Capital Gains Tax: Selling a Business in Australia

Selling a business in Australia is one of the most significant financial decisions a business owner will make. The capital gains tax (CGT) implications can add up to millions of dollars — or be reduced to near zero — depending on how the transaction is structured.

Lyndon Advisory works with Australian business owners planning exits across every sector. This guide explains how CGT applies to business sales in Australia, what concessions are available, and how to structure your sale to legally minimise your tax liability.

How CGT Applies to Business Sales in Australia

A capital gain arises when you sell a capital asset — shares in a company, business goodwill, or business assets — for more than the cost base (what you paid to acquire them). The gain is calculated as:

Capital gain = Sale proceeds − Cost base

Where cost base includes the original purchase price, capital improvements, and certain transaction costs (stamp duty, legal fees). For a founder who built a business from nothing, the cost base is typically low — meaning the gain is close to the full sale proceeds.

The gain is then included in your assessable income for the year of the sale. At a marginal tax rate of 47% (for individual sellers with income over $180K), an unmanaged CGT liability on a A$5 million business sale could cost A$2.35 million in tax. With concessions and proper structuring, that liability can be dramatically reduced.

The 50% General CGT Discount

If you have held the capital asset for more than 12 months, individuals and trusts are entitled to exclude 50% of the capital gain from assessable income. This effectively halves the tax rate on the gain.

Example:

• Capital gain on sale: A$4,000,000
• After 50% general discount: A$2,000,000 included in assessable income
• Tax at 47% marginal rate: A$940,000 (effective rate: 23.5%)

Companies are not entitled to the 50% CGT discount. They pay the full corporate tax rate (25% for base rate entities below A$50M turnover; 30% otherwise) on capital gains. This is one of the main reasons Australian business owners often structure businesses through trusts or individual ownership rather than companies, particularly when a sale is anticipated.

Small Business CGT Concessions

The ATO’s small business CGT concessions are the most powerful tax reduction tools available to Australian business owners. There are four concessions — they can be stacked in combination for maximum benefit.

Eligibility requirements (all must be met):

• You are a “small business entity” — annual turnover below A$2 million, OR
• You satisfy the “maximum net asset value” test — the net value of all CGT assets of you and your affiliates is below A$6 million (excluding certain assets like the family home and superannuation)
• The asset sold is an “active asset” — used in the course of carrying on a business for at least half the period of ownership

1. The 15-Year Exemption

A full CGT exemption applies if:

• You have held the active asset for at least 15 years continuously; AND
• You are aged 55 or over at the time of sale, OR you are permanently incapacitated

Tax payable: Zero. This is the most valuable concession available and is often the retirement exit tool for long-established Australian business founders.

2. The 50% Active Asset Reduction

Reduces the capital gain by a further 50% after the general 50% discount has been applied. Combined with the general discount, only 25% of the original gain is assessable.

Example:

• Capital gain: A$4,000,000
• After 50% general discount: A$2,000,000
• After 50% active asset reduction: A$1,000,000 assessable income
• Tax at 47%: A$470,000 (effective rate: 11.75%)

3. The Retirement Exemption

Excludes up to A$500,000 (lifetime cap) of capital gain from CGT. If the seller is under 55, the exempt amount must be paid into a complying superannuation fund. If aged 55 or over, the funds can be retained personally.

Many business owners combine the general discount, the active asset reduction, and the retirement exemption to bring their final CGT liability to near zero on transactions below A$2–3 million.

4. The Small Business Rollover

Defers the CGT liability by rolling the gain into the cost base of a replacement active asset acquired within 2 years of the sale. This is used where the seller intends to reinvest in another business rather than retire. The gain is deferred, not permanently eliminated — it crystallises when the replacement asset is eventually sold.

Stacking the Concessions: A Worked Example

Scenario: A founder sells their professional services business for A$5 million. Cost base is A$200,000 (built from scratch, held 8 years). Seller is 48 years old, operates through a trust.

Step	Amount
Capital gain (A$5M − A$200K)	A$4,800,000
50% general CGT discount (held >12 months)	A$2,400,000
50% active asset reduction	A$1,200,000
Retirement exemption (directed to super, under 55)	A$500,000 cap
Net assessable gain	A$700,000
Tax at 47% marginal rate	A$329,000
Effective tax rate on A$4.8M gain	6.9%

Without concessions, the same seller would have paid A$2.256 million in tax. With concessions properly applied, they pay A$329,000 — a saving of A$1.927 million.

This example assumes eligibility is confirmed. Tax outcomes depend on individual circumstances; always engage a qualified Australian tax advisor before proceeding.

Asset Sale vs Share Sale: The CGT Implications

The choice between a share sale and an asset sale has significant CGT consequences.

