Small Business CGT Concessions in Australia 2026-27: The $10 Million Threshold Expansion and Active Asset Test Guide

For Australian small business owners planning to sell their business, retire, or restructure, the small business capital gains tax (CGT) concessions represent one of the most powerful tax-saving tools available. With the federal government announcing a significant expansion of the turnover threshold from $2 million to $10 million — effective 1 July 2027 — hundreds of thousands of additional businesses will soon qualify for concessions that can reduce or eliminate a capital gain entirely. Understanding these rules now, with the help of a qualified accountant, is essential to maximising your position before and after the changes take effect.

Understanding the Small Business CGT Concessions

The small business CGT concessions are a suite of tax reliefs available under Division 152 of the Income Tax Assessment Act 1997. They allow eligible small business owners to reduce, defer, or disregard capital gains arising from the disposal of active business assets.

There are four main concessions, each with distinct eligibility requirements and tax outcomes. They must be applied in a specific order, and a taxpayer may be eligible for more than one in a single transaction.

• 15-Year Exemption — If you have continuously owned an active asset for at least 15 years and are aged 55 or over (or permanently incapacitated), the entire capital gain is disregarded. This is the most generous concession and takes priority over all others.
• 50% Active Asset Reduction — Reduces the capital gain by 50% after applying the general 50% CGT discount (where applicable), resulting in an effective 75% reduction for individuals.
• Retirement Exemption — Allows up to $500,000 of capital gains (lifetime limit) to be disregarded if the proceeds are contributed to superannuation or retained by the business owner who is aged 55 or over.
• Small Business Rollover — Defers the capital gain for up to two years (or longer if a replacement asset is acquired), allowing business owners to reinvest proceeds before the tax liability crystallises.

The Active Asset Test: A Critical Gateway

Before accessing any of the four concessions, the asset being sold must pass the active asset test. This is a fundamental eligibility condition that many business owners overlook until it is too late.

An asset qualifies as an active asset if it is used, or held ready for use, in the course of carrying on a business by the taxpayer, their affiliate, or a connected entity. The asset must have been active for at least half of the ownership period (or 7.5 years for assets held more than 15 years).

What Qualifies — and What Does Not

• Qualifies: Business premises, goodwill, plant and equipment used in the business, shares in a company or interests in a trust where at least 80% of the entity's market value is active assets
• Does not qualify: Assets used primarily to derive passive income such as rent, interest, royalties, or annuities — unless the rental use is incidental or the asset is used by a connected entity in their business
• Shares and trust interests: Must pass the 80% active asset test, meaning the underlying entity's assets must be predominantly active — a calculation that requires careful analysis by an accountant

The active asset test can be deceptively complex, particularly for businesses that hold mixed-use assets or have restructured over time. An accountant experienced in CGT concessions can assess whether your assets qualify and identify planning opportunities before a sale is finalised.

The $10 Million Threshold Expansion: What Changes in 2027

Currently, to access the small business CGT concessions, a taxpayer must either be a small business entity with aggregated annual turnover of less than $2 million, or satisfy the Maximum Net Asset Value (MNAV) test — meaning the net value of assets owned by the taxpayer and their affiliates does not exceed $6 million.

From 1 July 2027, the government will lift the turnover threshold for the 50% active asset reduction to $10 million. This is a transformative change that will bring a large cohort of medium-sized businesses — previously excluded solely on turnover grounds — into the concession regime.

Key Implications of the Expansion

• Broader access: Businesses with turnover between $2 million and $10 million that previously relied solely on the MNAV test will now have an additional pathway to eligibility
• Planning window: Business owners approaching retirement or a sale in 2026 or early 2027 should model whether deferring a transaction until after 1 July 2027 could unlock significant tax savings
• Startup carve-outs under consultation: The government is separately consulting on a startup-specific CGT concession for founders, early-stage investors, and equity-holding employees — a development worth monitoring for technology and innovation businesses
• CGT discount review: A parallel consultation is examining whether to replace the general 50% CGT discount with an inflation-indexed cost base system — a change that could affect the stacking of concessions for some taxpayers

The interaction between the expanded threshold, the MNAV test, and the general CGT discount is complex. An accountant should model the tax outcomes under both the current and proposed rules before any transaction is executed.

