Small Business CGT Concessions: What to Check Before Selling

Selling a business can turn years of work into one major financial result. The small business CGT concessions may reduce or defer the taxable gain. Your ownership structure, turnover, asset values, and use of the asset will shape the outcome.

This guide explains the four concessions and the eligibility tests. It also covers the new $10 million threshold from 1 July 2027, business premises, and SMSFs.

Small Business CGT Concessions at a Glance

The small business CGT concessions offer four forms of tax relief for eligible gains from active business assets. They can disregard, reduce, or defer a gain. They do not create a separate tax rate. They also don’t apply just because the seller calls the operation a small business.

The four concessions work differently:

Concession	What it can do	Key extra condition
15-year exemption	Disregards the entire eligible capital gain.	You must have owned the active asset continuously for at least 15 years. For an individual, the CGT event must happen in connection with retirement at age 55 or older, or because of permanent incapacity. Companies and trusts face additional significant-individual rules.
50% active asset reduction	Reduces the remaining eligible capital gain by 50% after capital losses and any applicable general CGT discount.	You must meet the relevant basic conditions. The reduction applies automatically unless you choose not to use it.
Retirement exemption	Disregards up to $500,000 of eligible capital gains over each individual’s lifetime.	Despite its name, you do not have to retire. If you are under 55 just before making the choice, the exempt amount must generally go to a complying super fund or retirement savings account.
Small business roll-over	Defers all or part of an eligible gain.	A later CGT event can bring the deferred gain back into account. The replacement asset period generally runs from one year before to two years after the relevant CGT event.

An eligible seller may use more than one concession on the same gain. The order matters. The 15-year exemption comes first when it applies. Otherwise, the calculation generally applies capital losses, the general CGT discount where available, the 50% active asset reduction, then the retirement exemption or roll-over.

Do I Qualify for Small Business CGT Concessions?

Qualification starts with the basic conditions, followed by extra rules for the concession and the asset involved. A useful first review asks four questions.

1. Did a CGT Event Produce a Capital Gain?

A business sale can involve several assets, including goodwill, premises, licences, equipment, and shares. Each asset may have a different cost base and tax treatment. The concessions only apply where a relevant CGT event produces a capital gain.

2. Do You Pass a Size Test?

Under the rules that apply before 1 July 2027, a seller will generally need to satisfy at least one of these gateways:

• Small business entity test: Your aggregated turnover is less than $2 million. Aggregated turnover includes the annual turnover of connected entities and affiliates, not only the entity making the sale.
• Maximum net asset value test: The combined net value of relevant CGT assets must not exceed $6 million just before the CGT event. The calculation can include assets of connected entities and affiliates. It also contains specific exclusions, so it is not the same as the net assets shown on one balance sheet.

A separate pathway can apply where the asset owner does not carry on the business, but a connected entity or partnership uses the asset. The exact pathway depends on who owns the asset, who runs the business, and how those parties relate.

3. Does the Asset Pass the Active Asset Test?

An asset is generally active when you, an affiliate, or a connected entity uses it in a business. Holding it ready for business use can also count. If you owned the asset for 15 years or less, it must generally have been active for at least half the relevant test period. If you owned it for more than 15 years, it must generally have been active for at least 7.5 years.

Goodwill and business premises may qualify. Assets whose main use is to derive rent usually do not, subject to limited exceptions and the facts of the arrangement.

4. Are There Extra Conditions for Shares or Trust Interests?

Selling shares in a company or an interest in a trust brings additional tests. These can examine the underlying active assets, participation percentages, and whether the entity had a significant individual. A share sale and an asset sale can therefore produce different concession outcomes even when they transfer the same business.

The ATO eligibility overview sets out the formal sequence of tests.

The Small Business CGT Threshold Rises to $10 Million, but Only for One Concession

From 1 July 2027, the aggregated turnover threshold for the 50% active asset reduction increases from $2 million to $10 million. Parliament passed the change in June 2026 as part of the Treasury Laws Amendment (Tax Reform No. 1) Act 2026.

Older material may describe the $2 million to $10 million CGT measure as one of the proposed small business CGT changes. It is now law, although its 1 July 2027 start date and its limited scope remain important.

The distinction matters because the CGT concession threshold increase does not extend all four concessions to every business with a turnover below $10 million.

