Selling a business you have built over 10 or 20 years should not mean handing a large portion of the proceeds to the ATO. The small business CGT retirement exemption exists precisely for this situation, it allows eligible small business owners to exclude up to $500,000 of capital gain from tax over their lifetime. The rules are specific, the interaction with other concessions is layered, and the structuring decisions you make before the sale determine whether you actually qualify.
Key Takeaways
The retirement exemption allows up to $500,000 of capital gain to be disregarded — but it is a lifetime cap across all uses of this concession
You do not have to retire to access it — but if you are under 55, the exempt amount must go into superannuation
The retirement exemption is one of four small business CGT concessions — applying them in the right sequence matters
The 15-year exemption, where it applies, is generally better — it eliminates the entire gain with no dollar cap
Basic eligibility conditions must be met: aggregated turnover under $10 million, the active asset test, and a qualifying CGT event
Planning this two to three years before the sale produces far better outcomes than planning it six months before settlement
What Is the CGT Retirement Exemption?
The CGT retirement exemption is one of four small business CGT concessions under Subdivision 152 of the Income Tax Assessment Act 1997. It allows an eligible small business owner to disregard a capital gain of up to $500,000 — permanently excluding that amount from their assessable income.
You do not have to retire to use it. You do need to be 55 or over, or if you are under 55, the exempt amount must be contributed to a complying superannuation fund or retirement savings account within 30 days of receiving the capital proceeds or the CGT event, whichever comes first.
The critical point most owners miss: the $500,000 is a lifetime limit across all uses of this exemption. If you used $200,000 of it selling a previous business, only $300,000 remains available. The ATO tracks this through your return history.
Given the complexity of these rules, working with a qualified taxation specialist well before any sale is essential to protecting your position.
The Four Small Business CGT Concessions — In the Right Order
The retirement exemption does not exist in isolation. Understanding the correct sequence matters because some concessions eliminate or reduce the gain before others are applied.
1. The 15-Year Exemption
If you have owned the business asset for at least 15 continuous years and you are 55 or older (or permanently incapacitated), you can disregard the entire capital gain with no dollar cap. If this exemption applies, you stop here. The retirement exemption becomes unnecessary.
2. The 50% Active Asset Reduction
If the 15-year exemption does not apply, you may reduce your remaining capital gain by 50% if the asset has been an active asset for at least half of the ownership period. This reduction applies before either the retirement exemption or the small business rollover.
3. The Retirement Exemption
After applying the 50% active asset reduction where available, the retirement exemption can shelter the remaining gain up to the $500,000 lifetime limit.
4. The Small Business Rollover
Rather than disregarding the gain, you defer it by rolling it into a replacement asset acquired within two years. The gain does not disappear — it is deferred. This is useful when you plan to reinvest rather than realise the proceeds immediately.
Sequencing these concessions correctly is one of the most consequential decisions in any business sale. A chartered tax advisor can walk you through exactly which concessions apply in your situation and in what order.
Who Qualifies for the Small Business CGT Retirement Exemption?
Basic Conditions — All Must Be Satisfied
- The entity must be a small business entity with aggregated annual turnover under $10 million, or satisfy the maximum net asset value test — assets under $6 million excluding certain personal assets
- The CGT asset must satisfy the active asset test — active for at least half of the ownership period, or for at least 7.5 years if owned for more than 15 years
- If the asset is shares or trust interests, additional conditions apply relating to the underlying business and the ownership percentage
Additional Conditions Specific to the Retirement Exemption
- The taxpayer choosing the exemption must be an individual — companies and trusts can access it but must distribute the exempt amount to individual shareholders or beneficiaries who then make the choice in their own returns
- The choice must be made in writing at or before lodgement of the tax return for the year the gain arises
- If the individual is under 55, the exempt amount must be contributed to superannuation within the required timeframe
The $500,000 lifetime limit applies per individual not per business or per sale. Where a business has two individual owners, each can access up to $500,000 in their own right, subject to their individual remaining lifetime limit.
Understanding these conditions in the context of your business structure is part of broader business advisory planning — not something to leave to the weeks before settlement.
