The 15-year exemption disregards a capital gain outright rather than reducing it, and it is tested before the general discount or any other small business concession applies. Qualifying depends on three things holding at once: continuous ownership of the asset for 15 years, being 55 or over and retiring or permanently incapacitated, and, where a company or trust owns the asset, a significant individual meeting the same test. Sellers who look eligible on paper often fail on a condition nobody flagged in advance.
Blackwattle Tax advises small business owners on capital gains tax when selling a business, including if the 15-year exemption applies before any other concession is considered.
How Does the 15-Year Exemption Work?
The 15-year exemption disregards the capital gain entirely, rather than reducing a figure that has already been calculated. It is tested and applied first, before the general 50% CGT discount and before any of the other three small business concessions, so where it applies none of the others are relevant to that gain.
Capital losses do not need to be applied against the gain before the exemption is used, and remain available to offset other capital gains. Nothing else needs to be worked through once the exemption applies: no discount method, no active asset reduction, no retirement exemption calculation. Three conditions decide if it applies at all.
When Does the 15-Year Ownership Period End?
The 15-year ownership period ends immediately before the CGT event, which for a business sale is the contract date rather than the date of settlement or lodgment.
Ownership also needs to run continuously for the full 15 years leading up to that point, alongside a second condition: being 55 or over with the disposal happening in connection with retirement, or being permanently incapacitated at any age.
Permanent incapacity removes the age requirement entirely, with no minimum age applying instead.
What Counts as Retiring “In Connection With” the Sale
A full stop to work is not required for a disposal to count as being in connection with retirement.
Counts as retirement: a genuine, significant reduction in the hours worked, or a real change in the nature of the activities carried out. Continuing afterward in a smaller capacity, including working for the new owner on a reduced basis, does not rule this out.
Does not count: a modest reduction in hours with no real change in role or responsibilities. Two owners each cutting back from 60 hours a week to 40, while continuing the same work in the same way, is not enough to be regarded as retirement.
Who Counts as a Significant Individual in a Company or Trust?
A significant individual holds at least 20% of the small business participation percentage in a company or trust, held either directly or indirectly.
Where a company or trust owns the asset, the retirement condition attaches to this person rather than to the entity itself, since a company cannot retire. The company or trust needs a significant individual for a total of at least 15 years across the whole ownership period, though it does not have to be the same person throughout.
A CGT concession stakeholder is a significant individual, or the spouse of one with any participation percentage above zero, even a small one. This matters for who the exempt amount can later be paid to. The entity itself never retires; the person or people behind it do.
When Must the Exempt Amount Be Paid Out to Stakeholders?
The company or trust must pay the exempt amount to each CGT concession stakeholder by the later of two years after the CGT event, six months after the last time a benefit could still become due under a related look-through earnout right, or further time the ATO allows. Where the sale included an earnout, the distribution window runs off the earnout’s own outer date instead of the flat two years.
Qualifying for the exemption at the company or trust level is not the same as the money reaching the people behind it tax-free. The amount paid to each stakeholder tax-free cannot exceed their participation percentage of the exempt amount.
Paying more is not blocked, but the excess is likely assessed as an ordinary dividend rather than passed through tax-free. Figures below are illustrative.
Participation | Exempt amount | Paid | Tax-free | Assessed as a dividend | |
Shareholder A | 70% | $700,000 | $750,000 | $700,000 | $50,000 |
Shareholder B | 30% | $300,000 | $300,000 | $300,000 | Nil |
Where the individual wants the payment in superannuation, a further 30-day clock applies from the date the entity makes the payment, on top of the entity’s own distribution deadline. An individual receiving the amount directly has until the later of their lodgment date or 30 days after receiving the proceeds.
Where Does the 15-Year Exemption Fail?
Sellers who look eligible on paper commonly fail on one of five points.
- Selling before the 15-year mark: The condition requires at least 15 years of continuous ownership. A gap of even a few days before the anniversary means the condition is not met, with no partial credit for a shortfall of any length.
- Buying the asset in stages: Where an interest was acquired in separate tranches at different times, each tranche is its own CGT asset with its own ownership period. A seller can have genuinely owned the property for well over 15 years while a portion bought later fails the 15-year mark on its own, and is not eligible even though the rest of the asset is.