	Share Sale	Asset Sale
Seller CGT	Capital gain on shares — 50% discount available, small business concessions apply	Capital gain on individual assets — 50% discount applies per asset; gains on depreciable assets taxed as balancing adjustments (ordinary income)
GST	Generally no GST on share sale	Asset sale triggers GST unless sold as a going concern under the ToGC rules
Stamp duty	State stamp duty typically lower (NT, WA) or nil (NSW, VIC, QLD, SA — abolished for share sales)	Stamp duty typically applies on transfer of business assets and property
Buyer preference	Buyers prefer assets to inherit a clean cost base and avoid inherited liabilities	Sellers prefer shares for CGT efficiency
Goodwill	Goodwill remains in the company (buyer acquires it by acquiring shares)	Goodwill sold as a separate asset — CGT applies, 50% discount available if held >12 months

The practical outcome: Share sales are almost always more tax-efficient for the seller. Buyers accept share sales where they can negotiate indemnification for pre-completion liabilities through representations and warranties and warranty and indemnity insurance. Australian mid-market transactions above A$5 million almost universally proceed as share sales.

For transactions below A$2–3 million — particularly where buyer financing includes a bank loan — asset sales are more common because lenders prefer to secure against specific assets rather than shares in a private company.

Earnouts and CGT

Many Australian business sales include an earnout component — additional consideration paid if the business hits revenue or profit targets after closing. The CGT treatment of earnouts is complex.

Look-through earnout right (LTER): If the earnout meets the ATO’s conditions (earnout is contingent on future business performance, relates to a business being sold, has a maximum term of 5 years), it is treated as part of the original capital gain. The gain on the LTER is recognised when payments are received, and the 50% CGT discount applies to each payment proportionally.

Non-qualifying earnout: Treated as a separate CGT asset created at the time of sale. Different tax treatment applies depending on the original cost base.

Sellers negotiating earnouts should confirm the structure with their tax advisor before finalising the sale and purchase agreement to ensure the LTER treatment is preserved.

Entity Structure and CGT Planning

The entity through which you own your business has a significant impact on the CGT outcome.

Individual or trust: Access the 50% CGT discount. Trusts distribute capital gains to beneficiaries who individually apply the discount and concessions.

Company: No 50% CGT discount. A company selling a business asset pays full corporate tax on the gain (25% or 30%). Post-tax proceeds then sit in the company — extracting them as dividends triggers a further income tax liability for shareholders (offset by franking credits, but not a clean elimination). Operating through a company significantly reduces net proceeds from a business sale for individual owners.

SMSF: Assets held in a self-managed superannuation fund in accumulation phase attract 10% CGT (with the 33.33% discount applied to the notional capital gain). Assets held in pension phase are completely CGT-exempt. This makes selling a business held in an SMSF during pension phase one of the most tax-efficient outcomes available — but it requires the asset to have been properly held by the fund for a sufficient period before sale.

The Role of Pre-Sale Restructuring

Many Australian business owners benefit from restructuring their ownership structure 12–24 months before a planned sale. Common restructuring steps include:

• Interposing a holding company — to separate business assets from operating liabilities before sale; requires careful attention to roll-over relief provisions
• Trust restructuring — to ensure trust distributions on sale flow to beneficiaries in lower tax brackets
• Asset protection restructuring — to separate property assets from the operating business before sale, allowing each component to be sold separately with optimal tax treatment
• Spouse splitting — distributing ownership to a spouse or family members to utilise additional small business retirement exemption caps

Critical timing rule: The ATO requires that most concession eligibility conditions are met on the date of the CGT event (the sale). This means restructuring must be completed well before the sale — typically 12–24 months in advance — to ensure conditions are properly satisfied and cannot be challenged.

Next Steps: Planning Your Exit

CGT planning for a business sale is not a last-minute exercise. The most effective tax outcomes are achieved by business owners who begin working with their M&A advisor and tax advisor 18–24 months before the intended sale date — allowing time to confirm concession eligibility, restructure if needed, and make pre-sale investments that increase the business value alongside reducing the tax on the proceeds.

Lyndon Advisory works alongside Australian business owners and their tax advisors throughout the sale preparation process. We bring $30B+ in transaction experience and a fee structure aligned with seller outcomes: success fee only — 3% under A$25M enterprise value, 2% for A$25–50M, 1.5% for A$50–100M, 1% above A$100M. Minimum fee A$100K. You pay nothing unless a deal completes.

To understand what your business could achieve in a structured sale process — and how to structure the transaction for the best possible tax outcome — book a confidential valuation meeting.

This article is general information only and does not constitute tax advice. Tax outcomes depend on individual circumstances. Always engage a qualified Australian tax advisor before making decisions about a business sale.