The small business CGT concessions in Division 152 of the Income Tax Assessment Act 1997 (ITAA 1997) are among the most generous tax concessions available to Australian small business owners. Applied correctly, they can eliminate capital gains tax entirely on the sale of a qualifying business or active asset. However, eligibility is gated by multiple tests, and the bookkeeping records needed to support a claim must be maintained throughout the ownership period — not assembled retrospectively when a sale is imminent.
The Four Concessions
Division 152 provides four distinct concessions, and they can be combined (subject to ordering rules):
1. 15-Year Exemption (Subdivision 152-B) Where a small business entity has owned an active asset continuously for at least 15 years and either the taxpayer is aged 55 or over and is retiring, or is permanently incapacitated, the entire capital gain is exempt. There is no dollar cap. This is the most powerful concession available.
2. 50% Active Asset Reduction (Subdivision 152-C) Reduces the capital gain by 50% (in addition to any general 50% CGT discount already applied). A taxpayer who qualifies for the general 50% discount on a gain of $500,000 reduces it to $250,000; the active asset reduction then reduces it to $125,000.
3. Retirement Exemption (Subdivision 152-D) Allows an individual to exclude up to $500,000 of capital gains from assessable income (cumulative lifetime cap). Amounts excluded must be contributed to a superannuation fund if the taxpayer is under 55 at the time of the choice, but there is no requirement to contribute if 55 or over.
4. Rollover (Subdivision 152-E) Defers the capital gain by rolling it over into a replacement asset. The gain is not recognised until the replacement asset is sold. The replacement asset must be acquired in the period beginning one year before and ending two years after the disposal.
Basic Eligibility Conditions
To access any of the four concessions, the taxpayer must satisfy the basic conditions in s.152-10:
Condition 1 — Small business entity: Under current ATO rules for the 2025–26 financial year, the entity must be a small business entity with aggregated turnover of less than $2 million for the income year.
Alternatively (particularly relevant for passive investors holding shares in a small business), the entity's net assets (or the net assets of its affiliates and connected entities together) must not exceed $6 million at the time of the CGT event.
Condition 2 — The asset is an active asset: The asset being disposed of must be an active asset at the time of the CGT event, or have been an active asset for at least half of the period it was held (capped at the 15-year period ending on the CGT event).
Condition 3 (for shares in a company or interests in a trust): Additional conditions apply — the entity must satisfy the small business entity test or the maximum net asset value test, and the gain must pass the 90% active asset test.
The Active Asset Test
An asset is "active" under s.152-40 if it is used or held ready for use in the course of carrying on a business. This includes:
- Goodwill of the business
- Physical assets used in the business (plant, equipment, premises owned by the entity)
- Intangibles inherently connected to the business (customer lists, intellectual property, business licences)
An asset is not an active asset if it is used to derive rent, royalties, annuities, interest, or dividends — these are passive income-producing assets. A building owned by the business and leased to a third party is not active; a building used by the business as its own premises is active.
The 50% active asset test (s.152-35) requires that at the time of the CGT event, the market value of active assets of the entity (including affiliates and connected entities) is at least 50% of the total market value of all assets. This test is designed to ensure the entity is genuinely an operating business rather than a passive asset-holding structure.
Bookkeeping Records Needed to Support a Claim
The records that underpin a small business CGT concession claim must be maintained throughout the ownership period. Attempting to reconstruct them at sale time is unreliable and increases audit risk. Key records include:
Asset acquisition records: Purchase contracts, settlement statements, or equivalent documents establishing the original acquisition date and cost base (including incidental costs such as stamp duty and legal fees).
Evidence of active use: Financial statements showing the asset was actively used in the business — depreciation schedules, insurance records, lease agreements where the entity was the occupant, and business activity records. These are needed to demonstrate the active asset test was satisfied throughout the ownership period.
Aggregated turnover calculations: Records showing the entity's aggregated turnover (and that of affiliates and connected entities) for each year, particularly in years where the $2 million threshold was close to being breached.
Net asset value calculations: A valuation or market value estimate of all assets at or close to the disposal date, used to support the $6 million maximum net asset value test. This typically requires a professional valuation of real property and business goodwill.
Superannuation contribution records (Retirement Exemption): If the individual is under 55, a notice of intent to make a personal contribution must be lodged with the superannuation fund within the required timeframe. The fund must accept the contribution. Records of the contribution are required.
Interaction with the General 50% CGT Discount
The general 50% discount under Division 115 and the small business concessions can be combined — with the ordering rules in s.152-210 specifying the sequence:
- Gross capital gain
- Less: general 50% discount (if applicable — individual or trust, asset held > 12 months)
- Less: 50% active asset reduction
- Less: retirement exemption (if applicable, up to the $500,000 cap)
The interaction means that in practice, a qualifying individual selling a business asset held for more than 12 years at a capital gain of $1 million could potentially reduce their assessable gain to nil: $1M → $500K (50% discount) → $250K (active asset reduction) → $0 (retirement exemption, if under the lifetime cap).
Legislation and Further Reading
- Income Tax Assessment Act 1997, Division 152 — small business CGT concessions
- Income Tax Assessment Act 1997, s.152-10 — basic conditions for relief
- Income Tax Assessment Act 1997, s.152-40 — definition of active asset
- Income Tax Assessment Act 1997, Division 115 — general 50% CGT discount
- ATO: Small business CGT concessions (www.ato.gov.au/businesses-and-organisations/income-deductions-and-concessions/concessions-for-small-business-entities/small-business-cgt-concessions)
- ATO Tax Ruling TR 2007/D1 — small business CGT concessions