Small Business Retirement Exemption and Super

The small business retirement exemption lets you disregard qualifying capital gains within an individual’s $500,000 lifetime limit. Actual retirement is not required. Before claiming it, document the available limit, written choice and age-dependent payment, then arrange any separate super contribution election.

What the Retirement Exemption Does

The retirement exemption removes the amount you choose from a qualifying capital gain. You can choose all or part of the remaining gain, up to the individual’s unused lifetime limit. Earlier amounts chosen by the individual or allocated to them by companies or trusts reduce that limit.

A business sale payment does not become exempt merely because the client calls it a retirement payment. The concession applies to a qualifying capital gain under Subdivision 152-D. Wages, an employment termination payment and the sale’s total proceeds each need their own treatment.

The Australian Taxation Office (ATO) retirement exemption guidance confirms that the individual can continue working or running a business. A company or trust stakeholder can also remain employed. The name of the concession does not require them to leave work.

Check the 15-Year Exemption First

The separate small business 15-year exemption takes priority and can disregard the entire qualifying gain without using the $500,000 retirement exemption limit. Establish eligibility before applying losses or other concessions.

For an individual, check the basic concession conditions and continuous ownership for the 15 years ending just before the CGT event. The active asset test also applies. Ownership for 15 years does not mean the asset must have been active throughout that period.

If the individual sells shares or a trust interest, check the entity’s significant individual history during ownership. It must total at least 15 years, although the qualifying individual can change. Shares and trust interests also have additional basic eligibility conditions.

For a company or trust selling an asset, establish continuous ownership for the same 15-year period. The company or trust must have had a significant individual for periods totalling at least 15 years during ownership.

The disposal must also meet the relevant personal condition. An individual seller must be at least 55 when the CGT event happens and the event must relate to their retirement. Permanent incapacity at the event is an alternative with no age minimum. For a company or trust, apply that condition to someone who was its significant individual just before the event.

Age 55 and a sale alone do not establish retirement. The ATO’s 15-year exemption guidance looks for a substantial reduction in working hours or change in activities. Retain the client’s plans and evidence of the change, alongside the ownership and stakeholder history.

A gain disregarded under the 15-year exemption does not absorb capital losses. Those losses remain available against other gains. For the retirement exemption, apply relevant capital losses and any available CGT discount before choosing the exempt amount. The small business 50% reduction can then apply, or you can choose not to use it.

Company or trust distributions under the 15-year exemption have separate rules. Check each recipient’s CGT concession stakeholder status just before the event and the participation-based payment limit. The ordinary payment period is two years after the event. A qualifying look-through earnout can extend that period, and the Commissioner can allow further time under section 152-125. Do not substitute the retirement exemption’s seven-day payment rule or compulsory under-55 contribution requirement.

Record why the chosen concession applies. If the 15-year exemption fails, identify the failed condition before moving to the retirement exemption.

Establish the Amount and Eligible Individuals

Start with the asset owner, the CGT event and the gain before concessions. Confirm the basic conditions, including the active asset test, and retain the supporting assessment. Gains arising from CGT events J5 or J6 have an exception to rechecking the basic conditions for the retirement exemption.

Use the capital gains tax calculator for the starting disposal calculation where appropriate. Keep the concession decision in a separate working paper so an ordinary gain estimate does not become an unsupported entitlement.

For each individual, begin with $500,000 and subtract all earlier retirement exemption amounts chosen by or for them. Obtain previous choices and company or trust allocations. A new company, asset or super fund does not restart the individual’s limit.

Hypothetical Individual Calculation

Assume a sole trader meets the basic conditions, cannot use the 15-year exemption and qualifies for the 50% CGT discount. Their prior retirement exemption use is $475,000.

Calculation	Amount
Gain before concessions	$240,000
Capital losses applied	$40,000
Gain after losses	$200,000
After 50% CGT discount	$100,000
After small business 50% reduction	$50,000
Available retirement exemption limit	$25,000
Chosen retirement exemption amount	$25,000
Gain remaining after these concessions	$25,000

The individual cannot disregard the full $50,000 under the retirement exemption. Their earlier use leaves only $25,000. If they are under 55 just before choosing, that $25,000 must reach a complying super fund or retirement savings account at the required time.

Company and Trust Allocations

A company or trust must also satisfy the significant individual test and the payment conditions. Public entities excluded by the legislation cannot choose this exemption.

A significant individual has a small business participation percentage of at least 20%. A CGT concession stakeholder is a significant individual or their spouse with a participation percentage greater than zero. Calculate direct and indirect interests under the statutory rules. A director’s title alone does not establish stakeholder status.

For a hypothetical company sale, assume a $400,000 gain, no capital losses and eligibility for the small business 50% reduction. The company has no general CGT discount, so $200,000 remains. Its sole shareholder is 52, qualifies as a stakeholder and has used $100,000 of their lifetime exemption.

The company chooses to disregard $200,000 and allocates 100% to that shareholder. Full cash proceeds exceed the exempt amount. The company must therefore pay $200,000 for the shareholder into a complying super fund or retirement savings account. The shareholder has $200,000 of retirement exemption limit left afterwards: $500,000 less $100,000 less $200,000.

Where several stakeholders exist, specify each allocation percentage in writing. They must total 100%, although an individual allocation can be zero. Test each person’s available limit against their allocation. The retirement exemption allocation need not match ownership percentages, but payments must follow the recorded allocation.

