The CGT changes introduced in recent years directly affect how much tax business owners pay when they sell. If you’re planning to sell a business in 2026, the rules around capital gains tax (CGT) are worth understanding before signing anything.
Unfortunately, many small business proprietors still assume the process of selling is simple: sell the business, pay some tax, and move on. But the updated Capital Gains Tax reform in Australia has changed who can access certain CGT concessions and how those affect the final tax bill.
In this article, we cover the main concessions available on a CGT on the sale of a business, who can access them, and how the eligibility criteria work in practice. Read on, and you’ll know exactly where you stand before your next move.
CGT on Sale of Business: What Actually Changed?
The Australian Taxation Office (ATO) has updated guidance around CGT concessions, which makes it more important for business operators to check their eligibility before selling an asset.
The Capital Gains Tax reform Australia introduced over the last few years changed how the ATO assesses:
- Which properties qualify
- How multiple CGT reliefs work together
- What portion of your profit can you shield from tax
For business owners, those changes can have a significant impact on the final tax outcome of a sale.
And if you sold a business two years ago, the rules you relied on may no longer apply today. The CGT comparison between pre-reform and post-reform treatment shows tighter asset eligibility rules. It also introduces stricter rules for combining exemptions.
As a result, some owners who previously qualified for full relief may no longer meet the requirements for the same concessions. That can increase the tax payable at settlement and reduce the amount retained from the sale.
So before you assume the same rules apply, it’s worth checking exactly where you stand.
How Capital Gains Tax Works When You Sell a Business
CGT applies to the profit you make when selling a business holding. In practice, the ATO generally calculates the tax by comparing the sale price against the asset’s cost base, with eligible concessions reducing the amount payable.
Many business owners misunderstand that process and treat CGT as a separate tax to deal with, which can lead to costly mistakes during the sale.
The two sections below break down exactly how the tax applies and what actually happens when you sell a business.
How Capital Gains Tax Applies to Your Sale
Capital gains tax isn’t calculated separately from the rest of your income. The profit from the sale gets added to your taxable income, which can increase your overall tax bill.
However, many owners get confused about when CGT applies. The CGT event usually occurs when contracts are signed, not when settlement takes place (and yes, the timing genuinely counts here).
For example, if you sign in June but settle in August, the gain will fall in the earlier financial year. That single timing difference can shift your entire tax position for that income period.
What Counts as a Capital Gain on Asset Sales
A sale profit is the difference between the sale price of an asset and its cost base. The cost base generally includes the purchase price and the cost of any capital improvements you make to the property over time.
The next step is identifying which holdings can create a taxable gain when you sell them. CGT events commonly arise from the sale of business goodwill, property, equipment, and even a share sale in a company (goodwill is often overlooked but very much taxable).
Meanwhile, passively held assets, like investment property, CGT situations and personal use holdings, follow different CGT rules.
Worth Knowing: Making capital improvements to an existing asset, like renovating a commercial property, increases the cost base. This also lowers the assessable capital gain when you eventually sell.
Business Assets and the Active Asset Test
Not every holding you own in a business automatically qualifies for CGT concessions. A lot of business owners get caught out here, so it’s worth slowing down and checking carefully.
The active asset test is often where eligibility falls apart. After watching business operators lose access to concessions over a single failed test, it’s clear the active property rules deserve more attention than they typically get.
Here is what the ATO actually looks at when assessing your business items:
- Active Use Requirement: An active holding is one that you used or kept ready to use for the required period. If your holding is active, it will pass the test. By contrast, assets that you never used (like a vacant block) usually won’t qualify for the test.
- Ownership Period: In general, the item must have been actively used in the business for at least half of your ownership period to pass the active asset test. Otherwise, the requirement drops to 7.5 years for holdings held longer than 15 years.
- Net Assets and Connected Entities: Your net assets include holdings owned by connected individuals and affiliated entities. So if your interest in a related company pushes the total above $6 million, you will no longer be eligible for the concessions when selling.
Meeting these requirements is the first step toward accessing any CGT exemption. That’s why many business owners review them well before a sale begins.
CGT Concessions: The 4 Small Business Reliefs Explained
Small business CGT concessions can significantly reduce the amount of tax payable on a business sale. Sometimes, eligible owners may reduce the taxable gain substantially or eliminate it.
In general, the ATO offers four concessions for small business owners, and each one works differently depending on your circumstances.
Let’s have a look at all of the CGT reliefs one by one:
1. The 15 Year Exemption: Who Qualifies?
The 15-year exemption is the most valuable CGT relief available on the sale of a business asset.
If you have continuously owned the property for at least 15 years and your age is 55 years or older, or you are retiring, you are a candidate for an exemption. As a result, when the CGT event occurs, the entire capital gain is exempt from tax. In other words, none of the gain is included in your taxable income.
Notably, there is no lifetime limit on this concession (like some other CGT exemptions), so eligible owners can claim the full exemption regardless of the size of the gain.
2. The 50% Active Asset Reduction: How It Cuts Your Bill
If you do not qualify for the small business 15-year exemption, the small business 50% active asset reduction may apply to reduce the taxable gain. This rule cuts your assessable capital gain in half before any further concessions apply.
