By Mark Churchmichael – Head of Compliance and Tax.

A large capital gain – from selling a business, property, shares, or an unexpected windfall can be life-changing. It can also trigger a significant tax bill if not managed carefully.

Australia’s tax system offers legitimate ways to reduce, defer, or even eliminate capital gains tax (CGT). The challenge is that many of these strategies are time-sensitive, heavily conditional, and often misunderstood.

Below is a practical guide to the key levers available – and how to think about where your money should go once the gain is managed.

1. Timing and Deferring the Taxing Event

CGT is generally triggered when a contract is signed, not when settlement occurs or cash is received. This timing point is critical.

Deferring the taxing event by even a few weeks can:

• Push the gain into a later financial year
• Allow access to carried-forward capital losses
• Open the door to super contribution strategies

Common deferral strategies include:

• Delaying contract execution
• Using earn-out arrangements (where commercially appropriate)
• Structuring disposals in stages rather than one transaction

Once the contract is signed, most planning opportunities disappear.

2. Using Capital Losses (Realised vs Unrealised)

Capital losses can only offset capital gains, not ordinary income.

• Realised capital losses (from selling loss-making assets) can immediately reduce taxable gains
• Unrealised losses must be crystallised before year-end to be usable

Example: Lisa has a $900,000 capital gain. She realises $200,000 in capital losses that were unrealised Taxable gain reduces to $700,000 before discounts

Loss harvesting is often overlooked – but can be one of the simplest ways to cut tax quickly.

3. Small Business CGT Concessions – Where the Real Savings Are

For business owners, these concessions can be transformational. Used correctly, they can reduce a seven-figure gain to little or no tax.

Eligibility Snapshot

You must satisfy:

• Small business entity test (turnover under $2m), or
• Maximum net asset value test (assets under $6m)

The asset sold must generally be an active asset of the business.

Items that are excluded from the $6m maximum net asset value tests include:

• Your main residence
• Your superannuation balances (including SMSF and pension phase assets)
• Personal use assets such as cars, boats, furniture jewellery and certain artworks (where they are not held in a business or held for profit)
• Certain Pre-CGT assets such as business goodwill, shares and Pre-CGT investment properties.

This is a complex area and professional advise must be sought as personal circumstances vary enormously and can impact eligibility.

The Concessions Briefly Explained

15-Year Exemption

If you:

• Are 55 or older
• Owned the asset for 15+ years
• Are retiring or significantly reducing work

The entire gain may be tax-free

Example: A business sold after 20 years for a $3 million gain CGT payable: $0

Proceeds can also be contributed to super outside normal caps subject to certain restrictions.

50% Active Asset Reduction

Applies after the general CGT discount.

Example: Amanda is 55 years old has a $1,000,000 gain from the sale of her business.

• 50% CGT discount employed leads to a $500,000 taxable amount
• 50% active asset reduction reduces that to a $250,000 taxable amount

Retirement Exemption (Up to $500,000 per person)

Allows capital gains to be disregarded up to a lifetime limit:

• Under 55: must contribute to super
• Over 55: contribution optional

This exemption is often used to eliminate the final taxable amount. In Amanda’s example the $250,000 gain above could then be contributed and claimed as a tax deduction.

Small Business Rollover

Defers CGT by reinvesting in a replacement active asset. Tax is postponed, not removed. Care must be taken to ensure that any replacement asset is a sound financial proposition and not merely a tax deferral.

4. Maximising Superannuation – Within Strict Limits

Super remains one of the most tax-effective environments – but contribution caps matter.

Concessional Contributions

• $30,000 per year as a tax-deductible amount
• Taxed at 15% within super.
• Unused caps may be carried forward (if balance < $500k)

Non-Concessional Contributions

• $120,000 annual cap
• Up to $360,000 using bring-forward rules subject to strict eligibility.
• Only available if total super balance is below threshold

Once triggered, no further non-concessional contributions are allowed until the bring-forward period expires. Extreme care must be taken with concessional contributions, and you should always consult your adviser first.

CGT Retirement Exemption Contributions

• Do not count toward standard caps
• Subject to strict timing and paperwork rules
• Extremely powerful when coordinated properly

Excess Super Balance Considerations

Balances above the transfer balance cap which is $2 million in 2025-26 attract:

• Additional tax on earnings, or
• Forced withdrawals

Super is powerful – but not unlimited.

5. Division 7A Loans — Clean Them Up Before You Celebrate

If you’ve borrowed from your company, unpaid Division 7A loans can turn into unfranked dividends – fully taxable at up to 47%.

Windfall gains are often the ideal time to:

• Repay loans and stop additional interest from causing more tax debts in your company
• Reset balance sheets and clear old loans coming close to the 7-year repayment limit
• Avoid unexpected personal tax exposure with large and unexpected dividends adding to your capital gains tax bill.

6. Where to Park the Money Once Super Is Maxed Out

Once contribution limits are reached, capital needs a second home – one that doesn’t recreate a top-rate tax problem.

Family Trust

• Income streaming flexibility to beneficiaries on lower marginal tax rates
• 50% CGT discount to eligible beneficiaries
• Are favourable for intergenerational and estate planning
• Can distribute to bucket companies.

Investment (Bucket) Company

• Flat tax rate of between 25–30%
• Allows profits to compound at a lower tax rate than 47%
• Dividends can be timed strategically
• The cash or funds must be maintained in the company to avoid unwanted tax implications.

Paying Down Non-Deductible Debt

• This is typically the mortgage or a family home but may be a boat or car loan.
• Often equivalent to earning 7–8% pre-tax

Real-World Allocation Example

After CGT planning and paying any taxes, John has net proceeds of $1.5 million from a windfall gain. He can consider the following:

• $360,000 invested as non-concessional super
• $30,000 concessional super (plus carry-forward if eligible)
• $400,000 invested via family trust
• $500,000 to repay non-deductible family home loan
• $210,000 retained in investment company

Often there is no single solution but a combination of actions to maximise tax efficiency.

Final Thought

Windfall gains don’t happen often. The tax planning window is usually short – and once it closes, it rarely reopens.

The most effective outcomes come from coordinating CGT rules, super limits, and asset structures before contracts are signed.

This isn’t about aggressive tax. It’s about making deliberate, informed decisions, and keeping more of what you’ve worked hard to build.

Did you find these insights valuable? Follow Stewart & Smith Advisory for more expert guidance on navigating the complexities of business finance.