The small business CGT 15-year exemption: timing the sale of your business for retirement

For Australian small business owners approaching retirement, the small business CGT 15-year exemption under Subdivision 152-B of the Income Tax Assessment Act 1997 is the most valuable capital gains tax concession in the system — a complete exemption on the entire gain from selling a qualifying business asset, with no cap and no tax payable. A business owner who has held an active business asset for 15 years, is at least 55 years old, and is selling in connection with retirement can dispose of the asset and pay zero CGT — regardless of whether the gain is $500,000 or $5 million. This is qualitatively different from the other small business concessions (the 50% active asset reduction, the retirement exemption, the rollover), which provide partial or deferred relief. For business owners whose retirement plan involves selling the business they've built over a lifetime, understanding when the 15-year exemption applies, and timing the sale to access it, is the highest-leverage piece of pre-retirement tax planning available.

The basic conditions and the 15-year specific conditions must both be satisfied. The basic conditions in section 152-10 — the gateway for any small business CGT concession — require that the taxpayer be a CGT small business entity (broadly, an entity with aggregated annual turnover under $2 million) or satisfy the maximum net asset value test (net value of CGT assets of the entity and its connected entities and affiliates not exceeding $6 million). The asset being sold must be an active asset — used in carrying on a business, either by the entity that owns it or by a related entity. The 15-year exemption then layers the specific conditions in section 152-105 for individuals: the asset must have been continuously owned for at least 15 years; the individual (or significant individual where the asset is held by a company or trust) must be at least 55 years old at the time of the CGT event and the event must happen in connection with the individual's retirement, or the individual must be permanently incapacitated. All conditions must be satisfied for the exemption to apply — failing any one drops the taxpayer back to the other small business concessions, which are materially less valuable.

The active asset test and the entity structure are common sources of planning failure. An active asset is one used (or held ready for use) in carrying on a business — the business premises, the goodwill, the equipment. Passive investments (rental properties not used in a business, shares in unrelated companies, financial instruments) are generally not active assets. Where the business operates through a company or trust, the relevant CGT asset for the 15-year exemption is typically the shares in the company or the interest in the trust — and the shares or interest must themselves satisfy the active asset test (broadly, 80% or more of the company or trust's assets by value must be active assets). The 15-year holding period applies to the shares or trust interest, not to when the underlying business started. A common trap: a business that has operated for 25 years but was restructured 10 years ago (sole trader to company, or partnership to discretionary trust) may not satisfy the 15-year test because the new entity structure is only 10 years old. A second trap: the significant individual / controlling individual test — the individual claiming the exemption (or whose retirement triggers the exemption) must have been a significant individual of the entity for periods totalling at least 15 years. Pre-sale due diligence on entity structure, the timing of any restructure, and the significant individual's holding history is essential before advising that the exemption is available.

The CGT cap super contribution is the second half of the planning opportunity. An individual who qualifies for the 15-year exemption (or the retirement exemption) can contribute the relevant sale proceeds — up to a separate CGT cap amount — to superannuation, with the contribution counted against the CGT cap rather than the standard non-concessional contributions cap (section 292-100 of the ITAA 1997). The CGT cap is a lifetime amount, indexed annually to AWOTE — $1,865,000 for FY25-26. This contribution sits entirely outside the standard non-concessional contributions cap (currently $120,000 per year, or up to $360,000 under the bring-forward rule) — meaning a business owner with a large 15-year exemption can move very substantial sale proceeds into super in a single contribution. The contribution must be made by the relevant deadline (broadly, the later of the day the individual is required to lodge their tax return for the year of the CGT event and 30 days after receiving the capital proceeds), and the member must lodge the approved CGT cap election form with the fund on or before making the contribution. For business owners whose retirement nest egg is otherwise outside super, the CGT cap contribution is often the best chance to bring substantial assets into the concessional super tax environment.

