Small business entity (SBE) concessions are among the most valuable tools in the Australian tax system — yet in practice they're frequently under-claimed, misapplied, or overlooked entirely. The rules have evolved substantially over recent years, and the gap between what clients think they qualify for and what they actually qualify for can mean thousands of dollars in tax.
This post walks through the key concessions, who genuinely qualifies, and the gotchas that trip up even experienced practitioners.
The $10M Aggregated Turnover Threshold — and Why It's Harder to Satisfy Than It Looks
Most SBE concessions are available to entities with an aggregated turnover of less than $10 million. The critical word is "aggregated." Under Subdivision 328-C of ITAA 1997, aggregated turnover includes the annual turnovers of any connected entities and affiliates — not just the entity you're lodging for.
A client running three separate companies held by the same family trust can easily exceed the threshold even if each company individually turns over $3M. Many practitioners check the trading entity in isolation and miss this. Before applying any SBE concession, you need to map the ownership structure and confirm aggregated turnover is genuinely below the cap.
Also note: the $10M threshold determines access to most concessions, but the $2M threshold still applies for the small business income tax offset (for individuals), and the $50M threshold applies to the lower corporate tax rate of 25%. These are different tests for different purposes.
Simplified Depreciation: The Pool System and Instant Asset Write-Off
SBEs can opt into the simplified depreciation regime under Subdivision 328-D. Once you're in, the rules are strict — you can't cherry-pick assets.
Under the pool system, most depreciable assets go into a general small business pool depreciated at 30% (15% in the year of acquisition). The current instant asset write-off allows SBEs to immediately deduct assets costing less than the applicable threshold in the year they're first used or installed ready for use. For 2025-26, the threshold remains under active legislative consideration, so always confirm the current figure before advising clients — the ATO's website is the authoritative source.
One trap: the lock-in rule. Once a client opts into simplified depreciation, they must use it for the income year and the following two years unless they stop being an SBE or specific circumstances apply. Clients who dip in and out create compliance headaches and potential amendment exposure.
Also watch the low-value pool interaction. Assets that would ordinarily go into a low-value pool under the general rules must go into the SBE pool instead, so the two systems don't coexist.
CGT Concessions for Small Business: Four Overlapping Reliefs
The small business CGT concessions in Division 152 of ITAA 1997 are some of the most generous tax provisions in Australian law — and some of the most complex. There are four main concessions, and they can be applied in combination:
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15-year exemption — If an individual has owned an active asset for at least 15 years continuously and is aged 55+ (or is permanently incapacitated) and retiring, the entire capital gain is disregarded. This is the most powerful concession and often overlooked in business sale planning.
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50% active asset reduction — Reduces the capital gain by 50% if the asset qualifies as an active asset. This stacks with the CGT discount for individuals (giving an effective 75% reduction on an asset held over 12 months).
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Retirement exemption — Allows up to $500,000 lifetime limit to be exempted if the amount is contributed to superannuation (or if the individual is 55+, the requirement to contribute to super is waived). The lifetime cap is per individual, not per business.
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Rollover — Allows a two-year deferral of the capital gain if the proceeds are used to acquire a replacement active asset.
The basic conditions must be satisfied before any of the four concessions apply: the entity must be an SBE (or net assets under $6M), and the asset must be an active asset. Getting the active asset test right — particularly for goodwill vs. financial assets — is where disputes with the ATO tend to arise.
Trading Stock and Other SBE Simplifications
SBEs benefit from a simplified trading stock rule: if the difference between opening and closing stock value is less than $5,000, the entity can elect to treat opening and closing stock as equal and skip the year-end stocktake. This saves time but isn't always advantageous — a large closing stock decrease can create a deductible loss that's worth capturing.
Other SBE simplifications include:
- PAYG instalments calculated on the GDP-adjusted notional tax method (simpler than the instalment income method)
- Accounting for GST on a cash basis (turnover under $2M) — note this is a separate, lower threshold
- Simplified trading stock rules as above
Applying the Concessions in Practice
The most important workflow step is eligibility confirmation before lodgement. Aggregated turnover calculations should be documented in the client file each year — ownership structures change, affiliates change, and what was true last year may not be true now.
For CGT events, don't wait until after the sale contract is signed to consider the concessions. The 15-year exemption in particular needs advance planning: the 15-year clock must have been running on an active asset, and if there have been restructures that reset the clock, the exemption may be lost. Pre-sale restructuring advice — done well before exchange — is where the real value lies.
Finally, keep a close eye on ATO guidance. The ATO's SBE concession guidance is updated regularly, and their compliance focus shifts. In recent years, the ATO has flagged increased scrutiny of CGT concession claims where the active asset test or basic conditions are borderline. Robust documentation of the eligibility analysis is not optional.