For most business owners, the biggest tax bill they will ever face doesn’t arrive during a bumper profit year — it arrives when they sell. Capital gains tax on a business exit can easily run into hundreds of thousands of dollars, appearing at precisely the moment you expected to finally reap the reward for decades of hard work. Understanding how the capital gains tax discount works — and how to use it alongside the small business CGT concessions — is not optional planning. It is essential.

Australia’s CGT rules are genuinely generous compared to many other countries, but the concessions don’t apply automatically. You need to understand the rules, meet the eligibility conditions, and ideally structure your affairs well in advance of any planned sale. Get it right, and you could halve your tax — or eliminate it entirely. Get it wrong, and the ATO will collect every dollar.

In this guide, we walk through how the 50% CGT discount works, who qualifies, how it interacts with the small business concessions, and what you need to plan before selling your business or a major asset.

What Is Capital Gains Tax?

Capital gains tax (CGT) is not a separate tax in Australia — it is simply the inclusion of a capital gain in your assessable income. When you sell a CGT asset (which includes business assets, shares, real estate, intellectual property, and most other property) for more than its cost, the profit is a capital gain. This gain is added to your income and taxed at your marginal rate.

The starting point for any CGT calculation is the cost base of the asset. The cost base is not simply what you paid — it includes stamp duty and legal fees on acquisition, improvement costs, the costs of defending your title to the asset, and agent commissions on sale. Getting the cost base right matters: many business owners understate their cost base and therefore overstate their gain. A thorough review of the cost base before any sale is one of the first steps in any exit planning engagement at Pinnacle Accounting & Advisory.

Once you have the gross capital gain, the discount rules determine how much of that gain is actually included in your assessable income.

The 50% CGT Discount: How It Works and Who Qualifies

The general CGT discount under Division 115 of the Income Tax Assessment Act 1997 is one of the most valuable provisions in Australian tax law. If you hold a CGT asset for at least 12 months before disposing of it, you can reduce your capital gain by 50% before including it in your assessable income — provided you meet the eligibility conditions.

A practical example: You sell a business asset with a gross capital gain of $400,000. You have held it for more than 12 months. After applying the 50% discount, only $200,000 is assessable. At a 47% marginal rate, your CGT liability is $94,000 — not $188,000. The discount alone saves $94,000 in a single transaction.

Who Is Eligible for the CGT Discount?

• Individuals: Full 50% discount. The most common situation — a sole trader or trust beneficiary receiving a capital gain personally.
• Trusts (including family trusts): The trust applies the 50% discount and passes the discounted gain to individual beneficiaries. This is one of the key tax advantages of holding investment and business assets in a trust rather than a company.
• Self-managed super funds (SMSFs): A one-third discount (33.33%) is available, not the full 50%. Still highly valuable — and in pension phase, tax on earnings can drop to zero.
• Companies: No discount whatsoever. Companies are not eligible for the CGT discount under any circumstances. This is one of the most important structural differences between companies and trusts, and a major reason why investment assets are often better held in a trust or individual name rather than a company.

The 12-Month Holding Rule

The 12-month holding requirement is measured from the date of acquisition to the date of the CGT event (generally, the date you exchange contracts to sell, not the settlement date). A one-day shortfall eliminates the discount entirely — so timing the contract exchange date is important when you have flexibility on when to sign.

Assets acquired before 20 September 1985 are generally exempt from CGT entirely — known as “pre-CGT assets.” If you acquired business assets before that date, they may not attract any tax on sale. This is increasingly rare but still relevant for some long-standing business owners.

The Small Business CGT Concessions: Four Ways to Reduce CGT Further

On top of the general 50% discount, Australian small business owners may access four additional concessions under Division 152 of the ITAA 1997. These concessions are extraordinarily generous — in many cases, they can reduce a business owner’s CGT to zero. To access any of them, you must first satisfy the basic conditions:

• You are a small business entity with aggregated annual turnover under $2 million, or your net assets do not exceed $6 million (the maximum net asset value test)
• The asset satisfies the active asset test — used in your business for at least half of the period you owned it, or 7.5 years if held for more than 15 years

1. The 15-Year Exemption

This is the most generous concession in the Australian tax system. If you have owned a business asset continuously for at least 15 years, are aged 55 or over, and are retiring or permanently incapacitated, the entire capital gain is exempt. No CGT at all. The 15-year exemption takes precedence over all other concessions. See our dedicated guide to the CGT 15-year exemption for the full conditions.

2. The 50% Active Asset Reduction

If you don’t qualify for the 15-year exemption, the 50% active asset reduction applies next (after the general 50% discount). This reduces the remaining gain by a further 50%. The combined effect of both discounts is that only 25% of the original gross gain is assessable — a 75% total reduction.

3. The Retirement Exemption

The retirement exemption allows you to exclude up to $500,000 lifetime of capital gains from active business assets. If you’re under 55, the exempt amount must be contributed to superannuation. If you’re 55 or over, there’s no requirement to actually retire — you simply elect to apply the exemption. See our full guide to the CGT retirement exemption.

4. The Rollover Concession

The rollover concession defers a capital gain if you acquire a replacement active business asset within two years of the sale. The gain is rolled into the cost base of the new asset — you don’t pay tax now, but the deferred liability attaches to the replacement. This is useful when you’re selling one business to acquire another.

We cover all four concessions in detail — including the eligibility conditions and the order of application — in our companion guide: CGT Small Business Concessions Explained.

