Business succession planning is working out who will own and run your business after you, how ownership will pass to them, and which tax steps need to happen first. For most owners the biggest tax item is capital gains tax (CGT), and the small business CGT concessions can cut a large gain right down, sometimes to nil, if the tests are met.

The other issues that often change the price or the timing are Division 7A loans in a private company, the CGT changes that start on 1 July 2027, and what happens if an owner dies or loses capacity before the handover.

This guide covers the tax side of a sale, a family transfer or a retirement exit, with a worked example and current figures checked against ATO sources.

Business succession planning at a glance

Rule	What it means (2026-27)
Small business test	Aggregated turnover under $2 million, or net CGT assets of $6 million or less
Active asset test	Asset used in the business for at least 7.5 years if owned more than 15 years, or half the ownership period if owned 15 years or less
15-year exemption	Owned 15 years, owner 55+ and retiring, or permanently incapacitated. The whole gain is disregarded
50% active asset reduction	Halves the gain after the CGT discount. The turnover threshold for this concession rises from $2 million to $10 million from 1 July 2027
Retirement exemption	Up to $500,000 over your lifetime. Under 55, the amount goes into super
Roll-over	Defers the gain if you acquire a replacement active asset, generally from 1 year before to 2 years after the sale
CGT cap amount (super)	$1,935,000 for 2026-27
Owner dies	The concessions can still apply if the asset is sold within 2 years of death (the Commissioner can extend this)

The table shows the main tests. Each concession has extra conditions, so treat it as a checklist for a conversation with your adviser rather than a final answer.

What is business succession planning and who needs it?

Every business owner exits at some point. The common routes are:

• retiring and selling to an outside buyer
• passing the business to family
• selling to staff or a business partner
• an unplanned exit after death or loss of capacity

Each route has a different tax result. A sale to a buyer triggers CGT on the business assets or shares. A family transfer is still a disposal for CGT purposes, even if no money changes hands. An unplanned exit leaves your executor or attorney to make decisions under time pressure.

Who owns each asset matters as much as the route. A sole trader owns the assets directly. In a company or trust, the owner may hold shares or units, while the premises sit in their own name or in a separate entity. If you are still choosing a structure, our guide to trust vs company in Australia explains the trade-offs.

Which CGT concessions could apply when you sell or hand over the business?

Before any of the four concessions apply, you need to pass the basic conditions in the ATO small business CGT concessions rules:

• Size: you are a CGT small business entity with aggregated turnover under $2 million, or you pass the maximum net asset value test of $6 million. That test counts assets of connected entities and affiliates, and is measured just before the sale.
• Active asset: the asset passes the active asset test, meaning it was used in a business for at least 7.5 years (if owned more than 15 years) or half the ownership period (if owned 15 years or less).
• Shares or units: if you are selling shares in a company or units in a trust, extra tests apply, including having a significant individual with at least a 20% interest.

If you pass, the four concessions are:

1. 15-year exemption: the whole gain is disregarded if you owned the asset continuously for 15 years and you are 55 or older and retiring, or permanently incapacitated.
2. 50% active asset reduction: halves the remaining gain, after any capital losses and the CGT discount.
3. Retirement exemption: disregards up to $500,000 over your lifetime. If you are under 55, the exempt amount must be paid into a complying super fund or RSA.
4. Roll-over: defers the gain if you acquire a replacement active asset or improve an existing one within the replacement asset period.

The order matters. The 15-year exemption is applied first. Otherwise, capital losses and the CGT discount come first, then the 50% active asset reduction, then the retirement exemption or roll-over. For a wider view of the concessions available to smaller businesses, see our guide to small business tax concessions.

How do the concessions work in dollars?

Here is a simplified example. It ignores selling costs and assumes every other condition is met.

The facts

• Sam owns a workshop unit in his own name. His plumbing company, which he owns and runs, has used it for the whole time he has owned it.
• He bought the unit 16 years ago for $200,000. It is now worth $1,000,000.
• The company and Sam together have aggregated turnover under $2 million.
• Sam sells the unit to the new owner of the business in 2026-27, before 1 July 2027.
• Capital gain: $1,000,000 – $200,000 = $800,000.

Option 1: Sam is 58 and retiring

Sam has owned the unit for more than 15 years, it has been active for all 16 years (well over the 7.5 years needed), and he is over 55 and retiring. The 15-year exemption applies first.

• Capital gain: $800,000
• 15-year exemption: – $800,000
• Taxable capital gain: $0

Sam may also be able to contribute up to the CGT cap amount of $1,935,000 (2026-27) to super without it counting towards his non-concessional cap, if he makes a CGT cap election with his fund. His $1,000,000 of proceeds fits under that cap. See the ATO contributions caps page and our guide to super contribution caps.

