When you sell a business or business asset the profit you make usually attracts capital gains tax. The small business CGT concessions in Division 152 of the Income Tax Assessment Act 1997 let eligible owners cut, defer or even wipe out that tax bill. This guide gives you a plain English map of the concessions as they stand in 2026, helps you decide whether you qualify and shows how each rule can work together to protect the wealth you have built.
What the small business CGT concessions achieve in 2026
Parliament created the concessions to recognise that many Australians hold most of their retirement savings inside their business. Without help, a sale or restructure could drain that nest egg through tax. Each concession therefore offers either a permanent removal of part or all of a capital gain or a timing benefit that lets you roll the gain into a new asset. The rules apply across every state and territory because CGT is a federal tax. You do not need to navigate separate rules for New South Wales or Queensland. You simply apply the national law and follow Australian Taxation Office guidance.
Since their introduction the concessions have been tweaked but the four core options have stayed intact. In 2026 the government confirmed that they will continue even after the broader CGT discount turns into an inflation based calculation in 2027. One change on the horizon is the lift of the turnover threshold for the 50 percent active asset reduction from two million dollars to ten million dollars for disposals after 1 July 2027. For many mid sized operators that future rise will open a path that previously closed at the two million dollar gate.
The four small business CGT concessions at a glance
The concessions serve different owners at different points in the business life cycle. You choose the ones that fit your story. The table below sets out the headline features.
| Concession | Key benefit | Lifetime or time limit | Best when |
|---|---|---|---|
| Fifteen year exemption | Removes the entire gain if you owned the asset at least fifteen years and you are retiring or permanently incapacitated | No dollar cap but must meet ownership and personal circumstances tests | Long term owners leaving business life |
| Fifty percent active asset reduction | Cuts the gain in half after any general discount | Applies automatically unless you opt out | Owners who still want other concessions on the remaining gain |
| Retirement exemption | Lets you disregard up to five hundred thousand dollars of gains over your lifetime. If under fifty five you must put the amount into superannuation | Lifetime cap of five hundred thousand dollars per individual | Owners using the sale to fund or top up retirement savings |
| Small business roll over | Defers the gain for up to two years or longer if you acquire a replacement active asset within that period | Gain crystallises if replacement asset sold or not acquired in time | Owners reinvesting in a new business or eligible asset |
The law lets you apply more than one concession in a specific sequence. If you qualify for the fifteen year exemption you ignore the entire gain immediately and need not consider the rest. Otherwise you proceed through any capital losses, apply the general CGT discount if available then use the fifty percent active asset reduction. After that you can apply the retirement exemption or the roll over as you choose. Using the right order matters because the wrong order can burn part of a lifetime cap or miss the chance to defer tax.
Basic eligibility rules everyone must pass
Before any concession can cut your tax you must clear the basic conditions that sit at the start of Division 152. First you must be either a small business entity with annual aggregated turnover under two million dollars or you must satisfy the maximum net asset value test where you, your affiliates and connected entities hold net assets of six million dollars or less just before the CGT event. Aggregated turnover counts income from all entities that the law sees as connected or affiliated with you, not just the entity that owns the asset.
Second the asset must be an active asset. That means it must be used in the course of carrying on the business for at least half of the ownership period if held for less than fifteen years or for at least seven and a half years if held longer than fifteen years. A property rented out to third parties rarely qualifies because passive rent collection is normally an investment activity. By contrast a warehouse you use in your own trading business is usually active.
Third special share and trust interest rules apply. If the asset is shares in a company or units in a trust, the entity being sold must itself be a small business and either you or together with your spouse and other CGT concession stakeholders must hold significant individual status. That usually means at least twenty percent of the voting power, entitlements to distributions and capital proceeds.
Depreciating assets used wholly for taxable business purposes fall outside the concessions because gains on such assets are treated as ordinary income rather than capital gains. However, where the asset is only partly depreciable and partly capital, the capital component can still be considered.
How the concessions interact with each other
Understanding interaction helps you avoid wasted concessions. Imagine you sell an active asset owned for more than twelve months and you meet all basic tests. First apply any carried forward capital losses to reduce the nominal gain. Second, if you are an individual, a partnership where individuals are assessed, or a trust distributing to individuals, you apply the general CGT discount which halves the remaining gain. Companies do not get this discount. Third the fifty percent active asset reduction automatically slices the net amount in half again unless you elect not to apply it. That election is rare but can open more headroom to use the retirement exemption later where you fear breaching the lifetime cap.
After the reduction you examine whether to use the retirement exemption or the roll over. You can choose both but the dollar amount removed by the retirement exemption cannot also be rolled over. Many owners use the retirement exemption up to five hundred thousand dollars and then roll over any excess to buy a new active asset. Timing also matters. You must decide to use the retirement exemption or roll over by the time you lodge the tax return for the year of the CGT event. If you miss the choice the default outcome applies and you might pay tax that you could have avoided.
Where the asset qualifies for the fifteen year exemption you can skip all other steps. In addition, if you are under fifty five and planning to shift the proceeds into superannuation, the amount disregarded under the fifteen year exemption can count toward the CGT cap, letting you bypass standard superannuation contribution caps. That strategy boosts the tax effectiveness of sale proceeds in retirement.
Worked examples that show the rules in action
Consider Claire, a florist who operates as a sole trader. She bought her business premises in 2014 for four hundred thousand dollars and sells it in October 2026 for nine hundred thousand dollars after closing the shop. Her turnover never exceeded one point five million dollars. The building served solely as the retail outlet, meeting the active asset test. The nominal gain is five hundred thousand dollars. Claire has no capital losses. She applies the general CGT discount which brings the gain to two hundred and fifty thousand dollars. The fifty percent active asset reduction then cuts it to one hundred and twenty five thousand dollars. Claire is fifty eight years old and ready to retire. She applies the retirement exemption and disregards that entire amount which is well below her lifetime cap. Her CGT liability is nil.
