For many small business owners, selling business assets triggers Capital Gains Tax (CGT). But did you know Australia offers small business CGT concessions aimed at reducing, deferring, or even eliminating tax on these gains? Using these strategically can significantly lower your tax bill when selling business premises, or other business assets.
What Is CGT & When Does It Apply?
CGT is a tax on profit made when disposing of a CGT asset — this includes business property, goodwill, shares, or units in a unit trust to name a few.
CGT applies when an asset used in your business is sold or otherwise disposed of, and you make a capital gain – in other words, the sale price exceeds its cost base.
When Do the Small Business CGT Concessions Apply?
To qualify for any of the small business concessions, your business must meet certain criteria:
- Aggregated turnover or net assets: Generally, turnover under $2 million or combined net assets under $6 million.
- Active asset use: Asset must be used, or held ready for use, in running your business or that of an affiliate. Assets cannot be active assets, on most occasions, when their main purpose is to derive rent, interest, an annuity, royalties etc.
- Additional rules apply if disposing of shares or trust interests, or if your structure involves companies or trusts.
The Four Small Business CGT Concessions
Applying the Concessions – Step by Step
- Check eligibility: Ensure you meet aggregated turnover test ($2 million) or the max net asset test ($6 million) and active asset requirements.
- Apply capital losses: Offset any current or prior-year capital losses.
- Apply 50% discount: If eligible (e.g., assets held for ≥ 12 months).
- Apply small business concessions:
- 15‑Year Exemption,
- 50% Active Asset Reduction,
- Retirement Exemption,
- Rollover.
Multiple concessions can work together – potentially reducing the tax to zero.
- Lodge on time: You must select and record concessions in writing when filing your tax return.
Practical Example
Meet Sarah, a sole trader on the Sunshine Coast, aged 56. She’s selling business premises that she held for over 12 months (an active asset – as it was used in running a business) with a $750,000 capital gain:
- Applies 50% discount – as asset was held for > 12 months → Gain is reduced to $375,000.
- Uses retirement exemption → Up to $500,000 exempt, so the full $375,000 is covered.
- Result: No CGT, and Sarah retains flexibility – she can reinvest or use proceeds as she pleases.
Why This Matters for You
There are several benefits that accompany these concessions, amplifying the importance in understanding and correctly utilising them.
- Combining concessions and discounts can wipe out your CGT entirely.
- The retirement exemption is especially effective for business exit planning.
- Rollover options help preserve cash flow when reinvesting.
- Record-keeping is crucial – eligibility and elections must be documented with your tax return.
Applying small business CGT concessions correctly can save you thousands or even eliminate your tax liability when selling business assets. If you’re planning a sale or nearing retirement, reach out to us and we can assist in ensuring that concessions are utilised as effectively as possible.
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