Selling your SME business is a transaction that marks the end of years of effort, risk, and resilience. For many SME owners, the financial outcome of that sale hinges on one thing: how well they navigate Capital Gains Tax (CGT). Without planning, the tax on your business’s sale could swallow a significant portion of your hard-earned gain.

CGT is levied on the profit made when selling an asset, including your business. The difference between what you invested and what a buyer pays becomes part of your taxable income, potentially pushing you into a higher tax bracket. For successful businesses, this can mean a tax bill in the hundreds of thousands to much more.

To offset this, the Australian government offers specific CGT concessions for small business owners. These are designed to reward long-term business building and support retirement or reinvestment goals. Used correctly, they can reduce or eliminate your CGT liability altogether, turning a good exit into a great one.

15-Year Exemption Explained

For long-standing business owners, the 15-year exemption is the most powerful concession available. It allows you to disregard the entire capital gain from the sale of your business, meaning you pay zero tax on the profit. It is a complete exemption, but the conditions are, unsurprisingly, strict. To qualify, you must be at least 55 years old, retiring (or permanently incapacitated) and have continuously owned the business asset for a minimum of 15 years. This concession rewards long-term commitment and can single-handedly transform the financial outcome of a sale, turning a taxable event into a tax-free windfall to fund your retirement.

50% Active Asset Reduction

As the name suggests, this relief allows you to automatically reduce your capital gain by 50%. The key to this concession is the term “active asset.” An asset is considered active if it is used, or held ready for use, in the course of carrying on a business. This includes tangible assets like machinery and premises, as well as intangible assets like goodwill. It does not typically include assets used mainly to derive rent or other passive income. For instance, if you sell your manufacturing business for a capital gain of $1 million, applying this reduction immediately cuts the taxable gain to $500,000 before any other concessions are considered. This provides a substantial and immediate tax benefit for almost any qualifying business sale.

Retirement Exemption Benefits

The retirement exemption offers a great opportunity to shelter your capital gain from tax, with a lifetime limit of $500,000 per individual. A common misconception is that you must be retired to use it. If you are under 55, you can still access this exemption, but you must contribute the exempt amount into a complying superannuation fund. If you are over 55, you can receive the funds directly, tax-free. This makes the retirement exemption a flexible tool. It can be used to significantly levy your superannuation for a more comfortable retirement or, if you meet the age requirements, provide a lump sum of tax-free cash. Strategic use of this exemption is a cornerstone of effective exit planning.

Rollover Relief: Deferring Capital Gains

What if you plan to start a new venture after selling your current one? The rollover relief allows you to defer a capital gain if you use the proceeds to acquire a replacement active asset or improve an existing one. The gain is not eliminated but ‘rolled over,’ so you won’t have to pay tax until you sell the new asset. This is an excellent strategy for serial entrepreneurs or those looking to pivot into a new business area without being penalised by a large, immediate tax bill. It relieves pressure, allowing you to reinvest and continue your business journey, with the tax obligation deferred to a later date.

Eligibility Criteria 

The Australian Taxation Office has a set of basic conditions that must be satisfied first. Getting this part wrong can disqualify you from all four concessions, so careful assessment is imperative. The foundational tests revolve around the size of your business and the nature of your assets.

First, your business must be a ‘small business entity’. For the 2025 financial year, this generally means having an aggregated annual turnover of less than $2 million. If your turnover exceeds this amount, you may still qualify for the small business CGT concessions through the ‘maximum net asset value test’.

This alternative test requires that the total net value of your assets (including those of connected entities and affiliates) does not exceed $6 million, calculated just before the sale. Certain assets, such as your personal home (main residence) and superannuation, are excluded from this asset value calculation, providing an additional pathway to eligibility for businesses with higher turnover.

Next comes the Active Asset Test. The asset you are selling must have been an active asset for at least half of the time you have owned it, or for a minimum of 7.5 years if owned for more than 15 years. This test is crucial and often where business owners fall short, particularly if the asset has been used for private or passive income purposes at any point.

Finally, if the asset being sold is a share in a company or an interest in a trust, an additional layer of conditions applies. The entity must either be a ‘CGT concession stakeholder’ in the company or trust, or at least 90% of its shareholders must be concession stakeholders. This is known as the Significant Individual Test, which essentially requires that individuals with a significant ownership stake (at least 20%) are the ones benefiting from the sale.

Strategic Planning to Maximise CGT Relief

Maximising CGT relief is not something that happens at the point of sale but is deliberately planned, and often begins years earlier. One of the most impactful factors is your business structure. A sole trader, for instance, has a more straightforward path to accessing concessions than a shareholder in a complex company or a beneficiary of a trust. Experts recommend starting your sale preparation at least one to two years in advance, which provides ample time to restructure if necessary, ensuring your business is set up for the most favourable tax outcome.

Timing is also a powerful strategic lever. If you are approaching the 15-year ownership milestone, delaying a sale by a few months could be the difference between a significant tax bill and a complete exemption. Similarly, you need to ensure an asset meets the active asset test requirements before a sale is initiated. Proactive management of your asset portfolio, such as selling off passive or non-core assets well ahead of the business sale, can simplify eligibility for the $6 million net asset value test.

Common Pitfalls and How to Avoid Them

Even with the best intentions, business owners can make costly mistakes that jeopardise their access to CGT concessions. One of the most frequent errors is failing the active asset test. This can happen if a business property was rented out for a period, or if a business holds significant passive investments. The solution is proactive management: regularly review your asset register and ensure everything aligns with the definition of an active asset. If not, consider restructuring or divesting these assets well in advance of a sale.

Another common issue arises in companies and trusts from inadequate distribution planning. It’s not enough for the company to qualify. The ultimate capital gain must flow to the eligible individuals (the CGT concession stakeholders) to claim the relief. Misunderstanding the sale structure is a risk. A share sale and an asset sale have vastly different CGT implications, and choosing the wrong one without proper advice can lead to an unnecessarily high tax burden.

Encouragement to Consult with Advisors

The complexities of the CGT concessions underscore a vital truth: you shouldn’t navigate this process alone. Engaging with a team of professional advisors, including tax accountants, commercial lawyers, and M&A specialists, is an investment in the final outcome of your business sale. These experts live and breathe the intricacies of tax law and deal structures every day.

At Oasis Partners, we specialise in guiding business owners through every stage of their journey, from growth to a successful exit. Our deep experience in M&A and business advisory, combined with a network of legal and tax experts, ensures your sale is structured to unlock maximum value. If you are considering selling your SME and want to ensure you capitalise fully on the available CGT concessions, we encourage you to start the conversation with us today.