What is the CGT retirement exemption?
From 1 July 2026, a member who is eligible to use the bring-forward rule and is also eligible to make a CGT small business retirement- exempt contribution to their super fund could potentially contribute $890,000 as non-concessional contributions without exceeding their contribution cap.
A CGT retirement exemption is part of the overall small business CGT (SBCGT) concessions available when active business assets are sold. There is a lifetime cap on the amount of small business CGT contributions a self-managed superannuation fund (SMSF) can accept on behalf of a member.
A member must be eligible to contribute to a complying superannuation fund to make an SBCGT contribution. Generally, this limits contributions to members under 75. Unlike other member non-concessional contributions, making an SBCGT contribution is not limited by the member’s total super balance as at the previous 30 June.
What is the CGT Retirement Exemption
A CGT retirement exemption allows an individual or an eligible company or trust to disregard capital gains up to a lifetime limit of $500,000. The capital gain relates to the sale of an active asset and can consist of multiple disposals provided the lifetime limit is not exceeded. You must also satisfy one of the basic conditions to be eligible to claim the CGT retirement exemption.
If a member is under 55, a contribution must be made to a complying super fund. Despite the exemption being described as a “retirement exemption”, a member does not need to be retired to qualify. If the member is 55 or over, it is not compulsory to contribute the capital gain to a super fund, but if they meet the eligibility rules, they can elect to do so.
What are the small business CGT concessions?
There are four SBCGT concessions, and they are applied against the capital gain in the following order:
- 15-year CGT exemption – disregards 100% of your capital gain. However, you can elect to contribute up to the lifetime CGT cap amount to your SMSF or another complying fund. It is the proceeds from the disposal of the asset that can be contributed to your fund (not the capital gain amount).
- 50% active asset reduction is applied automatically unless you choose not to use it.
- Retirement Exemption – the disregarded capital gain (not the proceeds) from disposal of the active asset can be made to your SMSF or another complying super fund.
- Small business rollover.
What is an Active Asset?
Very simply, an active asset is one used in the course of carrying on your business. Of course, the definition is more complex than that. Generally, business premises used in your business, a connected entity, or an affiliate can qualify as an active asset. The asset must have been owned by you or an affiliate for at least 50% of the time. An asset, such as a residential holiday property rented to third parties, will generally not be an active asset, as the income is passive rental income and is not actively used in carrying on a business.
Eligibility requirements to claim the CGT retirement exemption
You must satisfy one of the following tests as a basic condition to claim the CGT retirement exemption:
- carrying on a business with an aggregated turnover of less than $2 million
- the asset being sold is used in a closely connected small business
- you are a partner in a partnership, which is a small business entity, where an asset you own is used in the partnership’s business, or the asset is owned by the partnership
- you satisfy the $6million maximum net asset value test
Determining what qualifies as an active asset, whether it was used by you, a connected entity, or an affiliate, and whether you meet one of the basic conditions for eligibility for the SBCGT concessions, is a complex area.
Example from the ATO website – CGT assets to include when calculating total net asset value
Colin operates a newsagency as a sole trader.
Colin’s son, Simon, runs his own florist business, which is unrelated to the newsagency business. Simon owns the land and building where the newsagency is conducted and leases it to Colin.
Simon also owns 100% of the shares in Simco Pty Ltd, which runs a separate business. Simon is connected with Simco Pty Ltd because he controls the company. Simon regularly consults Colin for advice in his business affairs and acts according to Colin’s wishes, which makes Simon Colin’s affiliate.
To determine whether Colin satisfies the maximum net asset value test, he includes the market value of the land and building owned by Simon (because it is used in his newsagency business). He does not include:
- Simon’s other assets used in his florist business (because they’re not used in the newsagency business)
- Simco Pty Ltd’s assets (because those assets are not used in his business and Simco Pty Ltd is only connected because of his affiliate, Simon).