The age 55 trigger is the most powerful timing lever in the system. A business owner who sells at 54 — even if all other conditions are met — does not qualify for the 15-year exemption. The fallback is the retirement exemption (capped at $500,000 lifetime under Subdivision 152-D) and the 50% active asset reduction under Subdivision 152-C. On a $2 million capital gain, the difference between selling at 54 and selling at 56 can easily be hundreds of thousands of dollars in tax. For a business owner approaching 55, delaying the sale by months or even a year is among the highest-return planning moves possible — and the cost of doing so is usually negligible (interim management, deferred completion). Advisers working with pre-retirement small business owners should be checking client age at every annual review and flagging any client approaching 55 with a saleable business as a priority.

The retirement nexus is the easiest condition to assume and the hardest to defend if challenged. The disposal must be "in connection with the individual's retirement" — meaning the sale is part of the individual's transition out of active involvement in the business. A business owner who sells the business, contributes the proceeds to super, then immediately starts a similar new business risks the ATO contesting whether the disposal was genuinely in connection with retirement. The retirement doesn't need to be total cessation of all work — part-time consulting, a non-executive directorship, a wind-down period — but it needs to be a meaningful reduction in active business involvement. Documentation of intention at the time of the sale (board minutes, succession plans, written communication to clients and suppliers) supports the retirement nexus position if the ATO later asks. Active management or new business activity in the same field after the sale is the practical risk indicator.

What do worked planning examples show?

These two cases show how the 15-year exemption plays out in practice. Illustrative only — not personal advice — using FY25-26 figures.

Case 1 — Brian, 54, owner of a metal fabrication business operating through a company. He set up the company at age 38, has held shares ever since, owns the factory premises personally (used by the company), and is fielding offers around $2.4M for the business. The factory premises are worth approximately $1.1M. On these facts, Brian is 18 months short of 55 and the 15-year ownership period is met (16 years). If he sells now, he uses the retirement exemption ($500,000 lifetime cap) plus the 50% active asset reduction — a substantial portion of the gain is exempt or reduced, but meaningful tax remains. If he delays the sale until age 55, the entire gain on the shares and the premises (subject to the active asset and basic conditions, and the premises qualifying as an active asset used by the connected company) is exempt under the 15-year exemption. A 12-to-18-month delay potentially saves several hundred thousand dollars. Strategy: negotiate a delayed completion or interim management arrangement, aligning the sale with the 55th birthday, then use the $1,865,000 CGT cap to contribute proceeds to super. The trap to avoid is completing the sale a few months early and forfeiting the entire 15-year exemption.

Case 2 — Linda, 58, partner in a professional practice operated through a trust structure. The trust was established 10 years ago when the practice restructured from a partnership; before that, the practice operated as a partnership for 12 years. She is selling her interest in the trust and retiring. On these facts, the 15-year ownership period applies to her interest in the trust — and the trust has only existed for 10 years. The 15-year exemption does not apply because the continuous-ownership condition isn't met. The retirement exemption (capped at $500,000) and the 50% active asset reduction provide partial relief, but the bulk of the gain is taxable. The trap: the underlying practice has operated for 22 years, but the entity structure was reset at the trust restructure 10 years ago, and the holding period runs from the new interest. Strategy: had this been planned for at the time of the restructure, a small business restructure rollover may have preserved continuity. Now, at sale time, the options are limited. Lesson for advisers: business restructures need to be examined for their effect on the 15-year exemption before they're executed.

For small business owners approaching retirement, the 15-year exemption under Subdivision 152-B is the centrepiece of pre-retirement tax planning — but accessing it requires that age, holding period, active asset, basic conditions, and retirement nexus all align. The advice work is to identify clients with qualifying businesses well before the sale event, model the difference between selling under the 15-year exemption versus the fallback concessions, and time the disposal to maximise the exemption's availability. Where a client is close to 55 with a 15-year asset, even a short delay in the disposal date can be worth a transformatively large tax outcome. And the CGT cap super contribution that follows the 15-year exemption — $1,865,000 for FY25-26 — is often the single largest super contribution opportunity an individual will ever have, designed specifically for this transition out of business ownership.

Sources

• classic.austlii.edu.au — S152.105
• classic.austlii.edu.au — S152.10
• classic.austlii.edu.au — S292.100
• Australian Taxation Office (ATO) — The small business 15 year exemption
• Australian Taxation Office (ATO) — Key superannuation rates and thresholds