How Much Tax Will I Pay When I Sell My Business?

Most business owners spend years building something without thinking much about what the tax bill will look like when they eventually sell. Then the conversation gets serious — a buyer shows interest, or a broker puts a number on the table — and the first thing they ask their accountant is: "How much of this do I actually keep?"

The honest answer is: it depends. But it depends on specific things, and understanding those things gives you real options before you sign anything. This article walks through how business sale tax works in Australia, in plain English, without drowning you in jargon.

The Starting Point: Capital Gains Tax (CGT)

When you sell a business, the main tax you're dealing with is Capital Gains Tax — usually called CGT. Capital gains tax is not a separate tax; it's part of your regular income tax. The profit you make from selling your business (the capital gain) gets added to your income for that financial year, and you pay tax on it at your marginal rate.

Your capital gain is calculated like this:

• Sale price (what the buyer pays you)
• minus your cost base (what you originally paid for the business, or its value when you started it)
• minus any improvements or costs you've incurred over the years that haven't been claimed elsewhere
• = Capital gain

If your business has been in the family for decades, your cost base might be very low — which means your capital gain is large, and so is your potential tax bill. That's where the small business CGT concessions become critical.

What marginal rate are we talking about?

In Australia, the top marginal income tax rate is 45% (plus the Medicare levy of 2%). If you make a $2 million capital gain and it gets added to your income without any reductions, you could be looking at a tax bill of close to $900,000. That's before any concessions.

This is why most experienced business sale accountants spend a lot of their time working out how to legitimately reduce the capital gain before it gets to the tax return. The good news: there are proper, ATO-approved ways to do exactly that.

The 50% General CGT Discount

The first and most common reduction is the 50% general CGT discount. If you (as an individual, or through a trust) have owned the business asset for more than 12 months, you can reduce your capital gain by 50% before it hits your tax return.

So a $2 million capital gain becomes a $1 million taxable gain. At the top marginal rate with Medicare, that's roughly $470,000 in tax — still significant, but much better than $900,000.

Note: companies don't get the 50% discount. If your business runs through a company structure, the gain is taxed at the corporate rate (25% for small businesses, 30% for larger ones), but you lose the 50% halving. This is one reason why the structure of your business matters a lot for the final tax outcome.

The Small Business CGT Concessions — Where the Real Savings Are

For most family business owners, the 50% general discount is just the beginning. The ATO also provides a set of small business CGT concessions — rules that can dramatically reduce or even eliminate the tax on a business sale, provided you meet the eligibility requirements.

These concessions were designed specifically for people in your situation: small business owners who've spent their working life building something and deserve to exit without handing half the proceeds to the tax office.

Who qualifies for the small business concessions?

To access the small business CGT concessions, you generally need to meet two tests:

• Small business entity test: Your business (or the business you're selling a stake in) has an aggregated annual turnover of less than $2 million, or
• Net asset value test: Your net assets (business and personal) are below $6 million at the time of the sale

You also need to be selling an active asset — meaning an asset used in the business (like goodwill, business real property you own, or plant and equipment), rather than a passive investment.

Most family business owners who aren't property-wealthy will qualify under one of these tests. But your accountant needs to confirm this before you proceed — there are details that can trip people up.

The four concessions

If you qualify, there are four concessions available. You can often use them in combination:

1. The 15-Year Exemption

This is the best outcome possible: a complete exemption from CGT on the sale. To qualify, you need to have owned the business continuously for at least 15 years, and you need to be aged 55 or older (or permanently incapacitated) and retiring or substantially retiring from the business.

If you meet these conditions, the entire capital gain — regardless of size — is tax-free. No cap. No limit. Completely exempt.

For owners who started their business in their 30s or 40s and are now thinking about retirement, this concession is enormous. It's worth knowing about early, because it can influence timing decisions.

2. The 50% Active Asset Reduction

If you don't qualify for the 15-year exemption, the next step down is the 50% active asset reduction. This allows you to reduce your capital gain by a further 50%, on top of the general 50% CGT discount.

Combined, that means: a $2 million gain becomes $1 million after the general discount, then $500,000 after the active asset reduction. That $500,000 is what's added to your income for the year.

3. The Retirement Exemption

After applying the active asset reduction, you can often eliminate the remaining gain entirely using the retirement exemption. This allows you to exclude up to $500,000 of capital gains from tax over your lifetime.

• If you're 55 or older: the exempt amount can be taken as cash — no strings attached.
• If you're under 55: the exempt amount must be contributed into superannuation (a concessional contribution).

For many family business owners, the combination of the 50% general discount + 50% active asset reduction + retirement exemption gets the taxable gain to zero — or very close to it.

4. The Small Business Rollover

The fourth concession allows you to defer (not eliminate) the capital gain by rolling the proceeds into a new qualifying business asset within two years. This can make sense if you plan to reinvest in another business and don't want the tax hit now. It's less commonly used in pure retirement sales, but worth knowing about if you're planning to stay active.