How the CGT Concessions Apply in Sequence

The order in which the CGT concessions are applied matters significantly. The ATO applies them in a fixed sequence, and understanding this order helps you model the tax outcome accurately:

• Step 1: Apply the general 50% CGT discount (if held for more than 12 months and you’re an individual, trust, or SMSF)
• Step 2: Test the 15-year exemption (if eligible, the remaining gain is completely eliminated — stop here)
• Step 3: Apply the 50% active asset reduction (reduces the remaining gain by half)
• Step 4: Apply the retirement exemption (up to $500,000 lifetime of the remaining gain)
• Step 5: Apply the rollover concession (defer any remaining gain if replacing the asset)

In the best-case scenario, an eligible individual who has held business assets for 12+ months could reduce a $1 million capital gain to zero: 50% discount reduces it to $500,000 — 50% active asset reduction brings it to $250,000 — $250,000 retirement exemption eliminates the rest. This level of planning is entirely legal, ATO-sanctioned, and is one of the primary reasons why exit planning years in advance makes a transformative financial difference.

How Business Structure Affects Your CGT Outcome

The structure in which you hold your business assets has a profound effect on your CGT outcome when you sell:

• Company: No 50% CGT discount. Capital gains inside a company are taxed at 25% or 30%. When you then distribute the after-tax proceeds as a dividend, shareholders may face further tax. However, the small business CGT concessions may still apply at the company level in some circumstances.
• Trust: The 50% discount is available and can be passed to individual beneficiaries, taxed at their personal rate. Family trusts are often the preferred structure for holding investment and business assets where CGT planning is a priority.
• Individual / sole trader: Full access to the 50% discount and all small business concessions. The simplest structure from a CGT perspective, but with no asset protection.
• SMSF: 33.33% discount in accumulation phase. Capital gains on assets sold in pension phase (after pension commencement) may be zero if the entire fund is in pension mode.

Restructuring your business into a more tax-efficient structure before a planned sale can unlock the CGT discount, but restructuring itself may trigger CGT events. This is one of the most complex areas of business tax planning. For more on structuring decisions, see our guide to business structures in Australia, and for overall tax planning approach, visit our tax planning services page.

Timing Your Sale for Maximum CGT Benefit

Getting the timing right on a business sale can save significant amounts of tax without changing the price you receive:

• Confirm the 12-month holding period: The CGT event occurs at exchange of contracts, not settlement. Even one day short costs you the 50% discount. Always verify the exact acquisition date before setting a contract date.
• Approaching 15 years: If you’re close to the 15-year mark, delaying a sale by a few months to qualify for the 15-year exemption may eliminate your CGT entirely.
• Income year selection: If your personal income is lower in a particular financial year (for example, the year you retire and cease drawing salary), completing the sale in that year reduces the marginal rate applying to any assessable gain.
• Instalment payments: Structuring the sale price as instalments across two or more financial years can spread the gain over multiple periods, reducing the marginal rate in each year.

How Pinnacle Approaches CGT Planning With Business Owners

Exit planning is one of the most financially significant services we provide at Pinnacle Accounting & Advisory. We typically begin working with business owners at least two to three years before a planned sale — because many of the most powerful strategies (holding period optimisation, restructuring, superannuation contributions funded by sale proceeds) require time to implement before any sale negotiations begin.

Our process: we review the existing structure and asset ownership, assess which CGT concessions are available and in what combination, model the after-tax outcomes under different sale scenarios, and build a pre-sale plan that maximises your net proceeds. We also advise on using sale proceeds to fund superannuation contributions under the retirement exemption — a strategy that simultaneously reduces CGT and builds your retirement savings.

Frequently Asked Questions

Do I get the 50% CGT discount if I sell shares in my company?

If you are an individual selling shares in a company that you have held for more than 12 months, yes — you can access the 50% CGT discount on any gain. If the company itself is selling its assets, no — companies are not eligible for the discount. This distinction is critical and depends on the ownership structure of your business.

Can I use the small business CGT concessions if my business is held in a company?

Yes. The small business CGT concessions under Division 152 apply to companies as well as individuals, trusts, and partnerships — provided the basic conditions are met. However, companies cannot also access the general 50% CGT discount. When sale proceeds are distributed to shareholders as a dividend, further tax may apply. The 15-year exemption and retirement exemption have specific requirements for companies that differ from individuals and trusts.

What is the maximum net asset value test?

To access the small business CGT concessions, your net assets (including those of connected entities and affiliates) must not exceed $6 million. Importantly, the asset being sold, your principal place of residence (up to a limit), and superannuation fund balances are generally excluded from this test. Many business owners with significant property portfolios still qualify once these exclusions are applied correctly.

Does CGT apply to goodwill when I sell my business?

Yes. Goodwill is a CGT asset, and any gain on goodwill is assessable. However, goodwill is also typically an “active asset” for small business CGT concession purposes, which means the concessions may significantly reduce or eliminate the tax on goodwill. This is often the single largest component of a business sale price — so getting the concession right is extremely valuable.

How far in advance should I start CGT exit planning?

At minimum, 12 months in advance — to ensure you qualify for the CGT discount. Ideally, two to three years in advance, so that strategies such as restructuring, superannuation contributions, and instalment payment arrangements can be properly implemented. Exit planning done a week before signing heads of agreement is almost always too late to capture the most valuable concessions.

Frequently Asked Questions

This article contains general advice only and does not take into account your specific circumstances. Please speak with a qualified accountant or tax adviser before making financial decisions.

Getting the timing right on a sale is a core part of tax planning in Melbourne for business owners.

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