Age and Super Contribution Requirements

Age changes where the exempt amount must go. It does not establish eligibility for the exemption.

For an individual seller, test age just before they make the retirement exemption choice. Under 55, they must contribute an amount equal to the CGT exempt amount to a complying super fund or retirement savings account. At 55 or older, this concession does not compel a super contribution.

For a company or trust, test the stakeholder’s age just before each payment. Under 55, the entity must contribute for that person directly to their complying super fund or retirement savings account. It must notify the fund or account provider at that time that the contribution satisfies section 152-325. At 55 or older, the required stakeholder payment can go to the person without a compulsory super contribution.

Payment Triggers

Situation	Required timing
Individual under 55, ordinary disposal	Contribute at the later of making the choice and receiving proceeds
Individual under 55, CGT event J2, J5 or J6	Contribute when making the choice
Company or trust, ordinary disposal	Pay by the later of seven days after the choice and seven days after receiving proceeds
Company or trust, CGT event J2, J5 or J6	Pay within seven days after making the choice

For instalment proceeds, apply the requirements successively to each instalment until the exempt amount is covered. Do not spread the contribution evenly across later instalments when earlier receipts can satisfy it.

In the hypothetical company sale, suppose the company makes its choice after receiving all proceeds. The $200,000 contribution must reach the shareholder’s fund within seven days after that choice. The company cannot treat the tax return lodgement deadline as extra payment time.

Keep the signed choice and proceeds receipt dates beside the payment deadline. Match the fund’s receipt to the correct member account and amount. A bank transfer instruction alone does not prove that the fund received and allocated the money.

Record the Choice and Any CGT Cap Election

The written retirement exemption choice records the amount disregarded for tax. The separate CGT cap election tells the super fund which qualifying contribution to exclude from the non-concessional contributions cap.

The tax choice does not automatically make that super election. Giving the fund a CGT cap election also does not replace the written tax choice or company allocation.

Follow this sequence before releasing the payment.

1. Complete the concession assessment and approve the amount to disregard. Make the tax choice by the time the relevant tax return is lodged, unless the Commissioner allows further time. Record the chosen amount in writing.
2. For a company or trust, document each stakeholder’s allocation percentage and remaining lifetime limit. Identify who authorises the entity payment and whether it must go directly to a fund.
3. Obtain the fund’s payment instructions and correct member details. Confirm that it can accept the proposed contribution. Diary the applicable contribution deadline separately from the entity’s payment deadline.
4. If using the CGT cap, give the member’s signed CGT cap election form and instructions, NAT 71161, to the fund before or with the contribution. Keep evidence of when the fund receives it. The form goes to the fund, not the ATO.
5. Make the payment within the applicable deadline. For a company or trust paying for an under-55 stakeholder, include its section 152-325 notification to the fund.
6. Obtain the fund receipt and contribution classification. Reconcile the amount against the choice and election before closing the working paper.

The contribution timing for CGT cap treatment is an additional test under section 292-100. For an individual’s retirement exemption contribution, the ordinary deadline is the later of the return’s required lodgement day and 30 days after receiving proceeds. An under-55 individual still has the earlier compulsory timing described above.

A stakeholder who receives a qualifying company or trust payment and contributes it personally generally has 30 days after that payment for CGT cap treatment. Keep that route distinct from the company’s compulsory direct contribution for an under-55 stakeholder.

The ATO contribution caps table sets the lifetime CGT cap at $1,935,000 for 2026-27. Previous qualifying contributions reduce the available amount. This indexed super cap is separate from the $500,000 retirement exemption limit. A larger CGT cap does not let the client disregard a larger gain under the retirement exemption.

Close the Sale and Contribution Working Papers

Close the file only when the tax calculation and actual payments reconcile. Retain the contract and settlement evidence, cost base records, eligibility assessment and both exemption-limit histories.

The final reconciliation must show the original gain, losses and concessions applied, chosen exempt amount and balance remaining. For an entity, add the allocation and payment to each stakeholder or fund. Keep the election receipt and fund statement with the payment evidence.

For the company example, the records must agree on a $200,000 exempt amount, a 100% allocation and a $200,000 fund receipt. The shareholder’s retirement exemption balance becomes $200,000. Record their CGT cap use separately. Carry the reconciliation into the company tax compliance review before finalising the return.

If the prior-use record is missing, obtain earlier returns and written choices from the client or previous adviser. Reconcile them with company or trust allocations. A client’s estimate or a super balance does not establish the unused retirement exemption limit. If entitlement remains uncertain, seek an ATO private ruling on the facts before treating the proposed amount as exempt.

If proceeds timing is unclear, compare the contract, settlement statement and bank receipts. List instalments and any look-through earnout separately. Resolve which receipt triggers each payment before making the choice. Use the ATO timing guidance for the applicable event instead of assuming settlement and the CGT event are the same day.

If the tax choice is late, the ATO’s extension application procedure uses a private ruling application. Explain the missed choice and relevant facts. Do not assume that extra time for a choice also extends a payment or contribution requirement.

If a CGT cap election would arrive after the contribution, it is late and ineffective. The ATO’s fund reporting guidance gives the fund no discretion to accept it and directs members to the ATO for advice. Obtain that advice and resolve the contribution reporting consequences. Keep the file open until the actual tax choice, payment timing and fund treatment support the return position.