Small business CGT concessions, the $6 million test and the CGT cap
The Corio Bakery has been run through the Baxter Family Trust, a discretionary trust, since 2012. On 28 May 2025 the trustee sold the bakery business and its premises, producing a capital gain of $1,800,000; the trust also has a $150,000 carry-forward capital loss from 2019-20. On 20 June 2025 the trustee resolved to appoint any capital gain from the sale equally to Della (63) and her spouse Nino (66), who have worked in the business since 2012 and are the trust's principal beneficiaries. Net assets used in the business are $2.4 million. Della owns an investment unit worth $1.6 million, and Nino owns listed shares worth $1.2 million plus a $350,000 term deposit; none of these is used in any business. The trust's aggregated turnover is $3.4 million. No small business concession has ever been claimed by the group. Della and Nino want to put their shares of the proceeds into superannuation and want to know how much they can contribute without touching their non-concessional caps. The 2024-25 return is due 15 May 2026.
1. Do the basic conditions hold, and what is the taxable capital gain after applying the available concessions?
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Basic conditions (s152-10). There is a CGT event on an active asset (premises and goodwill used in the bakery). The turnover test fails ($3.4 million exceeds $2 million), so the group must pass the maximum net asset value test: $2.4m business assets + $1.6m unit + $1.2m shares + $0.35m term deposit = $5.55 million, under the $6 million threshold. The test is applied just before the CGT event, so the $4.6 million of proceeds are ignored. Conditions met.
Calculation, in the required order:
- Capital gain: $1,800,000.
- Less capital losses: $1,800,000 − $150,000 = $1,650,000.
- 50% CGT discount (asset held since 2012): $825,000.
- Small business concessions apply to the discounted gain.
- 50% active asset reduction (s152-205): $412,500 remaining.
- Retirement exemption (s152-305): lifetime limit $500,000 each. Both are over 55, so no superannuation contribution is compulsory. If the trustee pays at least $206,250 to each of Della and Nino and each makes an election, the remaining $412,500 is exempt and the taxable capital gain is nil.
The 15-year exemption is not available (asset held 13 years). Without the retirement exemption, $412,500 would be taxed at Della's and Nino's marginal rates, close to $194,000 at the top rate.
2. What must the trustee and each individual do to make the retirement exemption work, and how do they access the CGT cap when contributing to superannuation?
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Retirement exemption mechanics. The exemption attaches to the amount actually paid to the individual, so the trustee must resolve to pay and physically pay at least $206,250 to each of Della and Nino (from the trust, not merely appoint the entitlement). Each individual must make a written election in the approved form - a failure to elect means the exemption is lost even though the payment was made. Each has a $500,000 lifetime limit, so the $206,250 uses less than half and leaves capacity for later disposals.
CGT cap contributions. Because both are 55 or over, they may keep the money; contributing to superannuation is optional. If they contribute the exempt amount, they can elect under the small business CGT cap rules to have it count against the CGT cap ($1,705,000 for 2024-25, indexed and lifetime) rather than the $120,000 annual non-concessional cap. To do this:
- make the contribution within 30 days after the individual receives the payment (or such longer time as the Commissioner allows);
- complete the CGT cap election in the approved form and give it to the fund so the fund reports it correctly;
- keep the trustee resolution, the payment records and the retirement exemption election - the fund and the ATO will ask for them.
The cap is per individual, so together they can shelter up to $3.41 million of concession proceeds in 2024-25 dollars. Confirm the indexed cap for the year of contribution before acting.
3. The trustee asks whether the 15-year exemption could have been used instead. Advise on its availability, the ordering of the concessions and the practical difference.
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Availability. The 15-year exemption (s152-105) requires the basic conditions, the asset to have been an active asset for 15 years, and - for a trust - an individual who was a significant individual for 15 years, with the exempt gain appointed or paid to that individual. The business and premises were acquired in 2012, only 13 years before the May 2025 sale, so the test fails regardless of how the resolution is drafted. The trust also has no documented 15-year significant individual history; for a discretionary trust the significant individual is fixed by the pattern of entitlements to income and capital, not by a single year's appointment.
Ordering. If it had been available, the 15-year exemption is applied first: the gain is disregarded entirely, no capital losses or discount are needed, and no CGT cap is used (although the proceeds can still be contributed and counted under the CGT cap). For gains that are not disregarded, the sequence is capital losses, then the 50% discount, then the active asset reduction, then the retirement exemption, then the rollover. Applying the active asset reduction before the retirement exemption halves the amount that consumes the $500,000 lifetime limit.
Practical difference. Under the 15-year exemption the trustee would not need to pay the exempt amount to the individuals to secure the exemption, and no election would be required. As things stand, the outcome depends entirely on the payment to Della and Nino and on two elections being lodged on time.