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Selling your business? Here's how small business CGT concessions could save you thousands

Written by Dr Christine Peacock · 18 June 2025
As the end of the financial year approaches, many small business owners are busy preparing for tax time. There’s one area they often overlook.

Small business owners are often caught off guard by Capital Gains Tax when selling their business. Image: BreizhAtao - stock.adobe.com   

This article is based on a presentation delivered by Dr Christine Peacock at the Business Essentials Workshop in Ballarat, hosted by Federation University in partnership with Commerce Ballarat. The session highlighted how often small business owners are caught off guard by Capital Gains Tax (CGT) when selling their business and what they can do about it.

As the end of the financial year (EOFY) approaches, many small business owners are busy preparing for tax time. But there’s one area that often gets overlooked – Capital Gains Tax (CGT). Whether you’re planning to sell your business now or sometime in the future, understanding CGT is crucial, especially at this time of year when tax planning is front of mind.

Many small business owners are surprised to learn that selling their business can trigger a significant tax bill. The good news? There are generous CGT concessions available for small businesses that could save you thousands, if not more.

What is Capital Gains Tax?

Capital Gains Tax is a tax you might have to pay when you sell something valuable, like your business, for more than you paid for it.

Let’s say you started your business 15 years ago and spent $50,000 setting it up. Now you sell it for $300,000. That $250,000 difference is called a capital gain. That gain may be subject to tax.

What is a CGT asset?

A CGT asset is basically anything you own that can be sold and might make you a profit. This includes:

  • Business property (like a shop or studio)
  • Equipment and tools
  • Shares in a company
  • Intellectual property (like a logo or design)
  • Goodwill – this is the value of your business’s reputation, customer base, and brand. Even if you didn’t pay for it upfront, it can still be taxed when you sell.

Think of goodwill as the “extra” value someone is willing to pay for your business because it’s well-known, trusted, or has loyal customers.

When might you have to pay CGT?

You might have to pay CGT if:

  • You sell your business or part of it
  • You sell business property (like a shop or workshop)
  • You give your business away (even to family)
  • You close your business and sell off the CGT assets

If you’re an individual or a trust (not a company) and you’ve owned a CGT asset for more than 12 months, you can reduce your capital gain by 50 per cent before any tax is calculated.

This is called a general CGT discount. However, even after the discount, small business owners may still have substantial CGT to pay.

What are marginal tax rates?

If your business is structured as a company, you might qualify for a reduced company tax rate of 25 per cent.

However, if you are a sole trader, a partner, or a beneficiary of a trust, the more you earn, the higher your tax rate. This is called a marginal tax rate. Currently:

  • The first $18,200 you earn is tax-free
  • Income between $18,200 and $45,000 is taxed at 16 per cent
  • Income between $45,000 and $135,000 is taxed at 30 per cent
  • Income between $135,000 and $190,000 is taxed at 37 per cent
  • Income over $190,000 is taxed at 45 per cent

So, if your capital gain is added to your income, it could push you into a higher tax bracket.  Importantly, the higher tax rate only applies to income in that bracket.  In other words, if you have an income of $190,001, only $1 is taxed at 45 per cent.  The first $18,200 is tax-free, the next $26,800 is taxed at 16 per cent, and so on.

But here’s the good news: there are special tax breaks for small business owners that can reduce or even cancel out the tax you owe.

Tax breaks that could save you thousands

If your business has a turnover of less than $2 million a year, or your total business assets are worth less than $6 million, you might qualify for small business CGT concessions.

These tax concessions are cumulative, meaning each one applies to the taxable amount left after applying the previous one.

  1. 15-year exemption

If you’ve owned your business for at least 15 years, are over 55, and are retiring or can’t work anymore, you might not have to pay any CGT at all.

Example:

Jenny runs a pottery studio. She’s 60 and ready to retire. She sells her business for $200,000. She initially spent $50,000 setting it up, so her capital gain is $150,000.

As she’s over 55, retiring, and has owned the business for more than 15 years, she qualifies for the 15-year exemption.

✅ She pays no CGT at all.

  1. 50 per cent active asset reduction

After applying the general CGT discount (if applicable), you may reduce the remaining capital gain by another 50 per cent but only if the asset is actively used in your small business.

Example:

Laura owns a hair salon. In 2020, she bought a small shopfront for $200,000. In 2025, she sells it for $300,000, making a $100,000 capital gain.

That same year, she sold an old styling chair at a loss of $1,000. Her capital gain is reduced to $99,000.

She then applies:

  • 50 per cent general CGT discount → $99,000 → $49,500
  • 50 per cent active asset reduction → $49,500 → $24,750

✅ She only pays tax on $24,750.

  1. Retirement exemption

You can ignore up to $500,000 of capital gains over your lifetime. If you’re under 55, the money needs to go into your super fund.

Example:

John is 62 and gives his farm to his son. He bought it for $1 million, and it’s now worth $2 million.

His capital gain is $1 million. He applies:

  • 50 per cent general CGT discount → $500,000
  • 50 per cent active asset reduction → $250,000
  • Retirement exemption → $0

✅ Final taxable capital gain: $0

  1. Rollover relief

If you sell one business asset and buy another (like upgrading your workshop), you can delay paying CGT until you sell the new asset. This may help you with cash flow. 

Example:

Luke owns a small carpentry business. In 2025, he sold a block of land that he had used as his original workshop site for $100,000. He originally bought the land for $60,000, so he made a capital gain of $40,000.

He applies:

  • 50 per cent general CGT discount → $40,000 → $20,000
  • 50 per cent active asset reduction → $20,000 → $10,000
  • Rollover relief: He reinvests $8,000 into a new, larger workshop site

✅ He only pays tax on $2,000 now. The tax on $8,000 is deferred until he sells the new workshop.

What should you do next?

If you’re thinking about selling your business, don’t go it alone. These rules can be tricky, and every situation is different. A registered tax agent can help you figure out:

  • Whether you’ll owe CGT
  • Which concessions you qualify for
  • How to structure the sale to save tax

Final thought

You’ve worked hard to build your business. Don’t let tax catch you off guard when it’s time to move on. With the right advice, you could save thousands.

Dr Christine Peacock is the Course Coordinator of Undergraduate Business Degrees at Federation University and the Senior Lecturer, Law. She has significant industry experience, including previously working as a Director in tax at a large professional services firm. Federation has ranked number one in Australia for Overall Education Experience for undergraduates in law and paralegal studies in the Good Universities Guide in 2024 and 2025.

Please note that the above information is of a general nature and does not take into account any taxpayer’s personal circumstances. It is important to consult with a registered tax agent if you require personal advice.