A Plain-English Example

Imagine a plumbing business sold for $1.8 million. The owners — a couple in their early 60s who started the business 20 years ago — have a very low cost base because they built it from nothing. Their capital gain is roughly $1.7 million.

Here's how the concessions might stack up:

• Capital gain: $1,700,000
• Less 50% general CGT discount: −$850,000 → remaining gain: $850,000
• Less 50% active asset reduction: −$425,000 → remaining gain: $425,000
• Less retirement exemption (combined, split between both owners): −$425,000 → remaining gain: $0

In this scenario, the couple pays no CGT at all on a $1.8 million sale. They contributed some of the exempt amount into superannuation (because one partner was under 55 at the time), and the rest was taken as cash.

This isn't a trick. It's the concession system working exactly as intended. But it requires careful structuring, good timing, and an accountant who knows what they're doing.

What About GST?

Most business owners also wonder about GST. The short answer: selling a going concern is usually GST-free.

A "going concern" means you're selling a business that's actively operating — with all the assets, staff, and resources needed to keep running. If both the seller and buyer are GST-registered and the sale qualifies as a going concern, no GST applies to the sale price.

This needs to be documented properly in the sale contract. If it's not structured correctly — or if only part of the business is being sold — GST may apply. Your lawyer and accountant need to confirm the going concern treatment before settlement.

What About Stamp Duty?

Stamp duty rules vary by state, but it generally applies to the transfer of certain assets — particularly real property (land and buildings). If your business includes property, your buyer may need to pay stamp duty on that component. If you're selling shares in a company rather than assets, stamp duty may apply differently depending on the state.

This isn't usually the seller's cost to bear, but it can affect how the deal is structured and what a buyer is willing to pay.

Asset Sale vs Share Sale: Why It Matters

One of the biggest tax decisions in any business sale is whether to sell the business as a collection of assets (plant, equipment, goodwill, stock) or to sell the shares in the company that owns everything.

Asset sales are more common for smaller businesses. The buyer gets to allocate the purchase price across different assets, which can benefit them from a depreciation standpoint. From the seller's perspective, different assets may have different tax treatments — for example, trading stock is taxed as ordinary income, while goodwill benefits from the CGT concessions.

Share sales are cleaner in some ways — the buyer gets everything in one package, including the history of the business. But the tax treatment differs, and buyers often prefer asset sales because they don't inherit unknown liabilities from the company's history. Sellers sometimes prefer share sales because all gains go through the CGT system (including concessions), rather than some being treated as income.

There's no universally "better" structure. It depends on your situation, your buyer's preferences, and what your accountant and lawyer recommend.

Timing Can Change Everything

When a sale completes — which financial year settlement falls in — can significantly affect your tax bill. If you're close to 55, the retirement exemption becomes more generous (no super requirement). If you're close to the 15-year mark, waiting could eliminate CGT entirely.

These aren't reasons to delay a good sale, but they are reasons to run the numbers before you sign. A settlement date that falls in one financial year vs the next can mean a meaningful difference in your tax outcome, simply because of how income is assessed year by year.

The Role of Superannuation

A business sale can be a significant opportunity to boost your superannuation, in ways that aren't available to ordinary workers. As mentioned above, the retirement exemption can allow you to make a tax-free contribution of up to $500,000 into super — outside the normal annual contribution caps. This can be a powerful way to convert business sale proceeds into a tax-sheltered retirement nest egg.

The rules around this are specific and need careful handling. Your financial adviser and accountant should work together on this aspect of the plan.

What Most Business Owners Get Wrong

The biggest mistake is leaving tax planning until after you've signed a sale agreement. By then, most of the decisions that affect your tax outcome are already locked in — the price, the structure, the settlement date, how the purchase price is allocated across different assets.

Tax planning for a business sale should start before you go to market. Ideally 12–24 months before, so you have time to restructure where needed, understand your cost base, confirm concession eligibility, and make informed decisions about timing.

The owners who walk away with the most money aren't the ones who negotiated the highest price — they're the ones who structured the sale correctly from the start.

What to Do Next

If you're thinking about selling your business — whether in the next year or the next five — the first step is understanding what it's actually worth and what you'd walk away with after tax. Those two numbers together tell you whether a sale makes financial sense, and what you need to do to maximise the outcome.

A few practical next steps:

• Get a realistic business valuation. You can't plan the tax without knowing the likely sale price. Our free assessment gives you a grounded view of what a buyer would pay.
• Talk to an accountant who specialises in business sales. Not all accountants have deep experience with the small business CGT concessions. Find one who does.
• Understand your cost base. If your records are incomplete from the early years, this takes time to reconstruct. Start now.
• Check your eligibility for the 15-year exemption. If you're getting close, timing the sale around this could save you hundreds of thousands of dollars.
• Don't sign anything before getting tax advice. Once the contract is signed, your options narrow significantly.

Selling a business is probably the largest financial transaction you'll ever make. The tax outcome on that transaction is highly variable — and largely within your control, if you plan ahead.