Small business CGT concessions: the four tests in plain English

Technically reviewed 8 October 2026 · General information only, not personal advice. Read our disclaimer.

If you’re selling a small business, or thinking about it in the next year or two, the small business CGT concessions in Division 152 of the Income Tax Assessment Act 1997 are some of the most generous provisions in the Australian tax system. Used properly, they can reduce a capital gain by 50%, by 100%, or in some cases let you walk away with the gain entirely tax-free.

The catch is that you have to qualify. And qualifying isn’t a single test, it’s a series of them, and they need to be worked through in order. Most articles list the concessions and assume you’ll know whether you qualify. This piece does the opposite. We walk you through the tests, in plain English, with worked examples, so you can see roughly where your situation lands. They are four useful questions to ask, not four boxes you can tick to sign off your own sale.

A note before we begin. The framework below is a plain-language walk-through, not a substitute for advice on your specific transaction. Division 152 is technical, it was tightened in 2018 in ways that older articles still miss, and the order of operations matters. If you’re approaching a sale, please get the analysis done properly before you sign anything. A small structural change two years before settlement can be worth hundreds of thousands of dollars, but only if there’s time to implement it.

The transaction year matters. This article explains the decisions to work through, but a later sale may be calculated under different rules: from 1 July 2027 the general CGT discount ends for individuals and trusts and a minimum tax on capital gains begins. Our dated reform note explains the changes and the transition. We use the rules relevant to your transaction, not an old headline rate.

Test 1: Are you a “small business” for CGT purposes?

This is the gate. Before any of the concessions are available to you, you have to get through it by one of two main paths.

The first path is the CGT small business entity test. You pass if you carry on a business in the year of the sale and your aggregated turnover (your turnover plus the turnover of your connected entities and affiliates) is under $2 million. The law gives you three ways to show that: your aggregated turnover for the previous year was under $2 million; your aggregated turnover for the current year is likely to be under $2 million (unless it was $2 million or more in each of the two previous years); or your actual aggregated turnover for the current year, worked out at the end of it, was under $2 million. Note the word “carry on”. This path is for the entity actually running the business. If the asset being sold sits in a different entity, say a trust that owns the premises and leases them to the trading company, there is a related path for passively held assets that lets the owner lean on the business entity’s turnover, with its own conditions.

The second path is the maximum net asset value (MNAV) test. You pass if the net value of the CGT assets of you, your connected entities and your affiliates is $6 million or less just before the CGT event. “Net value” is market value less the liabilities related to those assets, and less certain provisions. Some assets are left out of the count when the owner is an individual: assets held solely for personal use and enjoyment, superannuation, life insurance policies, and your main residence. The main residence exclusion is conditional, though. If part of the home has been used to produce income in a way that made the interest deductible, that part comes back into the count. People are often surprised by how close to $6 million a family group gets once the business, the shed, the investment property and the connected entities are added up.

You only need to satisfy one of the two paths.

Worked example. A family business turning over $1.5 million a year, with about $2 million of business assets and $400,000 of related debt. Aggregated turnover under $2 million → CGT small business entity test passes. Net asset value comfortably under $6 million → MNAV test also passes. This business is comfortably inside the gate on both paths.

A trickier example. A business turning over $3 million a year (so the turnover test fails) but with very little equipment, say a service business with $200,000 of plant and no real estate. People assume the MNAV test is a formality. It isn’t, because “we don’t own much plant” is not the same as passing the net asset test: the business’s goodwill counts at market value, so do the owners’ other CGT assets and those of their connected entities and affiliates, and a service business can have very little equipment and still be worth a great deal. If the goodwill, the investment property and the connected entities together come in under $6 million net, the business is still in the gate, via the MNAV path rather than the turnover path. If they don’t, it isn’t, however modest the equipment list looks.

Two paths into the gate. You only need one.

Test 2: Is the asset an “active asset”?

This is the test that decides whether the asset itself qualifies. The concessions only apply to the sale of an “active asset”, broadly, an asset that has been used in the course of carrying on a business.

The technical rule: the asset has to have been an active asset for at least half of the period you owned it, or for at least 7.5 years if you owned it for more than 15 years. So a business asset you’ve owned for 12 years needs to have been “active”, used in the business, for at least 6 of those years. A business asset you’ve owned for 20 years needs to have been active for at least 7.5 years. One useful detail: if the business stopped within the 12 months before the sale, the test period ends when the business stopped, so a short gap between closing the doors and settling the sale of the premises does not count against you.

