Small business CGT concessions: a working guide

The small business CGT concessions can reduce, defer or wipe out a capital gain on an asset used in a small business. There are four of them. Each one has its own conditions, but all four sit on top of the same set of basic conditions. Most of the work in a CGT concession file is proving those basic conditions with numbers, then choosing which concessions to apply and in what order.

This guide follows the order you would work through a real file: the basic conditions first, then each concession, then the order of application, then the super contribution rules. Every threshold here was checked against the ATO's published guidance and the Income Tax Assessment Act 1997 (compilation of 27 August 2026) on 18 October 2026. Section references are to that Act. The rules change for the 2027-28 income year; see the section on changes from 1 July 2027 below.

The four concessions at a glance

Step 1: the basic conditions

The basic conditions are in s 152-10. The ATO lists the basic conditions as a CGT event happening to an asset, a gain arising, and the asset passing the active asset test, plus one of four gateways: the entity is a CGT small business entity, or the passively held asset rules are met, or the partner rules are met, or the entity passes the maximum net asset value test. If the asset is a share or a trust interest, extra conditions apply. Depreciating assets do not meet the basic conditions.

Gateway A: CGT small business entity ($2 million turnover)

An individual, partnership, company or trust that carries on a business qualifies if its aggregated turnover is less than $2 million (s 152-10(1AA)). Aggregated turnover is the entity's annual turnover plus the annual turnovers of its affiliates and connected entities.

Annual turnover is gross income or proceeds, not net profit. The ATO excludes certain amounts, including GST charged, business borrowings, proceeds from selling business capital assets and retail fuel sales. Eligibility is tested each year, so the year of the CGT event is the one that matters.

A partnership can be a small business entity in its own right. The partnership is the entity tested, not the individual partner.

Gateway B: maximum net asset value test ($6 million)

If turnover is $2 million or more, the entity can still qualify by passing the maximum net asset value (MNAV) test. The combined net value of CGT assets held by the taxpayer, its connected entities, its affiliates and entities connected with its affiliates must not exceed $6 million, measured just before the CGT event (s 152-15). The ATO notes that the $6 million limit is not indexed.

Net value is market value less related liabilities. Provisions for annual leave, long service leave, unearned income and tax liabilities are also deducted. The result can be positive, negative or zero (s 152-20).

Liabilities count where they relate to assets that are included, either directly (a loan secured over premises) or generally (a working-capital overdraft). Liabilities tied to excluded assets are disregarded. The ATO does not treat provisions for possible damages, earnout liabilities, loan guarantee provisions or general provisions such as rebates as liabilities for this test.

Worked example, home office. This follows the ATO's own example. A home worth $750,000 has 15.8% income-producing use, based on floor area and time. The business-use value is $118,500. The same 15.8% of the $500,000 home loan, $79,000, is deducted. The amount included in MNAV is $39,500.

Connected entities and affiliates

The two gateways both depend on who is connected and who is an affiliate, so get the group map right first.

• Control of a company: rights to 40% or more of voting power, or of income or capital distributions.
• Control of a partnership: a right to 40% or more of net income, income distributions or capital.
• Control of a non-discretionary trust: a right to 40% or more of income, net income or capital distributions.
• Control of a discretionary trust: either 40% or more of distributions in any of the previous four income years, or the trustee acts (or might reasonably be expected to act) in line with the person's wishes or those of their affiliates.
• Where a control percentage is under 50%, the Commissioner may decide there is no control if another party actually controls the entity.
• An affiliate is an individual or company that acts, or could reasonably be expected to act, in line with the taxpayer's directions or wishes, or in concert with them. Trusts, partnerships and super funds cannot be affiliates. A spouse or child is not automatically an affiliate.

The active asset test

The asset must have been an active asset for a minimum part of the test period. The test period runs from acquisition to the CGT event, or to when the business stopped if it stopped in the 12 months before the CGT event, or a longer period the Commissioner allows (s 152-35).