Position	Before 1 July 2027	From 1 July 2027
50% active asset reduction turnover threshold	Aggregated turnover below $2 million	Aggregated turnover below $10 million
15-year exemption, retirement exemption, and roll-over	Existing eligibility rules, including the turnover or net asset gateway	Existing eligibility rules continue; the Act does not raise their turnover threshold to $10 million
Maximum net asset value test	$6 million	Remains $6 million under the enacted change
Active asset and asset-specific tests	Apply	Continue to apply

This creates three common positions:

• Turnover below $2 million: You may be able to access all four concessions, subject to the other conditions.
• Turnover from $2 million to below $10 million and net assets of $6 million or less: The net asset value test may already provide access to all four concessions. You must still meet the remaining rules.
• Turnover from $2 million to below $10 million and net assets above $6 million: From 1 July 2027, the new turnover threshold may provide access to the 50% active asset reduction. It does not, by itself, unlock the other three concessions.

The Act also changes the general CGT discount from 1 July 2027. Broadly, it replaces the flat 50% discount for individuals and trusts. From that date, cost-based indexation and a 30% minimum tax on real gains will apply. The Government states that gains accrued before 1 July 2027 retain the old discount treatment. Further legislation and guidance will settle some calculation and apportionment details. Any sale spanning that date, therefore, needs a current review. The Treasury small business explainer summarises the enacted direction and commencement date.

How Much CGT Will I Pay When Selling My Business?

There is no fixed “business sale CGT rate”. A net capital gain forms part of assessable income. The seller, sale structure, available losses, holding period, and concessions will determine the final tax.

A practical estimate follows this order:

1. Work out the capital proceeds for each asset sold.
2. Subtract the relevant cost base to find each capital gain or loss.
3. Apply current-year and carried-forward capital losses.
4. Apply the general CGT discount if the seller and asset qualify under the rules for that date.
5. Apply any available small business CGT concessions in the correct order.
6. Include the remaining net capital gain in the seller’s assessable income.

Consider a simplified sale before 1 July 2027. An individual sells an active asset for $1.4 million with a $400,000 cost base, creating a $1 million capital gain. Assume there are no capital losses, the individual held the asset for more than 12 months, and the sale meets all relevant conditions.

Calculation step	Remaining gain
Initial capital gain	$1,000,000
50% general CGT discount	$500,000
50% active asset reduction	$250,000
Amount left before any retirement exemption or roll-over	$250,000

This example does not show the tax payable. A company cannot use the general 50% CGT discount, and the rules change from 1 July 2027. Transaction costs, capital losses, depreciation rules, earn-outs, and the allocation of sale proceeds can also alter the calculation.

Is Business Real Property an Active Asset?

Business real property can be an active asset, but its commercial label does not decide the result. Commercial property CGT concessions depend on actual use over the relevant ownership period.

Property use	Likely active asset treatment
A workshop owned and used by the same entity in its trading business	May qualify if the use and timing tests are met.
Premises owned by one entity and used in a connected entity’s business	May qualify under the connected-entity rules.
A commercial building mainly leased to unrelated tenants	Usually excluded because its main use is to derive rent.
A home or residential investment held for private use or rent	Usually does not qualify as an active business asset.
Mixed-use premises	Requires a factual review of use, floor area, income, and time. Partial treatment may apply in some cases.

“Business real property” also has a specific meaning in superannuation law. Broadly, the definition covers real property that one or more businesses use wholly and exclusively, apart from permitted minor or incidental non-business use. Passing that definition for an SMSF transaction does not automatically prove eligibility for the small business CGT concessions. The owner, connected-entity rules, and history of use still matter.

Commercial Property or Residential Property: What Should a Business Owner Compare?

The tax result should follow the commercial decision, not replace it. Commercial premises may support an operating business and may satisfy the active asset test when the required links and use periods exist. A residential investment held to earn rent will usually sit outside the small business CGT concessions.

