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Complex rules of small business CGT concessions can present challenges

The complex rules around small business capital gains tax concessions can eliminate tax on a business sale and unlock significant contributions to super when used correctly, said Jemma Sanderson, Head of SMSF and Succession for Cooper Partners.

At the ASF Audits Technical Seminar, Sanderson said many clients have built a business from scratch and have planned to eventually use the proceeds of its sale to fund their retirement.

“They may well not have actually been adding to super or making contributions over time, so it’s really important that we’re looking at that [CGT concessions] from that perspective,” Sanderson said.

When considering using small business CGT concessions she said it is important to understand fully what they actually comprise.

“Firstly, when talking about these tax concessions when a business has been sold, look at how much tax there is to pay, and if the client is eligible for these concessions. There is also the element of perhaps paying no tax at all on the sale of a small business and this is where it is worth its weight in gold, but it is really complex,” she said.

“It’s an area of immense complexity to get it right. The most golden of the gold is the 15-year exemption. So effectively, from that perspective, if you satisfy the requirements, you can completely disregard a capital gain if you’re eligible under the 15-year exemption. That can also apply if the business sold is a pre-CGT asset.”

The next thing to think about in regard to small business CGT concessions, she said, is the 50 per cent active asset reduction.

“Right now we can get a 50 per cent general discount, and a 50 per cent active asset discount. So ultimately, the capital gain you can discount twice, so you’re only looking at a 25 per cent of the gain that you might actually be paying some tax on,” she said.

“That is where, again, these concessions are fantastic. You’ve got the replacement asset provisions that are in there, too. What happens with that is a lot of people might defer the capital gain actually popping up in their tax return on the basis that over a two-year period they may well acquire a replacement asset, or another business asset.

“Then you’ve got your retirement exemption which is a contribution to make to super, where that is the amount that is disregarded. Unfortunately, some of these particular provisions have not been indexed over time.”

Sanderson said the retirement exemption has been $500,000 for more than 25 years and the maximum net asset value test of $6 million hasn’t been indexed since 2007.

“These sorts of things are not keeping in line with the wealth of people growing and how these businesses are valued. But unfortunately, that’s the way the cookie crumbles,” she said.

“At the moment, you’ve got your 50 per cent discount, and obviously with the CGT changes from 1 July 2027, you’re going to have that indexation consideration as part of all of this, but again there are really strict conditions.”

Sanderson continued that many people believe if they have held the asset for 15 years they are eligible for these concessions, but it is not that simple.

“The first thing to do is make sure you either satisfy the maximum net asset value test, or you’ve got the $2 million small business rollover, and that’s an aggregated rollover,” she said.

“Some of the great things about these tests is there are certain assets that are exempt from the maximum net asset value, including superannuation and the main residence, and assets that are for personal use and enjoyment only. So, the holiday house that never ever gets rented is exempt from this particular test.

“However, if that is exempt, any debt attached to that is also not included from that perspective either. So super is excluded, the primary residence is excluded, and any personal use assets are excluded.

“However, what might be brought back into the net is any assets of affiliates, so it’s important to consider who is an affiliate from that perspective. Then you’ve got the under $2 million aggregated turnover test. You can’t just engineer that in the year of the actual sale.

“They look at the current year and the previous year as well and connected entities and affiliates are also included. Part of the Budget measures was to change that test and increase it to $10 million, but that is only for the active asset discount. That doesn’t apply if you want to be eligible for the retirement exemption, or for the 15-year exemption, or for the replacement asset rules.”

By: Keeli Cambourne | 25 September 2026 | smsfadviser.com