• Owned for more than 15 years: active for at least 7.5 years.
• Owned for 15 years or less: active for at least half of the test period.

An active asset (s 152-40) is one used, or held ready for use, in carrying on a business by the taxpayer, an affiliate or a connected entity. An asset whose main use is to derive rent, interest, annuities, royalties or foreign exchange gains is not active. The ATO also lists bank accounts, loans, debentures, bonds, derivatives and share options as not active.

Worked example. A sole practitioner bought a small office suite in July 2016 and used it in her practice until June 2022. She then leased it to an unrelated tenant until she sold it in June 2026. She owned it for 10 years, so it needed to be active for at least 5. It was active for 6 years, so it passes.

Passively held assets

An asset owner that does not itself carry on a business (other than as a partner) can still qualify where an affiliate or connected entity uses the asset in its business. That user must be a CGT small business entity for the same income year, and the asset must meet the active asset test for the same period. The common case is a family trust that owns premises used by a related operating company (s 152-10(1A)).

Shares and trust interests: the extra conditions

Selling shares in a company or units in a trust brings in extra basic conditions under s 152-10(2). Since the 2018 amendments there are four conditions in s 152-10(2), which also turn on whether the company or trust has a significant individual.

1. The 80% test. For the shares or interests to be active assets, the company or trust's active assets plus cash and financial instruments inherently connected with its business must make up at least 80% of the market value of all its assets. A temporary breach can be disregarded if it is reasonable to conclude the 80% level was otherwise met.
2. Significant individual test. The company or trust must have had at least one significant individual just before the CGT event. A significant individual has a small business participation percentage of at least 20%.
3. The company or trust is itself small. The object company or trust must be a CGT small business entity or pass the MNAV test, counting only its own assets or turnover and those of its affiliates and the entities it controls, with control tested at 20% rather than 40% (s 152-10(2)(c)).
4. Carrying on a business. If the taxpayer does not pass the MNAV test, the taxpayer must be carrying on a business just before the CGT event (s 152-10(2)(b)).
5. CGT concession stakeholder. The taxpayer must be a CGT concession stakeholder of the company or trust, or the stakeholders must together hold a small business participation percentage of at least 90% in the taxpayer. A CGT concession stakeholder is a significant individual, or the spouse of one where the spouse has a participation percentage above zero. The 90% test only matters where an entity sits between the stakeholders and the company or trust.

The 80% test also applies look-through rules for shares and interests in later entities held by the company or trust (s 152-10(2A) and (2B)).

Partners

For CGT events after 7:30pm AEDT on 8 May 2018 involving a partner's rights to partnership income or capital, the partner must hold a membership interest in the partnership immediately before the event (where rights end) or immediately after it (in other cases) (s 152-10(2C)). For the MNAV test, a partner connected with the partnership counts all partnership assets other than their own interest. A partner who is not connected counts only their own interest.

Step 2: the 15-year exemption

The 15-year exemption is in s 152-105 (individuals) and s 152-110 (companies and trusts). If it applies, the whole capital gain is disregarded and the other concessions are not needed. It comes first, and capital losses do not have to be applied against the gain before it.

• The asset has been owned continuously for 15 years before the CGT event.
• For an individual: 55 or older and the event is connected with retirement, or permanently incapacitated at the time of the event (no age requirement).
• For a company or trust: a significant individual for a total of at least 15 years of the ownership period. It does not have to be the same person throughout. An individual who was a significant individual just before the event must be 55 or over and retiring, or permanently incapacitated.

Interests acquired at different times are separate CGT assets, so a parcel of shares bought five years ago does not ride on a parcel held for 20.

A company or trust can pass the exempt amount to its CGT concession stakeholders. The payment must be made before the later of two years after the CGT event, or six months after any look-through earnout benefit could become due. Each stakeholder's share is capped at their participation percentage of the exempt amount. The Commissioner can extend the time (s 152-125).

