Selling Your Business in Australia: CGT Concessions and the Gift Trap Explained
- Ben De Rosa
- Apr 16
- 5 min read
Protecting your lifetime exit: how to utilise generous federal tax concessions while avoiding catastrophic family succession traps
You only sell a business once. Get the tax strategy wrong, and you can hand a significant slice of your retirement straight to the ATO on a transaction worth million.
At Aevum Accounting, we work with business owners across Australia who are starting to think about the end game: selling up, restructuring, or passing the business to the next generation. The Small Business CGT Concessions Australia rules are some of the most generous in the tax system, and some of the most complex. Today, we're unpacking how they work, where the traps sit, and why the so-called "gift trap" can bankrupt families who try to do the right thing.
Our Client's Experience:
"I've run my cafe for 20 years and decided to just give the equipment and lease to my son so he could take over. I casually mentioned it to Ben during a BAS meeting. He went pale, told me to stop immediately, and explained the market value rule. He just saved me a $60,000 tax bill on a transaction where no money even changed hands. Thank you, Ben."
— Rita, Joondalup
The Holy Grail: Four Small Business CGT Concessions
If you sell a business for $2 million, the ATO will look at the capital gain and want up to 47 percent of it. The Small Business CGT Concessions are designed to soften that blow, in some cases to zero. To open the door, you need to pass one of the basic eligibility tests:
Aggregated business turnover under $2 million, or
Maximum net asset value test of $6 million, calculated across you, your affiliates, and connected entities, excluding your main residence (subject to a threshold) and superannuation.
Once you're through that door, there are four concessions that can stack together:
The 15-year exemption: If you're aged 55 or older, the CGT event happens in connection with your retirement (or you're permanently incapacitated), and you've continuously owned the active business asset for at least 15 years, the capital gain is disregarded entirely.
The 50% active asset reduction: If the asset is used in running your business (think warehouse, equipment, business goodwill), you can reduce the capital gain by a further 50 percent. This sits on top of the standard 50 percent general CGT discount available to individuals and trusts.
The retirement exemption: Up to $500,000 lifetime limit per individual can be disregarded. If you're under 55, the amount must be paid into a complying super fund. If you're 55 or older, you can take it as cash.
The small business rollover: You can defer the gain for two years if you reinvest in a replacement active asset (or improve an existing one). The replacement asset period runs from one year before to two years after the CGT event.
The catch: you cannot come to your accountant after you've signed the contract. The way the contract is drafted, and exactly who owns the shares or the assets, dictates whether you qualify.
Worth noting: the 2026-27 Federal Budget preserved the Small Business CGT Concessions in full. While the general 50 percent CGT discount is being phased out from 1 July 2027, the small business concessions for active assets continue under existing rules.
The Gift Trap: The Market Value Substitution Rule
This is the trap that nearly caught Rita. Many business owners assume that gifting an asset to a family member is a private matter with no tax consequences. The ATO sees it differently.
Under the market value substitution rule, if you transfer an asset to a family member for free or for less than market value, the ATO treats the transaction as if you sold the asset at full market value to a stranger. The capital gain is calculated on that figure, not on what actually changed hands.
A simple example: you buy an investment property for $500,000, hold it for ten years, and it's now worth $1.5 million. You sign it over to your daughter for nothing. The ATO calculates a $1 million capital gain in your name. You have to find the cash to pay the tax bill, even though you received no money from the transfer. This is how well-intentioned gifts bankrupt families.
The rule applies to businesses, shares, investment properties, and most other capital assets. Never transfer an asset out of your name without running the numbers first.
Stamp Duty: The State Tax Most People Forget
Capital gains tax is the federal side of the story. State Revenue Offices have a separate interest. In Western Australia, the recipient of a gifted asset typically pays stamp duty calculated on the full market value, even when no money changed hands.
So in the example above, the daughter receiving the $1.5 million property would owe stamp duty on $1.5 million, on top of the parent's capital gains tax bill. Two separate tax authorities, two separate bills, one transaction that looked like a generous gift.
Restructuring Without a Tax Hit: The Small Business Restructure Rollover
Plenty of business owners start as sole traders because it's simple and cheap. Then the business grows, asset protection becomes a real concern, and they want to shift into a family trust or company structure. Historically, that move triggered capital gains tax and stamp duty on every business asset being transferred.
The Small Business Restructure Rollover (SBRR) changes that. If you meet the criteria, you can transfer active business assets from one entity to another without triggering immediate CGT. The key rule: ultimate economic ownership cannot change. If you own 100 percent of the business as a sole trader, you (or your family group) must retain essentially that same control in the new structure.
Stamp duty is a different beast. It's state-based, and in Western Australia, transferring business assets like goodwill or equipment into a new entity can still trigger duty unless specific corporate reconstruction exemptions apply. This is why restructuring is not a DIY job. You need a lawyer and an accountant working together.
The Five-Year Rule: Why Succession Planning Starts Early
If you're hoping to sell or transition out of your business, the planning window is five years before you intend to leave. Here's why that timeline matters:
Your balance sheet needs to be clean. Excess cash and passive investments sitting inside a trading company can disqualify the business from the active asset test.
Asset ownership often needs to be restructured to fit within the concession rules.
Contracts, share structures, and shareholder agreements need to be drafted with the eventual exit in mind.
Being too successful, in the wrong way, can actually ruin your tax break. If your company holds mostly cash or shares instead of active business assets, the small business concessions are out of reach. Untangling that takes time.
Why You Need a Professional in Your Corner
The numbers on a business sale are too big for guesswork. The difference between a poorly structured deal and a properly planned one can be hundreds of thousands of dollars, and in some cases the entire retirement plan. Add in the market value substitution rule, state stamp duty, and the SBRR criteria, and there are simply too many ways for a well-meaning transaction to go sideways.
At Aevum Accounting, Ben De Rosa specialises in business and personal succession planning for Australian small business owners. Whether you're thinking about selling, gifting assets to your children, or moving from a sole trader structure into a trust or company, the time to plan is well before you sign anything.
Disclaimer: The information and strategies shared in this article are for general informational purposes only and do not constitute specific tax or financial advice. Everyone's situation is unique, and tax laws are complex and constantly evolving. For personalised advice tailored to your specific individual or business needs, we always recommend consulting with a qualified professional at Aevum Accounting.
Comments