Small Business CGT Concessions on Startup Exit: The 15-Year Exemption, Active Asset Test and How Founders Actually Access Them

Somewhere in every founder’s exit planning, an adviser mentions that the small business CGT concessions can make a sale of the business entirely tax-free, and the room goes quiet. It’s true — Division 152 of the Income Tax Assessment Act 1997 (Cth) contains the most generous relief in the Australian tax system, up to and including a 100% exemption. It’s also true that most venture-backed founders will never qualify, and that the founders who could qualify routinely disqualify themselves years before the exit without noticing. With the 50% CGT discount being replaced by cost base indexation and a 30% minimum tax from 1 July 2027 — now legislated, in a package that keeps all four Division 152 concessions and actually widens one of them, lifting the turnover threshold for the 50% active asset reduction from $2 million to $10 million from 1 July 2027 — these concessions are about to go from a nice-to-have to the most valuable relief left standing: a gain Division 152 fully shelters produces no net capital gain for the new minimum tax to bite on. Understanding where the gates are is now core exit planning.

The Four Concessions

Division 152 offers four concessions, which can stack:

• The 15-year exemption (Subdivision 152-B): the whole capital gain is disregarded. The headline act, with the hardest conditions.
• The 50% active asset reduction (Subdivision 152-C): the gain is reduced by 50%, on top of any other discount you’re entitled to.
• The retirement exemption (Subdivision 152-D): up to a $500,000 lifetime limit per individual is exempt. Despite the name, you don’t have to retire — but if you’re under 55 just before you make the choice to apply it (or receive the payment from a company or trust), the exempt amount must be paid into a complying super fund or retirement savings account.
• The small business rollover (Subdivision 152-E): the gain is deferred if you acquire a replacement active asset, broadly within two years.

Before the 2027 reform, a founder who cleared the gates could apply the ordinary 50% discount, then the 50% active asset reduction, then shelter the remainder with the retirement exemption — taking the effective rate on a sub-$2 million gain to zero. From 1 July 2027, the discount leg becomes indexation, which does almost nothing for a near-zero cost base — but the Division 152 legs survive, which is precisely why they now matter more.

The Gateway: Basic Conditions Most Startups Fail

Everything starts with the basic conditions in section 152-10. You need a CGT event producing a gain, and you must pass one of two size tests:

• The CGT small business entity test: aggregated turnover under $2 million. “Aggregated” is the trap — it sweeps in the turnover of entities connected with you (broadly, 40%+ control) and your affiliates. A founder holding 40% or more of the company counts the company’s revenue as their own. From 1 July 2027, the 2026 reform Act opens the 50% active asset reduction alone to businesses with aggregated turnover up to $10 million — but the 15-year exemption, retirement exemption and rollover keep the $2 million gate.
• The maximum net asset value (MNAV) test: the net value of the CGT assets of you, your connected entities and affiliates must not exceed $6 million just before the CGT event. For a founder connected with the company (broadly, 40%+ control), that pool includes the company’s own assets — with goodwill effectively priced at what the buyer is paying — so a 40%+ founder in a $20 million exit will generally fail. A minority founder below the connection threshold counts the market value of their own stake and other CGT assets instead, so a sub-$6 million slice of a much larger exit can still pass.

Note that the turnover test has no asset or value cap — but don’t celebrate yet. On a share sale it comes with a sting in the tail, covered below, that closes it to most passive founder-shareholders.

Selling Shares: The Extra Hurdles

Founders don’t usually sell “the business” — they sell shares. That triggers a second layer of conditions, tightened significantly for CGT events from 8 February 2018 by the Treasury Laws Amendment (Tax Integrity and Other Measures) Act 2018, and set out in the additional conditions in section 152-10(2):

• You must be a CGT concession stakeholder in the company — a significant individual (holding a small business participation percentage of at least 20%, taking both votes and rights to dividends and capital into account) or the spouse of one with some participation. Alternatively, where shares are held through an interposed entity, CGT concession stakeholders must together hold at least 90% of that entity. This is where dilution bites: a founder who drops below 20% after a couple of priced rounds is out, whatever the company looks like. Non-voting or preference structures can also quietly break the percentage.
• You must pass your own size test the hard way. Here’s the sting in the turnover door: on a share sale, unless you satisfy the $6 million MNAV test at your own level, you can only rely on the turnover limb if you personally carry on a business just before the CGT event. Being a shareholder, director or employee of the startup isn’t carrying on a business — so a founder who fails MNAV can’t simply point to the company’s low revenue. This condition applies only to sales of shares and trust interests, not to a company selling its underlying business assets.
• The company itself must pass a size test — be a CGT small business entity carrying on a business, or satisfy a modified MNAV test that sweeps in entities in which it holds interests of just 20% or more (against the usual 40% connection threshold).
• The shares must pass a modified, look-through active asset test. At least 80% of the company’s assets (by market value, looking through subsidiaries) must be active assets — assets used in carrying on the business. Assets whose main use is deriving rent, interest, annuities, royalties or foreign exchange gains are generally excluded (shares and trust interests are dealt with under separate rules), and cash and financial instruments count only where they’re inherently connected with the business — with integrity rules that disregard balances built up to game the ratio. A startup sitting on a large undeployed capital raise can fail the 80% test without anyone having thought about it.