Step 3: the 50% active asset reduction

This needs only the basic conditions (s 152-205). It applies automatically unless the taxpayer chooses not to apply it (s 152-220). It halves the gain remaining after capital losses and, where available, the general 50% CGT discount.

A company or trust sometimes chooses not to apply it so that it can make larger retirement exemption payments to stakeholders. Where a trust has used both the CGT discount and this reduction, a beneficiary grosses up their share of the gain by multiplying it by 4 before applying their own concessions.

Step 4: the retirement exemption

The retirement exemption (Subdivision 152-D) disregards a gain up to a lifetime limit of $500,000 per individual, or per CGT concession stakeholder for a company or trust. It can be chosen for all or part of a gain. Despite the name, the person does not need to stop working.

• Under 55 just before the choice (or the payment, for a company or trust): the CGT exempt amount must be paid into a complying super fund or RSA. An individual contributes when the choice is made or when the proceeds are received, whichever is later. For CGT events J2, J5 and J6 the contribution is made when the choice is made (s 152-305(1)). A company or trust pays within 7 days of choosing for CGT events J2, J5 and J6, and otherwise by the later of 7 days after choosing and 7 days after receiving the proceeds (s 152-325(4)).
• 55 or over: no super contribution is needed.
• The CGT exempt amount must be recorded in writing. A company or trust with more than one stakeholder also records each stakeholder's percentage (s 152-315(4) and (5)). The $500,000 limit is reduced by every earlier choice made by or for the individual (s 152-320).
• Payments by a company or trust to stakeholders are not assessable, not deductible and not treated as dividends. The significant individual test must be met.
• The exemption can apply where there are no actual proceeds, such as a gift at market value, but a company or trust must still make a payment to a stakeholder.

Step 5: the small business rollover

The rollover (Subdivision 152-E, from s 152-410) defers all or part of a gain. The same entity must acquire a replacement active asset, or incur capital expenditure on an improvement, within the replacement period. That period starts one year before the CGT event and ends at the later of two years after it, or six months after any look-through earnout benefit could become due.

A deferred gain comes back under later CGT events:

The retirement exemption can apply to a J5 or J6 gain without retesting the basic conditions (s 152-305(4)). For a J2 gain, the basic conditions must be satisfied again before the retirement exemption or a further rollover can apply. The under-55 super rule still applies.

Worked example from the ATO. A taxpayer rolled over $700,000 but spent only $450,000 on replacement assets and improvements. Under J6, $250,000 becomes assessable and the remaining $450,000 stays rolled over.

The order of application

1. 15-year exemption. If it applies, stop. The whole gain is disregarded.
2. Apply current and prior year capital losses.
3. Apply the general CGT discount, if the taxpayer is entitled to it.
4. Apply the 50% active asset reduction, unless the taxpayer chooses not to.
5. Apply the retirement exemption, the rollover, or both, to some or all of what remains.

The choices for the concessions must be made by the day the income tax return for the year of the CGT event is lodged, or within a further time the Commissioner allows (s 103-25). The way the return is prepared is evidence of the choice, except that the retirement exemption amounts must be in writing.

Who gets the general CGT discount

The general discount is not a small business concession, but it changes the numbers in step 3 of the order above. Only individuals, trusts and complying super entities can make a discount capital gain. Companies cannot (s 115-10). The asset must have been acquired at least 12 months before the CGT event (s 115-25). The discount is 50% for individuals and trusts for CGT events before 1 July 2027, and 33 1/3% for complying super entities (s 115-100). A company selling an asset goes straight from capital losses to the 50% active asset reduction.

Worked example: a sole trader, under 55

Sam, aged 48, sells the goodwill of his electrical contracting business, which he started in 2012. His aggregated turnover is $1.4 million, so he is a CGT small business entity. Goodwill is an active asset. His capital gain is $640,000 and he has a $40,000 capital loss carried forward from an earlier year.

