The 15-Year Exemption is one of the most advantageous Small Business capital gains tax (CGT) concessions available to small business owners in Australia. Designed to support long-term business owners who are ready to exit or transition, this exemption allows qualifying businesses to disregard capital gains entirely on the sale of eligible assets, provided certain conditions are met.
While often associated with individual business owners, this exemption is also highly beneficial for companies that meet the eligibility criteria under the broader small business CGT concessions framework.
In this blog, we’ll explore the requirements, process, and benefits of the Small Business 15-Year Exemption when applied by a company.
What Is the Small Business 15-Year Exemption?
This exemption allows eligible small businesses to disregard capital gains entirely on the sale of assets they have held for 15 years or more—without any cap on the exempt amount. It is particularly attractive to retiring business owners, as it enables them to transfer a substantial portion of their business proceeds to superannuation tax-free.
Importantly, this concession is not limited to sole traders. Companies and trusts may also apply the 15-year exemption if they satisfy the relevant requirements of the small business CGT concessions.
Eligibility Criteria for Companies Claiming Small Business CGT Concessions
To access the Small Business 15-Year Exemption as part of the small business CGT concessions, a company must meet the following criteria:
- Small Business Entity Test
The company must be a small business entity—typically with aggregated turnover under $2 million—or meet the maximum net asset value test (under $6 million, including connected or affiliated entities).
- Active Asset Requirement
The asset must be an active asset. For companies that have held the asset for 15 years or more, it must have been actively used in the business for at least 7.5 years. Common examples include commercial properties or essential equipment.
- Continuous Ownership
The company must have held the asset continuously for at least 15 years prior to the CGT event (e.g., the sale).
- Significant Individual Requirement
At least one individual must have held 20% or more of the voting rights throughout the ownership period. That individual must be aged 55 or older and either retiring or permanently incapacitated at the time of the sale.
- CGT Concession Pathway
The 15-year exemption is one of four small business CGT concessions. If used, it eliminates the need for any further concessions on that specific capital gain, as the entire gain is disregarded.
Example Scenario
Consider ABC Pty Ltd, a company owned by Emma, who holds 100% of the shares and has actively operated the business for over 20 years. The company owns a commercial property used exclusively for business purposes for the past 15 years. Emma, now 60 and planning to retire, decides to sell the property.
Here’s how ABC Pty Ltd applies the exemption:
- Calculate the Gain
The property is sold, generating a capital gain of $700,000.
- Elect the 15-Year Exemption
Having met all eligibility criteria under the small business CGT concessions, including Emma’s significant individual status and retirement, ABC Pty Ltd applies the 15-year exemption to disregard the entire gain.
- Distribute Tax-Free Proceeds
The company distributes the proceeds to Emma tax-free, boosting her retirement savings without incurring CGT liability.
Making the Most of Small Business CGT Concessions
The Small Business 15-Year Exemption is a powerful and flexible tool for companies looking to exit long-term investments in a tax-effective way. By eliminating CGT on eligible sales, it simplifies the transition process and provides business owners with meaningful retirement benefits.
Because the eligibility criteria for the small business CGT concessions can be complex, it’s critical to seek expert advice to ensure all conditions are met and applied correctly.
If the 15-year exemption is not available, other small business CGT concessions may apply, including the Retirement Exemption, the 50% Active Asset Reduction, and the Small Business Restructure Rollover.
Speak With a Tax Advisor at MacMillan Cown & Co About Your CGT Strategy
Thinking of selling a business? The team at MacMillan Cowan & Co can help you assess your eligibility and make the most of the small business CGT concessions available to you.
To make an appointment, send us a message online or contact us on (03) 5222 2866.