For active assets used directly in your business, this reduction alone can significantly reduce the amount you owe. It works alongside other reliefs, which means the exempt amount left after this reduction can be further offset through rollover options.
3. The Retirement Exemption: A Lifetime Cap to Know
The retirement exemption lets eligible owners disregard up to $500,000 of a sale profit over their lifetime, regardless of their age. Despite the name of the relief, you don’t actually need to be retired to access it.
But if you are under 55 at the time of choosing the exemption, you must pay the exempt amount directly into a complying superannuation fund.
4. Small Business Rollover: Defer Now, Pay Later
The small business rollover lets you defer a CGT gain by rolling it into a replacement asset. You generally have 2 years from the CGT event to acquire the replacement holding.
That timing is important because the concession comes with ongoing obligations. The rollover carries the capital gain forward to the replacement property and accounts for it at a later CGT event. This suits business owners planning to reinvest the proceeds into another business holding.
Note: You must meet the qualifying criteria for each exemption and apply them in a specific order. We’ll cover exactly how that works in the next sections.
Basic Eligibility Conditions You Must Meet First
Many business owners assume they qualify for CGT reliefs automatically. In reality, the ATO requires you to meet several basic eligibility conditions before any concession can apply.
The ATO checks the following conditions before granting access to any relief, and each one carries its own threshold:
| Condition | Requirement |
| Net Asset Value Test | The total net value of CGT items owned by you and connected entities must not exceed $6 million just before the CGT event |
| Aggregated Turnover Test | The aggregated turnover of your small business must be under $2 million for the current income year |
| Legal Entity Structure | Must operate as a sole trader, partnership, company, or trust to be recognised as an eligible entity |
| Active Asset Requirement | The property you sell must pass the active asset test before any concession can apply |
| Additional Requirements | All concessions except the 50% active asset reduction carry extra conditions on top of the basic qualifying conditions |
Many owners skip the eligibility chart entirely, only to find out at tax time that they didn’t qualify. We’ve seen the net property value test catching more sellers off guard than the aggregated turnover threshold.
That’s only one part of the assessment, though. The eligibility criteria can also shift depending on your circumstances. Even a business owner selling through trust structures faces different rules compared to sole traders operating under their own name.
Moreover, property tax changes introduced in recent years have added another layer to how the ATO calculates net assets. These shifts specifically affect those with property holdings inside their legal entity.
Suggestion: You can access tax concessions only after you meet all conditions. If you’re not sure where you stand, seek professional advice to avoid costly mistakes later in the process.
How a Capital Gain Gets Reduced Before You Pay a Dollar
You can reduce a capital gain in stages, although the order depends on which concessions you qualify for. The 15-year exemption is considered first, followed by the CGT discount, then the active asset reduction, and finally rollover concessions if any gain remains.
Most business owners don’t realise you can apply as many reliefs as you qualify for, in a specific order, to reduce CGT gains at each stage (getting this wrong costs more than most people expect).
If you don’t qualify for a 15-year exemption, the reduction process works like this:
- CGT Discount: The CGT discount cuts your assessable sale profit by 50% if you owned the asset for more than 12 months. For most small businessmen, this is the first reduction applied before anything else.
- The 50% Active Asset Reduction: After applying the discount, the 50% active property reduction halves what remains. Taken together, these two reliefs can reduce capital to a fraction of the original gain, and that is before any further concessions come into play.
- Replacement Asset Rollover: Not every proprietor is ready to take the tax hit in the same year they sell. This concession gives you breathing room by deferring the remaining gain into a replacement holding, buying time to reinvest before the liability lands.
From a tax reform comparison perspective, Australian property tax changes have made this process even more relevant for business owners with property assets. So knowing how to apply each relief in sequence can save a large net capital liability.
Now that you know the order, the next question is: when does the tax bill actually arrive?
When Do You Actually Pay Capital Gains Tax (CGT) After a Sale?
You pay CGT in the same financial year the CGT event occurs, which is usually when you sign the contract to sell the business or asset.
Generally, most people assume the tax liability arises at settlement. However, the ATO links CGT to the contract signing date rather than the date the sale proceeds are received. That single detail can push an unexpected liability into a financial year you hadn’t planned for.
In some circumstances, a small business rollover lets eligible owners defer the capital gain for up to 2 years after the sale. This gives you additional time to acquire a replacement asset before you need ot pay the tax.
Beyond the rollover, contributions to a superannuation fund can reduce the exempt amount available under the small business retirement exemption. As we’ve mentioned earlier, if you are under 55 at the time of selling, the exempt portion must go directly into the super fund.
Pro Tip: Plan your sale around the year the CGT event falls into. This approach can save a large amount in tax liability.
Your Next Move Before You Sell
CGT concessions exist to protect business owners from handing over more money than they need to when selling. But accessing them takes proper planning.
Before you sell a business, get clear on which reliefs you qualify for and in what order to apply them. A capital gain left unmanaged can cost far more than the professional advice needed to reduce it properly.
For more guides on running, growing, and selling a business in Australia, head over to Australian Business Magazine. We have a full page of resources there built specifically for Australian business owners like you.
