Walking away from a business you built from the ground up is never simple, but the right strategy can turn the sale into a major financial advantage. Australia’s small business CGT tax concessions are among the most generous, allowing eligible business owners to significantly reduce or even eliminate capital gains tax.
At First Financial, we help clients retire with the financial security to support their ideal lifestyle.
Many small business owners rely on us to prepare for this transition.
While this article outlines small business CGT concessions and eligibility criteria, working closely with your accountant and financial adviser is essential to making the most of these opportunities.
Understanding small business CGT concessions
Small business capital gains tax (CGT) concessions are a set of tax relief measures designed to reduce or eliminate the capital gains tax payable when selling a business. These concessions apply to eligible small business owners and can significantly impact the financial outcome of a sale, particularly for those planning for retirement.
The primary aim of these concessions is to support small business owners by easing the tax burden when they exit their business. Beyond tax reductions, they offer opportunities to reinvest a significant portion of the proceeds into superannuation, helping to ensure long-term financial stability.
Key eligibility criteria
The Turnover Test is used to assess eligibility for various tax concessions, with thresholds varying depending on the concession. For small business CGT concessions, a business qualifies if its aggregated annual turnover is less than $2 million. This includes income from connected entities and affiliates, so business structures can impact eligibility.
The Net Asset Test applies if total net assets, including those of related entities, do not exceed $6 million. While personal assets like the family home and superannuation are excluded, business-related assets such as investment properties and shares may be counted.
Meeting either of these tests is a key step in accessing CGT concessions, but additional conditions may apply.
The 15-year ownership exemption
For long-term business owners, the 15-Year Exemption provides the most impactful tax relief under the small business CGT concessions. No assessable capital gain applies when selling a business asset, provided you have owned it for at least 15 years, are over 55 and are selling due to retirement or permanent incapacitation. In other words, you can sell entirely capital gains tax-free under these circumstances.
In addition, owners can contribute over $1 million from the sale into superannuation without affecting their concessional and non-concessional contribution caps.
This exemption recognises the years of investment, risk and personal effort involved in building a small business. Since many owners rely on the sale to fund their retirement, this concession helps ensure they aren’t burdened with heavy taxes upon exit.
Other small business CGT concessions
For business owners who don’t qualify for the 15-Year Exemption, other CGT concessions can still provide significant tax relief.
The Retirement Exemption allows up to $500,000 of capital gains to be disregarded if used for retirement. Business owners under 55 must contribute the amount to superannuation to receive the exemption.
The Rollover Relief provision defers CGT if the sale proceeds are reinvested into another active business asset within two years, giving owners more flexibility in their next venture.
Talk to the retirement planning experts
Selling a business is a major financial decision, and the right approach can make a significant difference to your future. Small business CGT concessions provide opportunities to reduce tax, but they also come with complexities that require expert guidance.
If you are a small business owner, a well-planned exit strategy ensures you don’t miss out on valuable benefits. Engaging both an accountant and a financial adviser early will help you navigate the process, structure your wealth effectively and set yourself up for the next stage of life.
To learn more about small business CGT concessions and whether they’re the right strategy for you, speak with a member of our friendly team at First Financial today.
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