Because Sam is under 55, he contributes $150,000 to a complying super fund or RSA by the later of making the choice and receiving the proceeds. He has $350,000 of his $500,000 lifetime retirement exemption limit left.

Worked example: a trust selling premises after 20 years

A family trust bought warehouse premises in 2005 and has let them to the family's operating company, which has turnover of $1.1 million. The trust does not carry on a business itself, so it relies on the passively held asset rules. Margaret, now 63, has been a significant individual of the trust throughout. She is retiring and the trust sells the premises in 2026 for a $1.8 million gain.

The premises have been owned for more than 15 years and were active for well over 7.5 years. A significant individual has been in place for at least 15 years, and Margaret is over 55 and the sale is connected with her retirement. The 15-year exemption disregards the whole $1.8 million gain. The trustee can pay the exempt amount to the CGT concession stakeholders, in line with their participation percentages, within two years of the sale.

Super contributions and the CGT cap

Amounts from the 15-year exemption and the retirement exemption can go into super without counting towards the non-concessional contributions cap. They count against the CGT cap instead. For the 15-year exemption, the member gives the fund the CGT cap election form on or before making the contribution. An individual contributes on or before the later of the day they are required to lodge the return for the year of the CGT event and 30 days after receiving the proceeds. A stakeholder receiving a payment from a company or trust contributes within 30 days of that payment (s 292-100). The election is made in the approved form and given to the fund on or before the contribution, for retirement exemption amounts as well as 15-year amounts (s 292-100(9)).

The CGT cap is a lifetime cap. It started at $1 million in 2007-08, is reduced by each contribution covered by s 292-100, and is indexed each year (s 292-105). The ATO says indexation follows average weekly ordinary time earnings, in $5,000 increments rounded down, and the new figure is generally published each February.

Eligibility decision checklist

Work through this in order for each asset. Keep the numbers behind each tick in the workpapers.

Changes from 1 July 2027

The Treasury Laws Amendment (Tax Reform No. 1) Act 2026 (No. 49, 2026) changes how capital gains are worked out from 1 July 2027. As at 18 October 2026:

• The 50% discount for individuals and trusts applies only to CGT events before 1 July 2027, with a separate rule for new residential dwellings (s 115-100 and s 115-102).
• Cost bases of CGT assets of resident individuals and of trusts are indexed for CGT events from 1 July 2027 (s 110-36(1A)), and the 50% active asset reduction applies after indexation (note to s 152-205(1)).
• A 30% minimum tax on certain capital gains of resident individuals applies to CGT events on or after 1 July 2027 (Division 119).
• For the 50% active asset reduction only, the $2 million CGT small business entity threshold is disregarded, so a small business entity under the general $10 million test can use it (s 152-205(2)). This applies to assessments for the income year that includes 1 July 2027 and later years (Sch 1 item 82 of the amending Act). The 15-year exemption, retirement exemption and rollover still use the $2 million test.

The worked examples above use the rules for CGT events in 2025-26 and 2026-27. A sale contract signed now that settles after 30 June 2027 needs the CGT event timing checked carefully.

Where files go wrong

• Connected entities left out of turnover. A related trust or company with its own turnover can push the group over $2 million.
• The home missed in MNAV. Only the private portion is excluded. A home office used to produce income brings part of the home into the test.
• Rented premises treated as active. An asset leased to an unrelated party is generally not active while it is leased. The ATO says the main use of deriving rent takes it out.
• Retirement exemption limit not tracked. The $500,000 is lifetime. A client who used part of it 10 years ago with another firm may have less left than you think.
• Super contribution timing. An under-55 contribution that is late or missed means the exemption conditions are not met.

For trusts that carry these assets, see our trust distribution checklist and the family trust election guide. Ask Nagaris includes a CGT Advisor skill; see Ask Nagaris.