The Super Contribution Requirement for Under-55s
If you are under 55 and want to use the retirement exemption, the exempt amount must be contributed to a complying superannuation fund. This is a mandatory condition, not optional.
The contribution must be made within the earlier of 30 days after the CGT event or 30 days after you receive the capital proceeds. This is a tight window. If your accountant is not involved early, the deadline can pass before you know it — and a missed deadline means the exemption is lost permanently for that amount.
The retirement exemption contribution is excluded from your non-concessional contributions cap even if you have already reached it. This is a significant advantage for business owners approaching or over the general NCC cap. Our SMSF and superannuation advisory service can help you coordinate the contribution correctly. Confirm the current rules at ato.gov.au as this area of legislation has been updated.
How the 15-Year Exemption Differs — and When It Is the Better Option
The 15-year CGT exemption is the most powerful concession in the small business toolkit. Unlike the retirement exemption with its $500,000 cap, the 15-year exemption disregards the entire capital gain with no ceiling.
To qualify: you must have owned the CGT asset continuously for at least 15 years, you must be at least 55 or permanently incapacitated, the active asset test must be met, and the basic conditions must be satisfied. For sales through companies or trusts, additional requirements apply at the entity level.
If you are five years away from reaching 15 years of continuous ownership and you are planning a sale, the timing of settlement could mean the difference between zero capital gains tax and a very large tax bill. This is not a coincidence to rely on — it is a decision to structure deliberately.
Planning a Business Sale: What to Do and When
The concessions do not reward inaction. Business owners who engage an advisor two to three years before they intend to sell benefit most. The reasons are straightforward:
- The active asset test requires the right period of active use — restructuring assets close to a sale can affect qualification
- The 15-year exemption requires continuous ownership — understanding when the clock started and whether any ownership events have disrupted continuity requires early assessment
- The $500,000 lifetime limit is shared across all uses — understanding your remaining balance requires knowing your history
- The super contribution requirement for under-55s requires coordination with your fund’s acceptance policies and your available contribution capacity
- The structure at the time of sale — who holds the asset, whether through a company or trust, and how the gain flows to individual owners — directly affects the tax outcome
If you are a Melbourne small business owner thinking about an exit, our guide to tax planning for small business owners explains why full-year planning not last-minute preparation is what protects your financial position.
It is also worth understanding your broader company tax obligations before a sale, since decisions about how income and gains flow through your entity affect both the concessions available and the tax ultimately paid.
Frequently Asked Questions
Do I have to retire to use the CGT retirement exemption?
No. There is no requirement to actually retire. If you are 55 or over, you can apply the exemption and retain the proceeds freely. If you are under 55, you must contribute the exempt amount to a complying superannuation fund within the required timeframe. You can continue working — the condition relates to the destination of the funds, not your employment status.
Can I use the CGT retirement exemption more than once?
Yes — but the $500,000 is a lifetime cap across all uses. If you have used the exemption in whole or part on a previous business sale, your remaining available amount is reduced accordingly. The ATO tracks this through your return history. Confirm your remaining balance with a tax advisor before entering any sale negotiations.
What is the difference between the 15-year exemption and the retirement exemption?
The 15-year exemption is uncapped and eliminates the entire capital gain — but requires 15 continuous years of ownership and the taxpayer to be 55 or older. The retirement exemption caps at $500,000 lifetime and is available to owners of any age, with the super contribution condition for those under 55. Where both concessions are available, the 15-year exemption generally produces the better outcome.
Can a company or trust access the CGT retirement exemption?
Not directly. A company or trust must distribute the exempt amount to individual shareholders or beneficiaries, who then make the retirement exemption choice in their own returns and contribute to super if under 55. The company or trust must actually pay the amount out — it cannot remain in the entity. The mechanics require careful documentation and coordination between the entity’s advisors and the individual’s accountant.
Selling your business is one of the most significant financial events of your life. Getting the CGT concessions right — the retirement exemption, the 15-year exemption, and the correct sequencing of all four concessions — can mean the difference between a comfortable exit and an avoidable tax bill. RPS Accountants in Epping provides specialist CGT planning and business sale structuring advice for owners across Melbourne’s northern suburbs. Contact us at rpsaccountants or call 1300 110 120.