The comparison changed in 2026, particularly for SMSF borrowing:

• Use in the business: Commercial premises can give an owner control over occupancy and may qualify as an active asset. Residential property generally serves as an investment unless the facts support genuine business use.
• CGT treatment: Property type alone does not set the tax bill. Ownership structure, use, acquisition date, capital losses, and the CGT rules in force at sale all affect the result.
• SMSF borrowing: From 10 August 2026, a new limited recourse borrowing arrangement for real property can only be used to acquire business real property. An SMSF can still buy residential property without borrowing. Transitional rules can protect qualifying arrangements entered into before that date.
• Cash flow and concentration: An SMSF must consider its investment strategy, liquidity, and ability to pay expenses and member benefits. One large property can place a high share of the fund in a single asset.

So, should you buy commercial property instead of residential property? The CGT and SMSF rules may make commercial premises more suitable for some business owners. However, those rules do not prove that the property is a sound investment. Compare after-tax cash flow, finance terms, tenant risk, diversification, and your intended holding period before choosing.

Can an SMSF Buy Your Business Premises?

An SMSF can buy business premises when the transaction complies with superannuation and tax law. It may also lease the property to a related business. The arrangement must serve the fund’s retirement purpose and operate on arm’s-length terms.

What the Fund Must Check Before Buying

Before an SMSF buys or borrows for business premises, check the following:

• Business real property status: The property must meet the statutory definition if the fund acquires it from a related party. The same test applies to a new LRBA after 10 August 2026.
• Market value: A purchase from, or lease to, a related party must reflect market value and commercial terms. Independent evidence can support the price and rent.
• Lease records: A written lease, regular payments, and documented reviews help show that the parties follow the agreed terms.
• Borrowing structure: An LRBA requires a separate holding trust and limits the lender’s recourse to the acquired asset. Improvements, replacement assets, and refinancing need specific review.
• Fund capacity: The investment strategy should address risk, return, liquidity, diversification, and the fund’s ability to meet liabilities and benefit payments.

How CGT Applies After the SMSF Owns the Property

Owning business premises in an SMSF also changes the CGT analysis. In the accumulation phase, a complying SMSF generally pays tax at 15% on assessable income. It can receive a one-third discount on an eligible capital gain if it held the asset for at least 12 months.

For SMSF pension phase CGT, income and gains attributable to assets supporting retirement-phase income streams may qualify as exempt current pension income. That exemption is not automatic: the pension type, member balances, asset method, and proportion supporting retirement-phase liabilities affect the result.

Separately, qualifying proceeds connected with the 15-year exemption or retirement exemption may count under the CGT contribution cap instead of the ordinary non-concessional cap. The contributor must meet the eligibility, election, and timing rules.

The ATO provides current guidance on LRBA property changes from 10 August 2026. It also explains exempt current pension income.

Make the Sale Proceeds Count

A business sale can affect tax, superannuation, and your personal financial position at the same time. Coleman Financial Group can review your entity structure, confirm which concessions may apply, and model the after-tax outcome before you commit to a deal.

Speak with our business accounting and tax team to prepare for the sale with clear figures and documented advice.

This article provides general information only and does not take your objectives, financial situation, or needs into account. Tax and superannuation rules can change, and eligibility depends on the full facts. Seek professional advice before acting.

​FAQs

Can my SMSF still borrow to buy property?

Yes, but a new LRBA entered into from 10 August 2026 can generally acquire real property only if it qualifies as business real property. Transitional protection may apply to a pre-commencement LRBA or a binding acquisition contract exchanged before that date.

Is my existing SMSF LRBA affected?

The new business real property condition does not automatically apply to an LRBA entered into before 10 August 2026. Keep the original contract and borrowing records, and seek advice before changing the asset, parties or arrangement.

Can I refinance my SMSF loan after the ban?

Yes, the law can protect a genuine refinance of a qualifying pre-commencement borrowing. The replacement must still meet the LRBA requirements, and the lender will apply its own credit rules.

Can an SMSF still borrow for commercial property?

An SMSF may borrow for property that meets the business real property definition. Not every property sold as “commercial” qualifies, so test its actual use before the fund signs a contract or loan.

Can my SMSF buy residential property with cash?

Yes, an SMSF may buy residential property outright without borrowing if the acquisition meets the fund’s investment strategy and all general SMSF investment restrictions. Members and related parties must not receive private use of the property.

Does a pre-10 August 2026 loan pre-approval protect the purchase?

Not by itself. The ATO’s transitional guidance focuses on an LRBA entered before commencement or a binding property acquisition contract exchanged before 10 August 2026. Keep evidence that proves the relevant arrangement and date.