions together, subject to the rules. The order in which you apply them, and which ones you’re eligible for, determines the final tax outcome. Getting this right before settlement — not after — is where the real saving happens.
The Structure of the Sale Matters
Your sale structure partly determines which concessions you can use. An asset sale and a share sale trigger CGT differently, and the eligibility conditions can apply differently depending on whether it’s the individual, the trust, or the company that holds the asset.
This is one of the most important reasons to get business tax planning advice before you agree to a sale structure, not after. Our article explains the tax differences between asset and share sales.
After Settlement: Personal Tax in the Year of Sale
The ATO assesses CGT in the income year when settlement occurs. Depending on the size of the gain and the concessions applied, this may have a significant impact on your personal tax position for that year.
Plan your personal tax planning before settlement. Consider super contributions, investments and income timing.
Common Questions About CGT on a Business Sale
Do I pay CGT if I sell my business as a sole trader?
Yes — the CGT rules apply regardless of your business structure. As a sole trader, the gain flows directly into your personal income tax return. The small business CGT concessions are available to eligible sole traders in the same way as to companies and trusts.
What if I sell my business for less than I paid for it?
If your capital proceeds are less than your cost base, you have a capital loss rather than a capital gain. Capital losses can be offset against capital gains in the same income year or carried forward to future years. They cannot be offset against ordinary income.
Does GST apply to the sale of a business?
The sale of a business as a going concern may be GST-free if both the seller and buyer are GST-registered and the right conditions are met. This is a separate issue from CGT and requires its own structuring. Getting the GST treatment wrong can be an expensive mistake.
How early do I need to start planning?
As early as possible — ideally 2–3 years before you plan to sell. Some of the concessions have conditions that take time to satisfy (the 15-year exemption being the obvious example). Others interact with your broader financial position in ways that benefit from early planning. The later you start, the fewer options you have.
Want to know what your CGT position looks like?
Book a free discovery call and we’ll walk through your specific situation structure, eligibility, and what the tax outcome could look like with the right planning.
Also useful: Selling a Business service page and our free Selling Your Business Checklist.
