Small business CGT concessions

There are four small business capital gains tax (CGT) concessions you may be eligible to use to reduce your capital gain when you dispose of active business assets or your ownership interest in a small business.

You may qualify for the CGT concessions if you:

  • own a small business
  • are a partner in a small business, and the CGT asset belongs to the partnership
  • own active business assets that are used by an associated small business.

An 'active' asset is generally an asset that has been actively used in your small business, or in a closely associated small business (such as, a spouse's small business). Land, buildings and patents are examples of active assets. Shares can also be active assets if the company is an Australian resident and it satisfies an 80% active asset test. Rental properties and investments are not normally active assets.

Your business is classified as a small business if it meets one of the following criteria:

  • its aggregated turnover for the previous income year was less than $2 million
  • you estimate its aggregated turnover for the current year to be less than $2 million – you cannot use this estimate if your aggregated turnover for each of the two previous income years was $2 million or more
  • its actual aggregated turnover for the current year is less than $2 million.

If your aggregated turnover is more than $2 million, you may still be eligible for the small business CGT concessions if you meet the maximum net asset value test of $6 million.

Aggregated turnover means the total normal sales of your business and that of any associated businesses.

The four concessions are:

15-year exemption

Any capital gain you make from disposing of an active business asset is exempt from CGT if you have owned the asset for 15 years and you are either:

  • aged 55 years or over and retiring
  • permanently incapacitated.

50% active asset reduction

The 50% active asset reduction allows you reduce any capital gain you make by 50% if you dispose of an active business asset.

Retirement exemption

Any capital gain you make from disposing of an active business asset when you retire is exempt from CGT, up to a lifetime limit of $500,000. If you are under 55 years of age, the capital gain is only exempt from CGT if you pay it into a complying super fund or a retirement savings account.

CGT rollover

By using this concession, you can defer a capital gain made by disposing of an active asset held for two years or longer if you:

  • purchase or acquire a replacement asset, or
  • make a capital improvement to an existing asset.

While the rollover allows you to defer a capital gain to a later income year, you may be able to use other CGT concessions to exempt you from, or reduce, your capital gain.

See also:

Last modified: 13 Mar 2015QC 44458