The active asset test itself has a timing element: the asset must have been active for at least half your ownership period, or 7.5 years if you’ve owned it longer than 15 years. Long pre-launch periods and pivots through dormant entities can erode this quietly.

The 15-Year Exemption: Total, and Rare

The 15-year exemption is the full house: satisfy it and the entire gain is disregarded — no cap, no discount arithmetic, nothing to shelter. For a founder selling shares, section 152-105 broadly requires, on top of the basic conditions:

• Continuous ownership of the shares for 15 years ending just before the sale;
• The company had a significant individual for at least 15 of those years (not necessarily continuously, or the same person); and
• You are 55 or over at the time of the event and it happens in connection with your retirement — which the ATO reads as requiring at least a significant reduction in your working hours or a significant change in your activities — or you’re permanently incapacitated.

Read that against the standard venture path: a raise every 18–24 months, dilution below 20% by Series B, an exit inside a decade, and a founder in their thirties who is contractually locked into an earn-out rather than retiring. Almost every element misfires. The 15-year exemption is not designed for that founder — it’s designed for the bootstrapped founder who held 20%+ for fifteen years and is genuinely stepping back. Where a company sells the underlying business and qualifies under section 152-110, there’s a further prize: the exempt amount can generally be paid out to CGT concession stakeholders tax-free within two years, and stakeholders may be able to contribute proceeds to super under the separate lifetime CGT cap — well above the ordinary contribution caps.

How Founders Actually Access Division 152

• Model eligibility before the raise, not before the exit. Dilution below 20%, dual-entity structures that break the 90% test, and undeployed cash wrecking the 80% ratio are all decisions made years before a sale. If Division 152 is plausibly in your future, check what each round does to it.
• The turnover door is real for pre-revenue exits — but narrow. A low-revenue company acquired for its technology can pass where MNAV fails, and the prize is a concessional exit most advisers assume is unavailable. But on a share sale, a founder who fails MNAV must personally be carrying on a business just before the event to use the turnover limb — genuinely, not cosmetically. Minority founders whose own asset pool sits under $6 million, and structures where the operating business sits at the founder’s level, are where this door actually opens. Get specific advice before planning around it.
• The retirement exemption is the workhorse. A $500,000 lifetime exemption per CGT concession stakeholder — potentially $1 million across a founding couple — is accessible without any 15-year holding, and under-55s simply direct it to super.
• Mind the structure. Holding founder shares through a discretionary trust changes every test — participation percentages depend on distributions, and the stakeholder analysis runs differently. If you’re restructuring into a company under Subdivision 328-G, the ownership clock and active asset history need attention too.
• Get the timing evidence. Turnover, asset values and participation percentages are all tested at or around the CGT event. A defensible valuation and a clean cap table are what turn a theoretical concession into a signed position.
• Watch the proposed startup carve-out. Alongside the 2027 reforms, Treasury is consulting on an Innovative Business CGT Concession — a proposed 50% discount, in place of indexation and the minimum tax, for founders, ESS participants and early investors in eligible innovative startups (broadly: newly issued shares from 1 July 2027 in unlisted companies under ten years old with turnover under $50 million, a five-year holding period and a $10 million lifetime cap). It is a consultation paper, not law — don’t structure around it yet, but don’t make irreversible decisions, like selling short of a qualifying holding period, without checking where it has landed.

The Bottom Line

Division 152 is simultaneously the most generous and the most conditional relief in the CGT system. For the classic venture-backed founder — diluted, cashed-up balance sheet, exit inside ten years — it usually isn’t there, and exit modelling should say so honestly — the proposed startup concession above, if it becomes law, is aimed at exactly that gap. But for bootstrapped founders, pre-revenue technology sales and founding teams who kept 20%, it can take the tax on an exit to something approaching zero — and once the 50% discount becomes indexation from 1 July 2027, it will be the difference between a concessional exit and a full-rate one. The tests are applied at the exit, but they’re passed or failed years earlier. Do the analysis while the structure is still yours to change.

This article is general information only, not legal or tax advice — Division 152 eligibility turns on fine detail in your structure, cap table and numbers, and you should take specific advice before relying on any concession. Viridian Lawyers advises Australian founders and investors on exit structuring and the legal side of tax-effective sales, working alongside your tax adviser. If an exit is on your horizon, get in touch early — the concessions are won or lost years before the term sheet.