Common Mistakes and Red Flags

The small business CGT concessions are among the most litigated areas of Australian tax law. The ATO scrutinises claims carefully, and errors can result in amended assessments, penalties, and interest charges.

• Failing the active asset test: Assuming an asset qualifies without formal analysis — particularly for mixed-use properties or assets held in trusts or companies
• Incorrect aggregated turnover calculation: Failing to include the turnover of affiliates and connected entities, which can push a taxpayer above the threshold
• Misapplying the concession order: The concessions must be applied in a specific statutory sequence. Applying them out of order can result in a suboptimal tax outcome or an invalid claim
• Retirement exemption contribution errors: Failing to make the required superannuation contribution within the prescribed timeframe (generally 30 days of receiving the capital proceeds) can invalidate the exemption
• Overlooking the MNAV test: Businesses that exceed the turnover threshold may still qualify via the MNAV test — but this requires a careful valuation of all assets held by the taxpayer and their associates
• Inadequate record-keeping: The ATO requires contemporaneous records demonstrating that the active asset test was satisfied throughout the ownership period

Australian Regulatory Context

The small business CGT concessions are administered by the Australian Taxation Office (ATO) under Division 152 of the ITAA 1997. The ATO publishes detailed guidance on eligibility conditions, the active asset test, and the application of each concession.

The government's announcement of the $10 million threshold expansion was made in 2026, with legislation expected to take effect from 1 July 2027. Business owners and their advisers should monitor the progress of the enabling legislation through Parliament and review any accompanying explanatory memoranda for technical detail.

The ATO also maintains a register of Tax Agent Services Act 2009 obligations for registered tax agents and accountants advising on CGT matters. Any adviser providing CGT concession advice must be registered with the Tax Practitioners Board (TPB) and hold appropriate qualifications.

For businesses operating through trusts or companies, the interaction between the CGT concessions and trust distribution rules (including Section 100A) and Division 7A requires careful co-ordination. The ATO's PCG 2022/2 on Section 100A and its ongoing data-matching programs mean that related-party transactions are under heightened scrutiny.

Questions to Ask Your Accountant

Before proceeding with any business sale, restructure, or succession plan, raise the following questions with your accountant to ensure you are positioned to maximise the available concessions.

1. Does my business satisfy the small business entity test or the MNAV test — and have you included all affiliates and connected entities in the calculation?
2. Does the asset I am selling pass the active asset test, and do you have documentation to support that conclusion?
3. Am I eligible for the 15-year exemption, and if so, does it make sense to apply it before the other concessions?
4. Should I consider the retirement exemption, and if so, do I need to make a superannuation contribution to access it?
5. Would deferring the transaction until after 1 July 2027 result in a materially better tax outcome under the expanded $10 million threshold?
6. Are there any ATO data-matching or audit risks associated with my proposed transaction that I should be aware of?
7. How do the CGT concessions interact with my estate planning and superannuation strategy?

How MyMoney® Can Help

Navigating the small business CGT concessions requires specialist knowledge of tax law, asset valuation, and superannuation strategy. The stakes are high — a well-structured transaction can eliminate hundreds of thousands of dollars in tax, while an error can result in the concessions being denied entirely.

MyMoney® connects Australian business owners with qualified, experienced accountants who specialise in CGT planning, business sales, and succession. Whether you are planning a sale in the near term or positioning your business for the 2027 threshold expansion, the right accountant can make a material difference to your outcome.

Post a Brief to describe your situation and receive tailored proposals from accountants with proven CGT expertise. Or Browse Accountants on the MyMoney® Marketplace to compare qualifications, experience, and client reviews today.