The small business retirement exemption: $500,000, and you do not have to stop working

The small business retirement exemption lets you disregard up to $500,000 of capital gain over your lifetime when you sell active business assets. It is one of the four small business CGT concessions, and it has the most misleading name of the four.

Two things trip owners up. The name suggests you have to stop working, and you do not. And the money has a deadline attached, which is not tied to the sale but to the moment you make the choice.

There is a third thing, and it is the one we care about most. If your sale pays out in instalments rather than in one amount at settlement, the obligation to put money into super repeats with every instalment. And a sale pays out in instalments when the buyer is not confident the business performs once you leave. So how difficult this concession is to administer is partly decided by how much of the business is you.

How the small business retirement exemption works

The ATO sets out the core of it:

Lifetime is the word to sit with. It is not per sale and not per business. If you used $200,000 of it years ago, $300,000 is what remains.

You have to meet the basic eligibility conditions common to all four concessions, plus extra conditions specific to this one. And the ATO states that you must keep a written record of the amount you choose to disregard. It is a choice you make and document, not something that applies on its own.

Do you have to retire to use the retirement exemption?

No. The ATO is explicit that you do not need to end your employment, your business office holdings, or your business activities.

That surprises a lot of owners, and it changes when the concession is worth considering. You can sell a property the business trades from, or one part of the operation, and use the exemption while continuing to run everything else.

What does the ATO consider a small business?

For these concessions, eligibility runs through the basic conditions rather than a single definition. The ATO sets out four ways to qualify as an eligible entity, including aggregated turnover of less than $2 million and the maximum net asset value test, and the asset itself has to pass the active asset test.

our guide to the small business CGT concessions works through those conditions, and our guide to tax when you sell a business covers where this sits in the order the concessions are applied.

One thing about that $2 million figure is worth knowing now, because it is about to become confusing. Treasury has announced a change from 1 July 2027:

Treasury names the 50 per cent active asset reduction there, and no other concession. It does not state what happens to the turnover test for the retirement exemption, and we are not going to guess on your behalf. If your turnover sits between the two figures and you are planning around 2027, that is a question to put to your accountant with the current legislation in front of them, closer to the time.

If you are under 55, the money goes into super

This is the fork in the road, and your age at one particular moment decides which side you are on.

If you are 55 or older, the ATO states there is no requirement to pay any amount into a complying super fund or retirement savings account. The cash is yours.

If you are under 55, the exempt amount must be paid into a complying super fund or a retirement savings account. It is generally treated as a non-concessional contribution unless you notify the fund using the CGT cap election form, and the ATO states that form must be completed no later than the time you make the contribution.

There is a detail in the age test that repays reading twice. The ATO applies it to the moment you choose the exemption, not the moment the money arrives:

So an owner who turns 55 between settlement and lodgment is in a different position from one who does not. Whether that helps you is a question for your accountant with your dates in front of them.

When the contribution has to be made

Published guidance on this is inconsistent, so here is what the ATO says, and note that it differs for individuals and for companies or trusts.

For an individual, the contribution is made when you choose to use the exemption, or when the proceeds are received, whichever is later. The ATO adds that once you make the choice, an individual must immediately make a contribution equal to the exempt amount. A company or trust has seven days.

There is a useful consequence in that. If you choose the exemption at lodgment rather than at settlement, the ATO states you are not required to make the contribution until you make the choice, and you may use the proceeds for other purposes before then. Once chosen, though, the clock is immediate.

What an earn-out does to this exemption

This is the part almost nothing written on the subject joins up.

Where the proceeds arrive in instalments, the ATO states that an individual is required to make contributions to super on receipt of each instalment, up to the exempt amount. And it treats an earn-out as exactly that:

So an earn-out delays part of your price and turns one super contribution into a series of them, each triggered by a payment whose size depends on how the business trades after you have gone.

Which brings it back to the thing we work on. A buyer proposes an earn-out when they are not sure the business runs without the owner. our guide to earn-outs covers what that structure signals. The administrative tail it leaves behind on this concession is one more cost of owner dependency that nobody prices in advance.

What is the 15-year exemption for small business?

A separate concession, and a more generous one where it applies: fifteen years of continuous ownership and other conditions, and the whole gain is disregarded rather than capped at $500,000.

The ATO places it earlier in the order, so if you qualify for it you do not need this one. our guide to the 15-year exemption covers the conditions and the clock.

Frequently asked questions