Small business capital gains tax: Concessions and how to calculate it

Published Wednesday 26 November 2025

Table of contents

• What is capital gains tax in Australia?
• Small business CGT concessions eligibility criteria
• The 4 main small-business CGT concessions
• How much is capital gains tax in Australia?
• How to calculate capital gains tax in Australia
• Capital gains tax exemptions in Australia
• Key deadlines and reporting requirements
• Manage your capital gain tax with Xero
• FAQs on small business capital gains tax

Key takeaways

• Apply for small business CGT concessions by ensuring you meet the eligibility criteria, including having a net asset value not exceeding $6 million and owning an 'active asset' used in your business operations.

• Utilize multiple small business CGT concessions together to maximize tax savings, such as combining the 50% active asset reduction with the general 50% CGT discount for assets held over 12 months.

• Calculate your capital gains tax liability using the three-step process: determine the asset's cost base (including purchase price, transaction costs, and improvements), subtract this from the sale price to find your capital gain, then apply relevant concessions and discounts.

• Report capital gains or losses in your tax return for the financial year when the asset was sold, and complete a CGT schedule if your total capital gains or losses exceed $10,000 for that year.

What is capital gains tax in Australia?

Capital gains tax (CGT) is the tax you pay on profits from selling business assets, with rules that change over time; for example, the foreign resident CGT withholding rate was increased to 15% at the start of 2025. When you sell an asset for more than you paid, that capital gain becomes part of your taxable income.

CGT applies to most business assets including:

• Property and buildings
• Equipment and machinery
• Shares and investments
• Intellectual property

Learn more about capital gains tax in Australia from the ATO

Small business CGT concessions eligibility criteria

To qualify for any of the small business CGT concessions, you first need to meet some basic eligibility conditions. The main requirements are:

• You must be a small business entity, or your net asset value (plus the net asset value of related entities) must not exceed $6 million. According to the ATO, this $6 million net asset value test is a key requirement if your turnover... exceeds $2 million.
• The asset in question must be an 'active asset', which means it's used in the course of carrying on a business.

Check the specific criteria with your advisor or on the ATO website, as the rules can be detailed.

The 4 main small-business CGT concessions

If you meet the eligibility criteria, there are four main concessions that can help you reduce the capital gains tax you need to pay. You can often apply more than one concession to the same capital gain.

1. Small business 15-year exemption

This concession allows you to disregard all capital gains on an active asset if you meet the conditions. If you've owned an active asset for 15 years or more, you may not have to pay any CGT on its sale if you are over 55 and retiring or are permanently incapacitated. You do not pay capital gains tax on the sale if you meet the conditions, which can help you save for retirement.

2. Small business 50% active asset reduction

This concession allows you to reduce the capital gain on an active asset by 50%. This is in addition to the general 50% CGT discount available to individuals and trusts for assets held for more than 12 months, which means you can significantly lower your taxable gain.

3. Small business retirement exemption

You can choose to exempt capital gains from the sale of an active asset up to a lifetime limit of $500,000, provided all eligibility conditions are met. If you're under 55, you must contribute the exempt amount to a complying superannuation fund. This helps you use the proceeds of your business to save for the future.

4. Small business rollover

The small business rollover allows you to defer a capital gain from the sale of an asset if you acquire a replacement asset or make an improvement to an existing one. This helps you reinvest and grow your business without an immediate tax hit. The CGT is only payable when you sell the replacement asset.

How much is capital gains tax in Australia?

Your CGT rate depends on your business structure:

• Sole traders and partnerships: CGT is added to personal income and taxed at your marginal rate. Recent changes mean that for many brackets, the tax rate was reduced; for example, the 19% rate for incomes up to $45,000 was lowered to 16%.
• Companies: CGT is taxed at the company rate (30%)

How CGT applies to different business structures

In Australia, your capital gains tax rate also depends on your business structure.

• If you're a sole trader or in a partnership – capital gains are added to your personal taxable income, and CGT is applied at your marginal income tax rate.
• If your business is structured as a company – capital gains are taxed at the company tax rate (30%).

