The most lucrative tax rules in the Australian tax system
For private business owners, commercial contractors, and enterprise founders, building a business is the single largest wealth-creation engine of their lives. But when it comes time to exit — whether through a sale to a third party, an equity buyout by key employees, or a generational transfer — the capital gains tax (CGT) bill can easily devour 25% to 47% of the proceeds.
Unless you structure your eligibility for the Small Business CGT Concessions under Division 152 of the Income Tax Assessment Act 1997.
When engineered correctly, these four statutory concessions can reduce your capital gains tax liability on the sale of business assets or company shares to zero.
The Basic Conditions: The Gateway Tests
Before you can access any of the four specific concessions, your business and the selling entity must clear two fundamental hurdle tests at the time of the CGT event:
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The Maximum Net Asset Value (MNAV) Test or Turnover Test:
- Either your business has an aggregate annual turnover of less than $2 million (or $10 million for certain concessions), OR
- The total net value of CGT assets owned by you, your affiliates, and connected entities does not exceed $6,000,000 just before the sale. (Importantly, superannuation balances and your primary residence are excluded from the $6M calculation).
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The Active Asset Test: The asset being sold (such as goodwill, commercial premises, or operating shares) must have been used in the active conduct of a business for at least half the ownership period (or at least 7.5 years if owned for more than 15 years).
The Four Small Business CGT Concessions
Once you pass the gateway tests, you can apply one or more of the following concessions:
1. The 15-Year Exemption (The Ultimate Concession)
If your business has owned the active asset continuously for at least 15 years, and the significant individual selling is aged 55 or older and retiring (or permanently incapacitated), 100% of the capital gain is completely exempt from tax. No tax payable, and proceeds can be distributed directly to individuals tax-free.
2. The 50% Active Asset Reduction
This concession allows a 50% discount on the remaining capital gain. When combined with the general 50% CGT discount available to individuals and trusts, this effectively reduces the taxable portion of the gain to just 25%.
3. The Retirement Exemption (Lifetime Limit $500,000)
Despite the name, you do not actually have to retire to use this concession. You can exempt up to $500,000 of capital gains per individual over a lifetime. If you are under age 55 at the date of the CGT event, the exempt amount must be paid into a complying superannuation fund (which is an exceptional mechanism to inject significant capital into your concessionally-taxed super environment). If you are 55 or older, you can receive the cash directly tax-free.
4. The Small Business Rollover
You can defer the capital gain for up to two years (or longer if you acquire a replacement asset, such as a new commercial premises or expanding business). If a replacement active asset is acquired, the gain is rolled into the base of the new asset.
The Costly Mistakes Business Owners Make
Because these concessions are so powerful, the ATO examines them with forensic scrutiny. The most frequent errors include:
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Blowing the $6 Million MNAV Test with non-business assets: Failing to account for assets held in discretionary trusts or by connected spouses. If your accountant does not audit the global asset position of all connected entities, a surprise asset can push you to $6,000,001 and completely destroy eligibility.
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Holding commercial property in the wrong vehicle: Holding business property personally or in an unassociated entity without establishing a formal active business lease can disqualify the property from being an 'active asset'.
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Selling shares without a 20% Significant Individual: When selling shares in an operating company rather than the underlying business assets, at least one individual must hold a 'significant individual stake' (at least 20% of voting, dividend, and capital rights) immediately before the sale.
Structuring the Exit 3 Years in Advance
You cannot qualify for Division 152 on the day you sign a contract of sale. The ownership timeline rules, asset structuring tests, and stakeholder agreements require intentional structuring years in advance.
At Level Up CA, our advisory process includes:
- Net Asset Audits: Monitoring group net assets against the $6M threshold well prior to negotiation.
- Entity Rationalisation: Ensuring holding trusts, operating entities, and shareholding percentages align strictly with significant individual rules.
- Succession & Sale Modeling: Pre-calculating the exact tax outcome across asset sale vs share sale structures to maximize after-tax cash proceeds.
If an exit, merger, or asset sale is on your five-year horizon, call the direct line. We will examine your balance sheets and engineer an airtight path to zero capital gains tax.
