Small Business CGT Concession Expanded – $2 Million Turnover Threshold Increasing to $10 Million

There is some very welcome news for Australian business owners, with the turnover threshold for one of the key Small Business Capital Gains Tax (CGT) concessions increasing from $2 million to $10 million from 1 July 2027.

For many growing businesses that have previously been too large to access this concession under the turnover test, this is a significant change.

What is changing?

Australia currently has four Small Business CGT concessions that can substantially reduce, defer or, in some circumstances, completely eliminate the capital gain arising from the sale of an active business asset.

One of these is the 50% active asset reduction.

Under the existing rules, one pathway to accessing the Small Business CGT concessions is satisfying the $2 million aggregated turnover test.

From 1 July 2027, the turnover threshold specifically for accessing the 50% active asset reduction will increase from $2 million to $10 million.

This significantly expands the number of businesses that may be able to access the concession.

How valuable is the 50% active asset reduction?

Potentially very valuable.

Where the requirements are satisfied, the concession can reduce an eligible capital gain by 50%.

For example, assume an eligible business owner sells an active business asset and makes a $1 million capital gain.

Subject to satisfying the relevant requirements, the 50% active asset reduction could reduce that gain by $500,000 before considering whether any other available Small Business CGT concessions apply.

Depending on the circumstances, the remaining gain may then qualify for further concessions.

Are all four Small Business CGT concessions moving to $10 million?

No. This is an important distinction.

The increase from $2 million to $10 million relates specifically to accessing the 50% active asset reduction.

The four existing Small Business CGT concessions remain:

• 15-year exemption – potentially allowing an eligible capital gain to be completely disregarded where the relevant conditions are satisfied.

• 50% active asset reduction – reducing an eligible capital gain by 50%.

• Small business retirement exemption – allowing up to $500,000 of eligible capital gains over an individual's lifetime to be disregarded, subject to the relevant conditions.

• Small business rollover – allowing an eligible capital gain to be deferred where the relevant requirements are satisfied.

The eligibility rules applying to each concession remain important and should not be confused with the new $10 million threshold.

What about the $6 million net asset test?

The Small Business CGT concessions contain a number of different eligibility pathways and conditions.

The existing maximum net asset value test is separate from the aggregated turnover test.

Accordingly, a business with turnover above the existing $2 million threshold may already be able to access Small Business CGT concessions where the relevant alternative requirements are satisfied.

The new $10 million turnover threshold nevertheless creates a substantially broader pathway to the 50% active asset reduction.

Why is this particularly important now?

The change comes alongside broader reforms to Australia's CGT system from 1 July 2027.

The Government has legislated changes to the general CGT discount for gains accruing from that date, while specifically retaining the four Small Business CGT concessions.

For business owners contemplating a future sale, succession plan or restructure, understanding how the Small Business CGT concessions interact with the broader CGT changes will become increasingly important.

What should business owners do?

There is no need to rush into selling a business simply because the threshold is changing.

However, business owners with aggregated turnover between $2 million and $10 million should be aware that their CGT position may look quite different from 1 July 2027.

If you are considering selling a business, bringing in a new shareholder, undertaking a succession plan or restructuring your business, the Small Business CGT concessions should be considered well before the transaction occurs.

These concessions contain detailed eligibility requirements, including rules relating to active assets, connected entities, affiliates and ownership structures.

Planning before signing a sale agreement can make an enormous difference.

If you are contemplating the sale or succession of your business, please contact our office so we can review the potential CGT consequences and available concessions before any transaction is entered into.