What counts as “active”? An asset used, or held ready for use, in carrying on a business by you, your affiliate, or an entity connected with you. The plant and equipment of a business you operate. The premises you trade from, including premises you own personally and lease to your own trading company. Goodwill. What doesn’t count? Financial instruments, including loans and most shares. Cash. Assets whose main use is to earn interest, rent or royalties, which is why a commercial property leased to an unrelated tenant is generally not active, even though the owner may think of themselves as being in the property business. And shares in a company or units in a trust do not become active merely because you run the company. They are tested under their own rule, which is Test 3.

Worked example. A bakery that’s been operated by the same family for 18 years, sold this year. The goodwill and the freehold premises (used in the business) are active assets and have been continuously active throughout, so the active asset test passes comfortably for both. The ovens and other depreciating plant are a different story: they follow the depreciation rules, and a gain on selling them is a balancing adjustment rather than a capital gain, so the CGT concessions are not what deals with them. The fit-out needs to be separated into its components rather than treated as one asset with one tax answer, because structural improvements can be capital works with their own treatment. Sellers are often surprised that the concessions apply to the goodwill and the premises but not to the ovens.

A trickier example. Commercial premises owned for 12 years. For the first 4 years, the family used it themselves to run a business. For the next 8 years, they leased it to an unrelated tenant. The asset was active for 4 of 12 years, under half the period. Active asset test fails. The premises don’t qualify, even though it’s commercial property and the owners have been “in business” the whole time. Had the tenant been the family’s own trading company, the answer would have been different: rent from an affiliate or connected entity does not take an asset out of the active category.

The active asset test catches more sellers than people expect. If your situation has any history of leasing the asset out, or holding it passively for a stretch of years, the test needs careful work.

Test 3: If you’re selling shares or trust units, do you pass the additional conditions?

This test only matters if what you’re selling is an interest in a company or trust, rather than the underlying business assets directly. If you’re selling the assets of a sole trader or partnership business, skip this section.

When you sell shares or units, the law layers on further requirements, and this is the part of Division 152 that changed most in 2018. There are now four additional conditions, and all of them have to be met.

The company or trust must pass the small business gate on its own numbers. The entity whose shares you are selling must itself be a CGT small business entity (under $2 million turnover) or satisfy the $6 million MNAV test, counting its own assets and turnover together with those of its affiliates and the entities it controls, and using a 20% control threshold for that purpose rather than the usual 40%. This is in addition to you passing the gate yourself under Test 1. For most individual shareholders, the realistic way through Test 1 is the MNAV test, because a person who owns and works in a company is not themselves carrying on a business. The law says so expressly: if you do not pass the MNAV test, you must be carrying on a business just before the sale.

The modified 80% test. At least 80% of the market value of the company’s or trust’s assets must be active assets, together with cash and financial instruments that are inherently connected with its business. So if your trading company has $1 million of business assets and $200,000 of working cash, the 80% test passes. If it has $500,000 of business assets and $500,000 of listed shares sitting in an investment account, it fails. Since 2018 the test also looks through to subsidiaries and other entities only where the company holds at least a 20% interest in them, and it ignores cash or financial instruments acquired to pad out the percentage.

The CGT concession stakeholder test. A “significant individual” is a person whose small business participation percentage in the company or trust is at least 20%. For a company that percentage is the smallest of their share of votes, dividends and capital. For a discretionary trust it is their share of the income and capital actually distributed in the income year, which means the distributions made in the year of the sale decide it, not the history. A “CGT concession stakeholder” is a significant individual, or the spouse of one if the spouse has a participation percentage above zero. If you are an individual selling the shares, you must be a CGT concession stakeholder in the company just before the sale. If the seller is itself a company or trust, the CGT concession stakeholders in the company being sold must together hold at least 90% of the participation percentages in the selling entity. This is the 90% test, and for a family trust that owns the shares it is decided by where the trust distributes in the year of the sale.

Worked example. Mum and Dad each own 50% of the ordinary shares in their family company, which turns over $1.8 million and has 90% of its asset value in business assets. They sell their shares this year. The company passes the gate on its own numbers. The shares pass the 80% test. Each of Mum and Dad holds 50%, so each is a significant individual and therefore a CGT concession stakeholder. Mum and Dad’s own MNAV test, which includes the company’s assets because the company is connected with them, comes in under $6 million. They’re through this test.