- Restructuring outside the two protected categories: Continuity is only preserved where an asset transfers under the rollover for compulsory acquisition, loss or destruction, or on marriage or relationship breakdown. Outside those two categories, a change of legal ownership, including a move from sole trader to company, starts a new 15-year clock.
- Not electing the exemption: It is not applied automatically. It has to be chosen in the tax return for the relevant income year.
- Failing the active asset test’s own timing: The asset also needs to have been active for at least 7.5 years within the ownership period, a separate gate applying to all four small business concessions.
15-Year Exemption or the Retirement Exemption
Where the 15-year exemption is out of reach, most often because the ownership period has not been met, the retirement exemption is the next concession to check.
The retirement exemption has no ownership-length or age requirement to access it, though the exempt amount must go to superannuation if the individual is under 55, and it is capped at $500,000 over a lifetime, unlike the uncapped 15-year exemption.
15-year exemption | Retirement exemption | |
Ownership length required | 15 years | None |
Age or retirement condition | 55 and retiring, or permanently incapacitated | None required to access it; contribution to super required if under 55 |
Cap | None | $500,000 lifetime |
Distribution deadline, company or trust | Later of 2 years, 6 months after a related earnout, or further ATO time | Later of 7 days after election or 7 days after receiving proceeds |
Where both are genuinely in reach for the same gain, the 15-year exemption applies first and makes the retirement exemption unnecessary. The comparison matters most where the ownership period rules the 15-year exemption out and the retirement exemption is what remains.
Difference Between the Small Business Rollover and the Restructure Rollover?
The fourth small business CGT concession, the small business rollover, is a different provision from the small business restructure rollover, and the two get confused in published material.
The small business rollover defers a gain into a replacement active asset. The restructure rollover allows a change of legal structure without triggering CGT, and has no direct role in the 15-year exemption’s own conditions.
What Happens to the Exemption If the Owner Dies Before Selling?
A legal personal representative, a beneficiary, or a trustee or beneficiary of a testamentary trust can access the exemption within two years of the owner’s death, a period the ATO can extend in appropriate cases.
Access depends on the deceased having qualified immediately before death. Two differences apply: retirement connection is not required, and the deceased needed to be 55 or older immediately before death rather than at the time of the eventual sale.
What to Confirm Before You Elect the Exemption
The exemption rewards checking the detail before lodging, not after.
- Ownership: Confirm every tranche of the asset independently clears 15 years, not only the earliest acquisition date.
- Retirement: Confirm the change in hours or activities is real enough to count, not a modest reduction only.
- Distribution: Where a company or trust is involved, confirm the payment plan and deadline before the return is lodged.
- Election: Confirm the election is made in the tax return, not assumed to apply automatically.
Our Chartered Accountants advise vendors on small business CGT concessions and exit planning across the middle market. Book a free 30-minute strategy session with one of our directors before the sale is signed.
What Sellers Ask About the 15-Year Exemption
What are the requirements for the 15-year CGT exemption?
Continuous ownership of the asset for 15 years ending immediately before the sale, and being 55 or over and retiring, or permanently incapacitated, on top of the basic conditions that apply to all four small business concessions.
What Happens to Small Business CGT Concessions in 2027?
The general 50% CGT discount changes for gains accruing from 1 July 2027. The small business concessions, including the 15-year exemption, sit separately from that change.
What is the difference between the 15-year exemption and the retirement exemption?
The 15-year exemption has no dollar cap but requires 15 years of ownership plus the age or retirement condition. The retirement exemption has a $500,000 lifetime cap with no ownership length or age requirement to access it.
How Much Retirement Does the 15-Year Exemption Require?
A significant reduction in hours worked, or a real change in the nature of the activities carried out, is enough. A full stop to work is not required, and continuing afterward in a smaller capacity does not automatically disqualify the sale.
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Disclaimer: We endeavour to make sure the information provided in this guidance is up to date and accurate. Please note, that the information is only intended to be a guide, with a general overview of information. This guidance is not a comprehensive document and should not be interpreted as legal advice or tax advice. The information is general in nature. You should seek the assistance of a professional opinion for any legal and tax issues related to your personal circumstances.