Option 2: Sam is 52 and moving on

At 52 and not permanently incapacitated, Sam cannot use the 15-year exemption. The other concessions apply in order:

• Capital gain: $800,000
• 50% CGT discount (owned more than 12 months): $800,000 x 50% = $400,000
• 50% active asset reduction: $400,000 x 50% = $200,000
• Retirement exemption: – $200,000 (well inside the $500,000 lifetime limit)
• Taxable capital gain: $0

Because Sam is under 55, the $200,000 exempt amount must be paid into a complying super fund or RSA. He has $300,000 of his lifetime limit left ($500,000 – $200,000). If he would rather keep working capital, he could look at the roll-over instead and buy a replacement active asset within the replacement asset period.

What if Sam waits until after 1 July 2027?

The CGT reform is now law. For CGT events from 1 July 2027, individuals, trusts and partnerships move from the 50% discount to cost base indexation and a 30% minimum tax on capital gains. According to the Treasury small business explainer, the four small business concessions stay, and value built up before 1 July 2027 keeps the 50% discount whenever the asset is sold. The turnover threshold for the 50% active asset reduction also rises from $2 million to $10 million from that date.

So if Sam sells after 1 July 2027, the part of the gain built up before that date is worked out under the old rules and the later growth under the new rules. Run both versions before choosing a date. Our article on capital gains tax changes in Australia explains the new rules, and you can test simple numbers with our CGT calculator.

Which other tax issues can change the price or timing?

Division 7A loans

If your private company has lent money to you or a family member, deal with it before the shares or business change hands. Under the Division 7A loan rules, a loan that is not repaid, or put under a complying written agreement, by the company’s lodgment day for that year can be treated as an assessable dividend.

• A complying loan can run for up to 7 years, or up to 25 years if it is fully secured by a registered mortgage over real property worth at least 110% of the loan.
• The benchmark interest rate is 8.77% for the 2026-27 income year.
• A buyer will usually want these balances cleared, so they often affect the sale price.

Our guide to Division 7A private company loans covers repayments and minimum yearly payments in more detail.

Buy-sell insurance and stamp duty

Business partners often fund a buy-sell agreement with life and TPD insurance, so the remaining owners can buy out a partner who dies or becomes disabled. How the tax works depends on who owns each policy and who receives the money, so settle this with your adviser when the agreement is drawn up.

Stamp duty on transferring land and some business assets is a state tax, and the rules differ between states. In Victoria, check the State Revenue Office Victoria before you set the transfer price and date.

What happens if an owner dies or loses capacity?

Under section 128-10 of the tax law, a capital gain or loss when you die is generally disregarded, and the asset passes to your executor or beneficiaries. There are exceptions, for example where the beneficiary is a foreign resident, a tax-exempt entity or a super fund trustee.

The small business concessions can still help your family. Under section 152-80, your executor or a beneficiary can use them if the asset is sold within 2 years of your death and you would have qualified just before you died. The Commissioner can extend the 2 years.

Tax is only half the problem. If you are the sole director, someone needs legal authority to run the company, pay staff and lodge BAS while the estate is sorted out. Keep these documents together and up to date:

• a current will, with executor details
• an enduring power of attorney
• a shareholder, unit holder or partnership agreement that matches the will
• the trust deed, if a trust owns the business
• any buy-sell agreement and the insurance that funds it
• purchase records, valuations and roll-over history for each asset

If your business sits in a family trust, our family trust guide explains how control passes to the next generation, and our deceased estate tax return guide covers what the executor must lodge.

What steps should you follow to build a succession plan?

1. Choose the route and a target date. Sale, family transfer or sale to staff, and roughly when.
2. Map who owns what. List each asset, which entity holds it and when it was bought.
3. Test the CGT concessions on today’s numbers. Check turnover, net assets, active asset use, ages and the 1 July 2027 change.
4. Clean up the company and trust. Clear Division 7A loans, review trust distributions and get records in order.
5. Put the documents in place and review them each year. Will, power of attorney, owner agreements and insurance.

What are the common mistakes in business succession planning?

• Leaving it until a buyer is ready to sign, when the tests can no longer be fixed.
• Assuming a family transfer has no tax because no money changes hands.
• Forgetting that the $6 million test includes assets of connected entities and affiliates.
• Missing that under-55s must put the retirement exemption amount into super.
• Leaving Division 7A loans open until settlement.
• Naming an heir in the will without giving anyone authority to run the company.

Frequently asked questions

Talk to a registered tax agent

Planning to sell, retire or hand the business to family? Speak with a registered tax agent at Nanak Accountants & Associates on 1300 626 258, or book a consultation with our team. We help owners with business advisory and succession planning, and with company tax and accounting across Australia.

This article is general information only and is not personal financial or tax advice. Information checked against ATO, ATO legal database, Treasury and Parliament of Australia sources on 26 October 2026.