Seek advice from the fund’s tax agent or a legal professional. At SMSF Australia, our team can provide detailed advice and are happy to help you! Just reach out to our friendly team today for a quote to help you to either establish a new SMSF or takeover management of an existing SMSF. Note we do not charge any fees to takeover an existing SMSF from another provider and our SMSF pricing table is transparent on our website.
How do you make a CGT cap election?
The election is a formal election process using the ATO form NAT 71161, Capital Gains Tax Election. The form allows you to use either the small-business retirement exemption or the small-business 15-year exemption amount. The form is not lodged with the ATO but must be retained with the fund’s records.
The election is not compulsory. Making the election excludes the contribution from counting towards a member’s non-concessional contribution cap.
The CGT cap election must be made no later than the time the contribution is made to a member’s fund.
What is the Lifetime CGT Cap?
There are four SBCGT concessions, but only two allow an individual to contribute large amounts to super, namely the small business 15-year exemption and the small business retirement exemption.
These two exemptions are subject to a lifetime CGT cap of $1,865,000 (indexed) for the 2025/26 year. The SBCGT retirement contribution is capped at $500,000 (not indexed) and applies for the member’s lifetime. The retirement contribution forms part of the broader lifetime CGT cap.
Example – SBCGT cap limit
Fred satisfies the conditions to make a SBCGT retirement exemption contribution to his SMSF. An active business asset was sold for $1.2 million on 1 May 2026. Fred had no prior history of having any amounts assessed against his CGT cap. He was not eligible to access the 15-year exemption.
| $ | |
| Proceeds from the sale | 1,200,000 |
| Less: Cost base | (300,000) |
| Capital gain | 900,000 |
| Less: 50% discount (the asset had been held | (450,000) |
| Discounted capital gain | 450,000 |
| Less: 50% active asset reduction | (225,000) |
| Amount subject to SBCGT retirement exemption | 225,000 |
| SBCGT retirement exemption | (225,000) |
| Taxable capital gain | Nil |
*The 50% active asset reduction is not compulsory. If you want to put more money into super, you might want to ignore the 50% asset reduction.
| $ | |
| Lifetime CGT cap prior to 1 May 2026 | 1,865,000 |
| Less: SBCGT retirement exemption used 1 May 2026 | (225,000) |
| Lifetime CGT cap available after 1 May 2026 | 1,640,000 |
Whilst Fred has $1,640,000 of his remaining lifetime CGT cap available, he has only $275,000 ($500,000 – $225,000) available under the SBCGT retirement exemption cap.
The timing of the CGT Retirement contribution matters
The timing of an SBCGT contribution to an SMSF depends on whether the contributor is an individual, a company, or a trust.
Individual contributing
An individual under 55 who chooses to apply the SBCGT retirement exemption must make a CGT contribution to a complying superannuation fund no later than:
- when they make the choice – at the time the CGT cap election is made, which can be after the proceeds are received; or
- when they receive the proceeds from the disposal of the asset.
An individual 55 or over making a voluntary contribution must make it on or before the later of:
- the due date for lodgement of the person’s tax return (in the year the CGT event occurred) – for instance, if the disposal occurred on 10 May 2026 and their tax return was due to be lodged on 15 May 2027, the contribution has to be made on or before 15 May 2027; or
- 30 days after they receive the proceeds from the disposal of the asset.
Hint – Your age is determined at the time you make a choice to elect the CGT retirement exemption. If you are under 55 when the choice is made, you must contribute it to a complying super fund.
Trust or Company contributing
When the individual is under 55, and the trust or company claims an SBCGT retirement exemption, the entity must contribute to a complying super fund on the member’s behalf by the later of:
- 7 days after the entity makes the choice; or
- 7 days after the entity receives the proceeds from the disposal of the active asset
Otherwise, if the individual is 55 or over, they must make a super contribution within 30 days of receiving the qualifying payment from the trust or company.