Capital gains tax for Australian small businesses

Published Thursday 10th April 2025

What is capital gains tax in Australia?

A capital gains tax (CGT) is tax paid on profits (the capital gain) a business makes on an asset when it disposes of it – such as by selling or transferring its ownership. This gain is added to your business’s taxable income, increasing its overall tax liability.

For small businesses, CGT usually applies to fixed assets like property, equipment, and machinery (although it can also apply to intangible assets like shares or intellectual property).

Learn more about capital gains tax in Australia from the ATO

How much is capital gains tax in Australia?

The CGT you may pay due to your asset sale (or disposal) depends on how you’ve disposed of the asset (the ‘CGT event’) and the legal structure of your business.

Asset disposal methods and CGT

The specific ‘CGT event’ – the way you’ve disposed of the asset – affects how you must treat the disposal in your books and therefore whether CGT applies. For example, if you:

• Sell an asset, you pay CGT based on the profit from the sale.
• Trade or exchange an asset, (swap one asset for another), treat this as a disposal at market value. This means the tax office treats it as if you sold the asset for its current market price, even though you didn’t receive cash.
• Gift an asset, treat the asset as though you’ve disposed of at market value (even if no money changes hands), so you may have to pay CGT.

How CGT applies to different business structures

In Australia, your capital gains tax rate also depends on your business structure.

• If you’re a sole trader or in a partnership – capital gains are added to your personal taxable income, and CGT is applied at your marginal income tax rate.
• If your business is structured as a company – capital gains are taxed at the company tax rate (30%).

Read PWC’s summary of current company tax rates

There are concessions and exemptions that can reduce or eliminate your capital gains tax liability.

How to calculate capital gains tax in Australia

CGT is triggered the moment you sell, transfer, or dispose of a business asset. You’ll need to calculate your capital gain at the time of the event, although the tax is reported and paid when you lodge your tax return for that financial year.

To calculate the CGT yourself, follow the basic steps below for each asset you’re selling or planning to dispose of. You can also use the ATO’s capital gains tax calculator through your MyGov account.

1. Determine the asset's cost base

Your asset’s cost base is the initial purchase price plus any associated costs of owning and improving the asset – including agent and legal fees, stamp duty, refurbishments, and so on.

Here’s an example:

• You buy a property for $300,000, with transaction fees (your lawyer and the agent) of $10,000.
• Over time, you make improvements to the property, such as by refurbishing an office, of $20,000.
• Your total cost base is $330,000.

There could be other costs included in the cost base too, like advertising. Your accountant can advise you on this.

2. Calculate the capital gain or loss

The capital gain or loss is the difference between the asset’s sale price and its cost base.

A capital gain occurs when an asset is sold for more than its purchase price, while a loss arises when an asset is sold, scrapped, lost or written off for less than it cost you.

If you make a capital gain, the tax is payable at the end of the financial year. A capital loss doesn’t result in a tax refund, but can be used to offset capital gains in the same year, reducing your CGT bill. If there are no gains to offset, the loss can be carried forward indefinitely to reduce future capital gains. Capital losses can’t be carried back or used to offset other types of income — only capital gains.

For example:

• If you sell the property with the $330,000 cost base for $450,000, the difference is $120,000 – your capital gain.
• But if your sale only nets $280,000, say, then $280,000 – $330,00 = –$50,000 – a capital loss.

3. Understand capital gain or loss on your CGT

A capital loss doesn’t reduce your taxable income, but can be used to offset capital gains in the same financial year. If there are no gains to offset, the loss can be carried forward indefinitely to reduce future CGT.

Your accountant or financial advisor can help you understand the specific tax implications for your business. You can find an advisor in Xero’s directory.

Reduce or eliminate your capital gains tax liability

To reduce your capital gains tax liability while staying fully compliant with ATO requirements.

Take advantage of all concessions and exemptions available to you.

CGT discounts in Australia for small businesses

In Australia, all individuals receive an automatic 50% CGT discount for assets held for over 12 months. This means sole traders and partnerships – but not companies – can take advantage of this discount, too, separate from small business concessions.

Under ATO rules, there are several discounts available specifically to small businesses when disposing of assets to reduce their CGT.

Under ATO rules, small businesses can reduce their CGT or defer it when selling assets.

Here are a few of the discounts available.

A 50% active asset reduction – there’s a 50% CGT discount on gains from active assets.

Turnover discounts – for example, SMBs with turnover under $50 million may qualify for a reduced CGT rate of 25%.

CGT rollover relief in Australia

To encourage you to reinvest in your business, the ATO lets you defer the CGT on an asset sale – shielding your cash flow from the shock of a bigger tax bill – if you buy a replacement asset, or improve an existing one, with the proceeds.

For example, if your business sells a commercial property for a capital gain, you can defer the CGT if you buy a new commercial property within 2 years. You can keep rolling this over (deferring it) as long as you keep reinvesting in new active assets – you only pay the CGT when you sell the final replacement asset.

Is your asset sale eligible?

You may be eligible for these concessions if:

• You’ve held the asset for at least 12 months
• The asset is an active one – directly used in running the business’s operations, not held as a passive investment
• Your business’s turnover and net assets are under certain thresholds

Check with the ATO for the latest eligibility criteria. Your accountant can also advise you on your eligibility and help you apply these concessions.

Here’s more government info on CGT concessions for small businesses

Capital gains tax exemptions in Australia

Some small business assets may be partially or fully exempt from CGT – some good news for your tax bill!

The complete list of assets and the situations in which they’re exempt is quite long. Here are just a few:

• Most active assets costing under $300 are exempt from CGT
• Assets you’ve acquired before September 20 1985 are fully exempt
• Assets you’ve held for 15 years or more are exempt under certain circumstances
• Asset sales related to retirement can be exempt from CGT – up to a $500,000 lifetime limit – even if you’re not retiring yet
• Your primary residence is generally exempt – although you might pay some CGT if you run your business from home

Here’s the ATO’s list of CGT assets and exemptions

Ways to reduce your CGT bill

Follow these practices to help reduce your CGT bill:

1. Keep your accurate financial records up to date so you don’t underestimate your asset’s cost base or your turnover. Xero can help with this.

2. Time the sales of your assets strategically.

• Hold assets for over 12 months to access CGT discounts.
• For sole traders, consider selling in low-income years or spreading gains across multiple years to avoid being pushed into a higher tax bracket.

3. Make sure you report on time! You’ll avoid penalties and you won’t miss out on concessions and exemptions you’re eligible for.

Key deadlines and reporting requirements

Your need to report any capital gains or losses in your business tax returns each year. Report the gain or loss in the financial year the asset was sold.

• If you sold the asset before 30 June, include the capital gain or loss in the current year’s return.
• If you sold it on or after 1 July, include it in the next financial year’s return.

Prepare for the end of financial year.

Deadlines depend on how you lodge:

• If you lodge the return yourself: 31 October after the end of the financial year.
• If you use a registered tax agent: extensions may apply, but most SMEs have to lodge by March or May. Here’s the government’s advice on lodging returns using a registered tax agent.

Manage your capital gain tax with Xero

Xero helps you manage your finances including tracking assets, calculating capital gains, and simplifying reporting – helping you stay one step ahead at tax time.

Learn more about managing fixed assets with Xero