Next consider Luca and Mei who hold shares in a private company that runs a technology consultancy. They each own thirty percent of the shares acquired in 2008. The company sells all business assets and winds up, paying each owner a capital distribution equal to a gain of nine hundred thousand dollars. Luca and Mei are both forty five years old. The company itself is a small business entity. The shares were active assets because the company carried on business. Luca and Mei satisfy the significant individual test. Capital distributions through liquidation preserve the look through concessions. After applying the general CGT discount on their shares the gain per owner is four hundred and fifty thousand dollars. They apply the fifty percent active asset reduction bringing it to two hundred and twenty five thousand dollars each. They choose to roll over this amount into shares of a new start up within two years. If the new shares are still held or replaced with another active asset the gain remains deferred. If they sell the new shares without replacement they will trigger the original deferred gain plus any new gain.
Finally consider the Patel Family Trust which owns a small manufacturing plant purchased in 2006 and sold in 2026 for two million dollars, creating a capital gain of one million dollars. The trust has two adult beneficiaries, Anita and Rohit, who each receive half of the trust capital. The trust previously met the basic small business tests. After discounts and reductions the net gain is two hundred and fifty thousand dollars to each beneficiary. Anita is sixty and wants to retire, Rohit is fifty two and plans to reinvest. Anita applies the retirement exemption up to two hundred and fifty thousand dollars which exhausts half of her lifetime cap. Rohit elects the roll over. He has two years to acquire a replacement plant or other active asset or otherwise the deferred gain crystallises.
Common mistakes that trigger ATO review
Owners often assume that all business related property is active but passive investments rarely qualify. A factory rented to a third party, even one in a similar industry, is passive unless you run some part of your own operations there. Another trap involves the entity test. A trading company might turn over less than two million dollars but a connected investment trust could push the aggregated turnover over the line. In complex family groups the six million dollar net asset value test fails because advisers forget to include the superannuation balances of a spouse where they are held in self managed funds but supporting the business owners.
Time based requirements also trip people. Selling an asset one month before the fifteen year ownership anniversary means you cannot use the full exemption. Similarly, shares in a company fail the active asset test if the company sold its operating assets more than twelve months earlier and sat on cash. Poor record keeping further weakens positions. The ATO asks for trading records, invoices, tenancy agreements and board minutes to prove active use. Without those documents auditors may deny the concessions and impose penalties up to seventy five percent of the shortfall plus interest.
Preparing before you sell or restructure
Smart planning starts years before the sale. Conduct an annual review of group structure to confirm small business entity status or maximum net asset value. Keep detailed financial statements that separate business income from investment income. Maintain asset registers that show purchase dates, cost bases and periods of active use. If you operate across trusts and companies, minute the purpose of each entity and the way they interact. When you near a potential sale date, run a dry calculation of the concessions with your accountant to see whether a shift in holding period or business use would bring a better outcome. If you plan to rely on the retirement exemption and you are under fifty five, check superannuation contribution caps and arrange the fund to receive proceeds within the strict time frame. For a roll over, scout replacement assets early, because you only have up to two years after the original event to lock in the new purchase.
FAQ
What is the basic difference between the small business concessions and the general CGT discount
The general discount halves gains for individuals and trusts after twelve months of ownership while the small business concessions can further reduce, remove or defer the gain if the stricter Division 152 tests are met.
Can companies use the general fifty percent discount
No. Companies cannot use the general discount but can use the small business concessions provided they satisfy the entity and active asset tests.
Do the concessions apply to goodwill
Yes, goodwill created in a trading business is an active asset and can qualify if the basic conditions are met.
What happens if I sell only part of an asset
You work out the capital gain on the part sold then apply the concessions proportionately.
Is my home office eligible if I claim business use of the family house
A main residence is usually specifically excluded unless it is genuinely used solely for business and does not have the main residence exemption. Mixed use often complicates the active asset test and professional advice is essential.
How does the upcoming turnover threshold change in 2027 affect a 2026 sale
The higher ten million dollar threshold begins for CGT events that occur on or after 1 July 2027. A sale in 2026 will still use the two million dollar test.
Can I apply the roll over and the retirement exemption to the same dollar of gain
No. You can apply them to different parts of the gain but not stack them on the same amount.
Must I contribute retirement exemption amounts into super if I am over fifty five
No. Only taxpayers under fifty five must contribute the exempt amount to superannuation. Those fifty five and older can keep the cash.
How do capital losses interact with the concessions
Capital losses must be applied before any of the small business concessions or the general discount. They therefore reduce the amount available for concession relief.
Are the concessions automatically granted
Apart from the fifty percent active asset reduction you must choose to apply each concession by the time you lodge the tax return for that year.
Final thoughts and next steps
The small business CGT concessions remain one of the strongest wealth preservation tools available to Australian owners in 2026. By understanding the basic eligibility rules, mapping how the four concessions relate to each other and preparing well before a sale you can legally strip thousands or even millions from a potential tax bill. The law rewards planning and punishes complacency. If your business or asset sale is on the horizon gather your records, test your numbers and sit with a qualified tax professional to lock in the concessions you deserve. The sooner you confirm your position the smoother your exit or reinvestment journey will be. Visit our home page to learn more about our services or feel free to contact us for more tailored advice.