Read PWC's summary of current company tax rates

There are concessions and exemptions that can reduce or eliminate your capital gains tax liability.

How to calculate capital gains tax in Australia

You must calculate capital gains tax when you sell, transfer or dispose of a business asset. You'll need to calculate your capital gain at the time of the event, although the tax is reported and paid when you lodge your tax return for that financial year.

Calculating your capital gains tax shows you how much tax you will owe on your asset sale. Use this three-step process to work out your tax liability before you sell.

You can calculate it yourself or use the ATO capital gains tax calculator through your MyGov account.

1. Determine the asset's cost base

Cost base is everything you paid for the asset, including purchase price and associated costs.

What is included in the cost base:

• Purchase price: Original buying cost
• Transaction costs: Legal fees, agent fees, stamp duty
• Improvement costs: Renovations, upgrades, refurbishments
• Ownership costs: Advertising, maintenance that adds value

Example calculation:

• Property purchase: $300,000
• Transaction fees: $10,000
• Office refurbishment: $20,000
• Total cost base: $330,000

2. Calculate the capital gain or loss

The capital gain or loss is the difference between the asset's sale price and its cost base.

You make a capital gain when you sell an asset for more than its purchase price. You make a capital loss when you sell, scrap, lose or write off an asset for less than it cost you.

If you make a capital gain, you pay the tax at the end of the financial year. You cannot use capital losses to reduce your regular taxable income, but you can use them to:

• Same year: Offset capital gains in the current financial year
• Future years: Carry forward indefinitely to reduce future capital gains

For example:

• If you sell the property with the $330,000 cost base for $450,000, the difference is $120,000 – your capital gain.
• But if your sale only nets $280,000, say, then $280,000 – $330,00 = –$50,000 – a capital loss.

3. Understand capital gain or loss on your CGT

Capital losses can't reduce your regular taxable income, but they provide two key benefits:

• Same year: Offset capital gains in the current financial year
• Future years: Carry forward indefinitely to reduce future capital gains

Your accountant or financial advisor can help you understand the specific tax implications for your business. You can find an advisor in the Xero advisor directory.

Capital gains tax exemptions in Australia

Some small business assets may be partially or fully exempt from capital gains tax, which can reduce your tax bill.

The complete list of assets and the situations in which they're exempt is quite long. Here are just a few:

• Most active assets costing under $300 are exempt from CGT
• Assets you've acquired before September 20 1985 are fully exempt
• Your primary residence is generally exempt – although you might pay some CGT if you run your business from home

Here's the ATO's list of CGT assets and exemptions

Key deadlines and reporting requirements

You need to report any capital gains or losses in your business tax returns each year, and you must complete a CGT schedule if your total capital gains or losses exceed $10,000 for the financial year. Report the gain or loss in the financial year the asset was sold.

• If you sold the asset before 30 June, include the capital gain or loss in the current year's return.
• If you sold it on or after 1 July, include it in the next financial year's return.

Prepare for the end of financial year.

Deadlines depend on how you lodge your return:

• If you lodge the return yourself: 31 October after the end of the financial year.
• If you use a registered tax agent: extensions may apply, but most small and medium-sized enterprises (SMEs) have to lodge by March or May. Here's the government's advice on lodging returns using a registered tax agent.

Manage your capital gain tax with Xero

Xero accounting software helps you track assets, calculate capital gains and simplify reporting, so you can manage your tax more easily.

Learn more about managing fixed assets with Xero

FAQs on small business capital gains tax

Find answers to common questions about capital gains tax for small businesses below.

What is the 50% capital gains rule?

The 50% capital gains tax discount allows individuals and trusts to reduce their capital gain by half on assets held for more than 12 months. This is separate from the small business concessions, but you can often use them together.

Can I avoid capital gains tax when selling my business?

You can reduce or eliminate capital gains tax when selling your business by using small business capital gains tax concessions, such as the 15-year exemption or the retirement exemption. Speak to your advisor to plan your sale.

What is an 'active asset' for CGT purposes?

An active asset is used or held ready for use in running a business. Examples include business premises, equipment and goodwill. Assets that mainly earn rent, interest or dividends are not active assets.