Small business CGT concessions: getting the basics right
An overview of the small business CGT concessions, the eligibility tests that gate them, and how to make sure the groundwork is done before a sale.
The small business capital gains tax concessions are among the most valuable in the tax system, and among the easiest to lose through poor preparation. When a client sells a business or an active asset, these concessions can dramatically reduce or even eliminate the tax on the gain. But they are gated by eligibility tests that must be satisfied at the time of the sale, which means the work has to be done before the deal closes, not after.
The four concessions
There are four small business CGT concessions, and they can often be applied together to compound the benefit. In broad terms they are the 15-year exemption, the 50 per cent active asset reduction, the retirement exemption, and the small business rollover. Each has its own conditions, and the order in which they apply matters to the final outcome.
The concessions and their interaction are set out in detail by the ATO. Because the rules are intricate, a considered calculation usually beats a rule of thumb, particularly where more than one concession is in play.
The threshold tests come first
Before any concession applies, the client has to pass the basic eligibility conditions. These typically involve either a turnover test or a maximum net asset value test, plus a requirement that the asset being sold is an active asset used in the business. Where the asset is a share or a trust interest, additional conditions about significant individuals and connected entities come into play.
- Confirm eligibility against the turnover or net asset value test.
- Establish the active asset status of what is being sold.
- Check the extra conditions that apply to shares and trust interests.
Why the timing of the work matters
The eligibility tests are assessed at the point of the CGT event. If a client's asset values have drifted above the threshold, or the ownership structure no longer fits the conditions, there may be nothing you can do once the sale has happened. The most valuable advice is given in the months before a sale, when there is still time to restructure or to time the transaction sensibly.
This makes proactive tracking important. In Finye you can flag clients who are approaching a sale or a succession event and create a job to review their CGT concession position well ahead of any transaction. Treating it as planned work rather than a reactive scramble is what preserves the concessions. More on structuring advisory work sits in Finye's guides.
Structure matters long before the sale
Whether the concessions are available often depends on how the business was structured years earlier, which is why the most useful conversations happen well ahead of any exit. The ownership of the active asset, the presence of a significant individual, and the way related entities are connected can all be arranged sensibly while a sale is still hypothetical. Once a buyer is at the table, those settings are largely fixed, and any opportunity to improve the position has usually passed.
Documentation is everything
If a concession is ever reviewed, the client will need to demonstrate that each condition was met. That means keeping the working papers: the net asset value calculation, evidence of active asset use, the significant individual analysis where relevant, and the calculation showing how the concessions were applied. Good documentation is not just tidy practice, it is the difference between a defensible position and an expensive amendment.
Bring in specialist input where needed
These concessions reward careful analysis, and complex cases, particularly those involving trusts, connected entities, or the retirement exemption alongside superannuation contributions, often justify a second opinion. The tax saved usually dwarfs the cost of getting the analysis right. Handled with foresight and documented properly, the small business CGT concessions do exactly what they were designed to do: let genuine small business owners keep more of what they have built.