Capital Gains Tax on Selling a Business (Australia)

Selling a business in Australia almost always triggers capital gains tax (CGT). The good news: Australia has four small business CGT concessions specifically designed to reduce or eliminate this tax. Used together, they can reduce a $1M capital gain to $0 in qualifying cases.

Important: This article is general information. Get a tax accountant involved at least 6 months before sale — eligibility for these concessions can hinge on small structural decisions you can't fix retrospectively.

The four small business CGT concessions

1. The 15-year exemption

What it does: 100% of the capital gain is exempt from CGT.

Eligibility:

• You've owned the business for at least 15 continuous years
• You're 55 years or older (or permanently incapacitated)
• You're selling because of retirement (or due to incapacity)
• The asset is an "active asset" used in the business

Why it matters: If you qualify, you keep 100% of the sale proceeds. No tax. This is the gold standard.

2. The 50% active asset reduction

What it does: Reduces the assessable capital gain by 50%, on top of the general 50% CGT discount.

Eligibility:

• You meet the basic small business eligibility tests (turnover under $2M or net assets under $6M)
• The asset has been an active asset for at least 12 months

Why it matters: Combined with the 50% CGT discount (which most individuals get on assets held over 12 months), you only pay tax on 25% of the gain. So a $1M gain is taxed as if it were $250k.

3. The retirement exemption

What it does: Up to $500,000 of capital gain is exempt from CGT (lifetime limit per individual).

Eligibility:

• You meet the basic small business eligibility tests
• The asset is an active asset
• If under 55, the exempt amount must go into a complying super fund or retirement savings account
• If 55+, you can take it as a tax-free cash payment

Why it matters: Even partially used (e.g. $200k), this can wipe out a meaningful chunk of tax. Available even if you're not technically retiring.

4. The small business rollover

What it does: Defers capital gain for up to 2 years, if you reinvest in another active business asset.

Eligibility:

• You meet the basic small business eligibility tests
• You acquire a replacement active asset within 2 years

Why it matters: If you're selling one business to buy another, you're not creating a tax bill until you exit completely. Useful for serial entrepreneurs.

How to combine them (the worked example)

Sarah owns a Perth retail business. She's 58, owned the business for 12 years, and sells it for $1.2M with a base cost of $200k. Her capital gain is $1,000,000.

Without any concessions

$1,000,000 × 50% individual CGT discount = $500,000 assessable. At her marginal rate (47% incl. Medicare), tax = $235,000.

With small business concessions

1. 50% active asset reduction: $500,000 × 50% = $250,000 remaining gain
2. Retirement exemption (up to $500k): applied to $250,000, reducing to $0
3. Tax payable: $0

Same sale, $235,000 difference. The CGT concessions are real money — but they require eligibility, and eligibility requires advance planning.

Eligibility: the two basic tests

You need to satisfy one of:

Small business entity test

Aggregated turnover (you + connected entities + affiliates) is less than $2 million in the financial year of sale (or the prior year, whichever applies).

Maximum net asset value test

Just before the sale, your net assets (you + connected entities + affiliates) total less than $6 million. Excludes your main residence and most superannuation.

Most genuine small business owners qualify under one or both. Owners with significant property holdings sometimes don't — which is fixable with planning, but only before the sale.

Common ways sellers blow their eligibility

1. Restructuring too late. Moving assets between entities in the year before sale can disqualify you. Plan 2+ years ahead.
2. Failing the active asset test. The asset must have been used in the business at least half the time you owned it. Idle assets, sold-off divisions, etc. fail.
3. Spouse-related ownership traps. Connected entity rules can pull spouse-owned assets into your asset value calculation. Get advice.
4. Shareholder structures that don't flow concessions. Trust → company → individual structures can complicate concession eligibility. Test before sale.

GST and other taxes

Beyond CGT:

• GST: Most business sales qualify for "going concern" treatment, meaning no GST. Conditions: both parties registered for GST, written agreement that it's a going concern.
• Stamp duty: WA charges duty on transfers of business assets at standard rates. Usually paid by the buyer.
• Income tax on stock and WIP: Trading stock sold as part of business is income, not capital — different tax treatment.

These get fiddly. The general principle: structure your sale agreement carefully with your accountant and lawyer. The headline price is one number — what you actually keep depends on dozens of small structural choices.