Start with the basic conditions
Division 152 is a set of conditions, not a blanket exemption for selling a small business. There must generally be a relevant CGT event producing a gain, a qualifying gateway and an active asset. Before the 2027 change discussed below, the common gateways are a CGT small business entity with aggregated turnover below $2 million, or the maximum net asset value test of no more than $6 million. Other pathways cover certain partnership and passively held business assets.
Turnover and net assets are different measures. The net-asset test is applied just before the CGT event and includes relevant connected entities and affiliates under the statutory rules. It has specific inclusions, exclusions and liability rules. It is not simply the company’s balance sheet or the agreed sale price. A spouse is not automatically an affiliate merely because of the relationship, although special rules can apply.
Is the asset active?
An asset held for 15 years or less ordinarily needs to have been active for at least half the relevant test period; for longer ownership, at least 7½ years. The period and cessation rules need checking. An asset used in a qualifying business can satisfy the test, while an asset mainly used to derive rent may be excluded. Property used by a connected trading entity requires a closer analysis rather than an automatic yes or no.
For shares or trust interests, the underlying active-asset value test and the additional share-sale gateway and participation tests are important. Excess passive investments or cash without the required connection to the business may affect eligibility. A small business participation percentage of at least 20% is central to the significant-individual definition; the seller and object entity tests must still be applied.
The four concessions
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| Concession | What it can do | Key additional issue |
|---|---|---|
| 15-year exemption | Disregard a qualifying gain. | Continuous ownership, significant-individual rules where applicable, and retirement or permanent incapacity conditions. Being 55 alone is insufficient. |
| 50% active asset reduction | Reduce an eligible remaining gain by half. | May be declined; compare the result with retirement-exemption and distribution planning. |
| Retirement exemption | Disregard a chosen amount within the individual’s $500,000 lifetime limit. | Written choice and company/trust payment requirements; super contribution rules if the relevant person is under 55. |
| Small business rollover | Defer an eligible gain. | Replacement or improvement conditions and later events must be monitored; ordinarily the replacement-asset period begins one year before and ends two years after the CGT event, subject to extension. |
Illustrative $1.8 million Sydney business sale
Illustration only; not a client matter or tax quote. Compare two alternative sales contracted before 1 July 2027. In each, assume all relevant Division 152 tests are met, there are no capital losses, no 15-year exemption, no prior use of the relevant retirement-exemption cap, and all procedural and payment conditions can be satisfied.
In the asset version, a company sells a single qualifying goodwill asset for $1.8 million with an $800,000 cost base. In the share version, an Australian-resident individual sells qualifying shares for the same price and cost base, held for more than 12 months. Real asset sales allocate value among goodwill, stock, equipment and other assets; those other tax treatments are excluded here.
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| Calculation | Company sells goodwill | Individual sells shares |
|---|---|---|
| Sale proceeds | $1,800,000 | $1,800,000 |
| Assumed cost base | $800,000 | $800,000 |
| Capital gain before concessions | $1,000,000 | $1,000,000 |
| After general 50% discount | $1,000,000 — companies cannot claim it | $500,000 |
| After 50% active asset reduction | $500,000 | $250,000 |
| Retirement exemption chosen | $500,000, requiring eligible stakeholder allocation/payment | $250,000 |
| Remaining capital gain in this illustration | $0 | $0 |
The same final gain does not mean the structures produce the same cash in the owner’s hands. Company distributions, franking, Division 7A, super contributions and the legal path for paying proceeds must be modelled separately. The company example uses an entire $500,000 stakeholder lifetime limit; the individual example uses $250,000. Declining the active asset reduction can sometimes change the extraction analysis.
Retirement exemption: age and payment matter
Actual retirement is not generally required for the retirement exemption, unlike the retirement condition relevant to the 15-year exemption. For an individual under 55 just before making the choice, the prescribed contribution must be made to a complying superannuation fund or retirement savings account at the required time. Company and trust sellers have separate stakeholder payment and timing requirements. Agree these steps with the accountant and super adviser before distributing completion money.
What changes from 1 July 2027?
The general CGT discount reforms and the small-business concessions are separate. The enacted reform retains Division 152 and expands the turnover gateway for the 50% active asset reduction by removing its special $2 million restriction, bringing the ordinary small-business turnover test into play. This does not expand all four concessions in the same way. See the linked timing guide for transition, indexation and minimum-tax issues; do not carry the illustration above into a post-2027 sale unchanged.
Contract terms that affect the tax result
- Allocation: support the split between goodwill, stock, equipment and restraints with defensible evidence.
- Earnouts: determine whether statutory look-through treatment applies and when later payments change the calculation.
- Restraints: separately created rights may have different CGT consequences.
- Warranties and indemnities: allocate responsibility for historic tax and specify conduct of claims.
- Completion accounts: reconcile shareholder loans and retained assets; a balancing entry is not a tax analysis.
Common failure points
Errors include checking only the selling entity, valuing assets at book value, assuming every unit trust is fixed, ignoring the share-sale extra tests, applying the discount to a company, or missing a contribution/payment deadline. Changing ownership shortly before sale may itself create tax and duty liabilities and affect eligibility.
Who does what?
Your accountant generally assembles accounts, tax cost bases and return calculations, with an independent valuer where needed. The lawyer tests legal ownership, concession issues and the transaction documents. Agree responsibility for elections, payments and lodgements so that a sound legal structure is actually implemented.
Frequently asked questions
Does a $1.8 million sale automatically qualify?
No. Price is not the turnover or net-asset test, and active-asset, ownership and any share-sale conditions still apply.
Can a company claim the general 50% CGT discount?
No. A company may qualify for small-business relief, but the general CGT discount and the active asset reduction are different concessions.
Must I retire to use the retirement exemption?
Actual retirement is not generally required for that concession. The lifetime cap, written choice, age-related super rules and company or trust payment requirements still matter.
Does the 2027 turnover change apply to every concession?
No. The expansion concerns the 50% active asset reduction. Do not assume eligibility for the 15-year exemption, retirement exemption or rollover follows.
Official sources
- Income Tax Assessment Act 1997 — Divisions 104, 115 and 152
- Treasury Laws Amendment (Tax Reform No. 1) Act 2026