The CGT Retirement Exemption Concession

If you own a small business and are planning to sell it, or sell some of its assets, you could face a significant capital gains tax (CGT) bill.

Fortunately, the Australian tax system offers several small business CGT concessions designed to help reduce or even eliminate the tax payable on those gains.

One of the most valuable of these is the CGT retirement exemption. Despite its name, this concession isn’t limited to people who are actually retiring. Rather, it provides a way to permanently exclude up to $500,000 of capital gains from tax over your lifetime, provided specific eligibility criteria are met.

Understanding how and when to use this exemption — and how it interacts with other CGT concessions — can make a major difference to the final outcome when selling your business.

What Is The CGT Retirement Exemption?

The CGT retirement exemption allows eligible small business owners to disregard (that is, not pay tax on) up to $500,000 of capital gains from the sale of active business assets during their lifetime.

The term “retirement” in this context is somewhat misleading — you don’t actually have to stop working to qualify. Instead, the key conditions depend on your age and how you apply the exempt amount:

• If you are under 55 years of age, the exempt capital gain must be contributed to a complying superannuation fund or retirement savings account. This contribution is not counted towards your non-concessional contributions cap.
• If you are 55 years or older, you can receive the exempt amount tax-free, directly into your own hands.

This flexibility allows business owners to use the concession strategically, depending on their age and retirement plans.

How The Lifetime Cap Works

The $500,000 lifetime cap applies per individual — not per asset. That means the total amount of capital gains you can disregard under the CGT retirement exemption across your lifetime is limited to $500,000, regardless of how many businesses or assets you sell.

If a company or trust makes a gain and chooses to use the retirement exemption, the payment must be made to one or more CGT concession stakeholders (usually significant individuals such as shareholders or beneficiaries). Those stakeholders can then use some or all of their own $500,000 lifetime cap.

Interaction With The Other Small Business CGT Concessions

The retirement exemption is one of four key small business CGT concessions available under Division 152 of the Income Tax Assessment Act 1997. These are:

1. The 15-year exemption which can eliminate the entire capital gain if you have owned the business asset for at least 15 years and meet the relevant conditions.
2. The 50% active asset reduction which allows you to reduce the taxable gain by half.
3. The retirement exemption which allows up to $500,000 to be disregarded.
4. The small business rollover concession which allows you to defer the gain by reinvesting in replacement business assets.

In most cases, if you qualify for the 15-year exemption, you must use it in preference to the other concessions — and doing so typically exempts the entire gain, regardless of size.

However, for business owners who don’t meet the 15-year ownership requirement, a combination of the 50% active asset reduction and the retirement exemption can provide a powerful tax-saving outcome.

Strategic Planning Opportunities

For those under 55 years of age, contributing the exempt gain into superannuation can offer significant long-term advantages:

• The contribution is not counted toward the non-concessional contributions cap, allowing you to transfer a larger lump sum into your super fund without breaching limits.
• It can form part of a tax-effective retirement savings strategy, growing within the concessional 15% tax environment of super.

In some cases, the small business rollover concession can be used first to defer the gain for up to two years. This timing strategy can be especially beneficial if you expect to reach age 55 within that period, allowing you to subsequently apply the retirement exemption and take the payment tax-free.

These combinations require careful planning and accurate record-keeping, but they can substantially improve after-tax results.

Applying The Rules When A Company or Trust Makes The Gain

When a company or trust sells a business asset and intends to apply the CGT retirement exemption, there are additional payment and stakeholder rules that must be followed precisely.

• The exempt amount must be paid to the relevant stakeholder(s) within seven days of the company or trust lodging its tax return for the year of the gain.
• The payment does not have to mirror ownership percentages — meaning a company or trust can distribute the tax-free benefit flexibly among its eligible stakeholders, creating valuable planning opportunities.
• If the payment is not made within the required timeframe, the exemption will not be available, and the gain becomes taxable.

Because of these strict timing rules, it’s vital to coordinate closely with your accountant or tax adviser before completing the sale or lodging your business’s return.

Example: Applying the Retirement Exemption

Suppose you sell a small manufacturing business and make a $400,000 capital gain. You’re 52 years old and meet all the small business eligibility requirements.

You could choose to:

1. Apply the 50% active asset reduction, reducing the gain to $200,000; and
2. Apply the retirement exemption to disregard the remaining $200,000, contributing that amount into your superannuation fund.

As a result, you pay no CGT on the sale, and you’ve added $200,000 to your retirement savings — without it counting toward your non-concessional cap.

Eligibility Criteria

To qualify for the CGT retirement exemption, your business must meet the basic eligibility conditions for the small business CGT concessions, including:

• The business has an aggregated turnover of less than $2 million, or your net assets are under $6 million.
• The asset sold is an active business asset.
• You are a significant individual (or CGT concession stakeholder if operating through a company or trust).
• You satisfy the retirement exemption’s specific age or contribution requirements.

Failure to meet any of these conditions may disqualify you from claiming the concession.

Wilson Pateras and Making The Most Of The CGT Retirement Exemption

The CGT retirement exemption is one of the most powerful tax concessions available to small business owners — but also one of the most complex. The rules governing eligibility, timing, and stakeholder payments are highly technical and must be handled carefully to avoid costly mistakes.

Used correctly, this concession can allow you to:

• Permanently eliminate up to $500,000 in capital gains tax;
• Boost your superannuation balance tax-effectively; and
• Optimise succession planning or business exit outcomes.

Get in touch with our team before selling your business or any of its assets. It’s essential to seek tailored advice. The Wilson Pateras team can help you evaluate your eligibility, structure your sale for maximum benefit, and ensure you meet all compliance requirements under the small business CGT concessions.