A trickier example. A discretionary trust holds 100% of the shares in the trading company and sells them. The trust is the seller, so the 90% test applies: the concession stakeholders in the company must together hold at least 90% of the trust’s participation percentages for the sale year. If the trust distributes all of that year’s income and capital to Dad, Dad’s participation percentage in the company is 100%, he is a significant individual, and the stakeholders hold 100% of the trust. The test passes. If instead the trustee spreads that year’s distributions across six adult children at roughly 16% each, nobody reaches 20%, there is no significant individual, and the concessions are lost for everyone. Trusts with no income to distribute in the sale year face a further set of rules. This is the test that most often needs proper structural review well before sale, and it is why the trustee’s resolution in the year of a share sale is not routine paperwork.

Test 4: Does the specific concession have additional requirements?

Once you’ve passed the conditions above, the gate is open. You can then look at the four concessions on offer:

• 15-year exemption (Subdivision 152-B). A complete exemption. The gain is disregarded entirely, and if it applies you don’t need any of the others. The asset must have been owned continuously for the 15 years ending just before the sale, and the active asset test is the ordinary one: active for at least 7.5 of those 15 years, not all of them. The rest depends on who the seller is. If you are an individual, you must have been 55 or over at the time and selling in connection with your retirement, or permanently incapacitated. If the seller is a company or trust, even one selling its own business assets, it must have had a significant individual for a total of at least 15 years of the ownership period (not necessarily the same person, and not necessarily continuously), and the person who is a significant individual just before the sale must be 55 or over and retiring, or permanently incapacitated. If what is being sold is shares or units, the same 15-year significant individual requirement applies to the company or trust whose shares are sold. Proceeds up to the lifetime CGT cap (indexed; $1,935,000 for 2026-27) can be contributed to superannuation without counting against your non-concessional cap, provided the election is made in time.
• 50% active asset reduction (Subdivision 152-C). A 50% reduction in the gain, applied after the general CGT discount where that discount is available. It applies automatically unless you choose otherwise, and companies and trusts often do choose otherwise, because a gain sheltered this way inside a company comes out later as an unfranked dividend, and a unit trust faces a cost base adjustment on the way through.
• Retirement exemption (Subdivision 152-D). Up to $500,000 of gain per individual, over a lifetime, can be exempted. Despite the name, you do not have to retire to use it. If you’re under 55 when you make the choice, the exempt amount has to be paid into a complying superannuation fund. If you’re 55 or older, the cash is yours. Where a company or trust makes the choice, it must have a significant individual and must pay the amount to its CGT concession stakeholders within the time the law allows, with the under-55 super rule applying to each of them.
• Small business rollover (Subdivision 152-E). Defer the gain by acquiring a replacement active asset, or making a capital improvement to an existing one, within the period starting one year before and ending two years after the sale. If you don’t, or the replacement later stops being active, the deferred gain comes back in. Not a permanent saving, but a useful timing tool, and a common way to buy time to reach 55 for the retirement exemption.

Each concession has its own conditions on top of the basic ones. The 15-year exemption is the most demanding, but it is also the one that older articles get wrong most often: it does not require the asset to have been active for the whole 15 years, and for shares and units it does require 15 years’ worth of a significant individual, which in a discretionary trust means 15 years of distributions that someone can point to.

The other three concessions can be combined, and the order is fixed by the Act rather than by preference. First, capital losses are applied against the gain. Then the general 50% CGT discount, if the seller is an individual or trust and the asset has been held for at least 12 months (companies get no general discount). Then the 50% active asset reduction, if it is applied. Then the retirement exemption and the rollover, in whichever order you choose, on what is left. For an individual, discount followed by active asset reduction leaves 25% of the original gain, and the retirement exemption can then absorb up to $500,000 of that. Done well, the combination can take a $1 million gain down to nothing or near-nothing. Done out of order, it can leave money on the table or put a gain inside a company that then has to be paid out and taxed again.

Putting it together

The tests in order: small business gate, active asset, (if shares or units) the entity’s own gate, the modified 80% test and the concession stakeholder or 90% test, and then the specific concession conditions.

You move through them like locks on a canal. Each one has to open before the next one matters.

The concessions are generous, but the tests aren’t.

If you’re approaching a sale, or even just thinking about one, please come and have the conversation early. We’ve seen too many situations where a small structural decision made in good time would have unlocked a meaningful concession, but the time had run out before the right advice was sought. The 15-year exemption alone can be the difference between retiring with the full sale proceeds and retiring with significantly less, and it depends on facts that have to be true at sale time, which means we need to be planning for them years out.

If you’d like a second pair of eyes on your position, ring us. The walk-through is one we’ve done many times, and we’d much rather have the conversation early than late.

Raise higher.