For most property developers, the small business Capital Gains Tax (CGT) concessions do not apply at all, and the reason catches people out. The four concessions in Division 152 of the Income Tax Assessment Act 1997 (ITAA 1997) only ever reduce a capital gain. Most development profit is not a capital gain. When you buy land to develop and sell, the Australian Taxation Office (ATO) generally treats that land as trading stock, so the profit is ordinary income on revenue account, and there is no capital gain for a concession to attach to. That is the first gate, and it stops the majority of developments before the concessions are even in play.
There is a second gate. Even where a genuine capital gain does arise, the asset has to pass the active asset test, and land you are actively developing usually fails it. Land held for future construction is not “held ready for use” in a business, subdivided vacant land is expressly excluded, and property whose main use is to derive rent is out too. So a build to sell fails on the first gate, and a build to hold and rent tends to fail on the second.
This guide is written for the developer trying to work out which side of those lines a project sits on, and where the concessions can still save real tax. It covers the four concessions and what each is worth, the two gates that knock most developments out, the specific holding structures that can still qualify, the $6 million net asset and turnover tests, and what the 1 July 2027 Capital Gains Tax (CGT) reforms change. The rules here are Commonwealth rules, so they apply the same in every state and territory, which is covered near the end along with the New Zealand position. None of this is tax advice; eligibility turns on your facts, so use it to frame the questions you take to your adviser and confirm against a current primary source.
Can a property developer use the small business Capital Gains Tax (CGT) concessions?
Usually not, but sometimes yes, and the difference is worth a lot of tax. The concessions are generous. Between them they can reduce a capital gain by 50%, then by another 50%, then wipe up to $500,000 more, or in the right circumstances disregard the whole gain. The problem for developers is not the size of the relief, it is getting through the door.
Two questions decide it, in order:
- Do you have a capital gain at all, or is your profit taxed as ordinary income because the land is trading stock? If it is trading stock, the concessions cannot apply, because there is no capital gain to reduce.
- If you do have a capital gain, is the asset an active asset used in a business, and are you a small business by the turnover or net asset test? Land under development, vacant subdivided lots, and rent-producing property generally fail the active asset test.
A build to sell project answers “no” to the first question, so the concessions are off the table. A passive land bank or a rental block answers “no” to the second. The developer who can qualify is usually one holding an asset that was genuinely used in a business, on capital account, for years, which is a narrower set of facts than most people assume. The rest of this guide works through both gates and then the structures that get through them. Because the income-versus-capital question is the whole ballgame, it is worth reading alongside the detail in our guide to Capital Gains Tax on property development.
The four small business Capital Gains Tax (CGT) concessions, and what each is worth
There are four concessions, and you can stack more than one on the same gain. The Australian Taxation Office (ATO) overview of the small business Capital Gains Tax (CGT) concessions sets them out, and they apply in a set order.
The 15-year exemption (Subdivision 152-B) is the big one. If you have continuously owned an active asset for at least 15 years, and you are 55 or older and retiring, or permanently incapacitated, you may disregard the entire capital gain. Nothing is taxed. If this one applies, you do not need to touch the others.
The 50% active asset reduction (Subdivision 152-C) reduces the remaining capital gain on an active asset by half. For an individual or a trust that already qualifies for the general 50% Capital Gains Tax (CGT) discount, this sits on top, so the two together can reduce a gain by 75% before any further concession. The Australian Taxation Office (ATO) eligibility overview confirms this reduction applies automatically once the basic conditions are met, unless you choose otherwise.
The retirement exemption (Subdivision 152-D) lets you disregard a further capital gain up to a lifetime limit of $500,000 per individual, as set out on the Australian Taxation Office (ATO) retirement exemption page. You do not actually have to retire. If you are under 55, the exempt amount has to be paid into superannuation. If you are 55 or older, it can be taken in cash.
The small business rollover (Subdivision 152-E) lets you defer a capital gain by acquiring a replacement active asset, or improving an existing one, generally in the window from one year before to two years after the sale. It buys time rather than forgiving the gain, and the deferred gain can come back if the replacement conditions are not met.
The order matters, and the Australian Taxation Office (ATO) sets it out: apply the 15-year exemption first (and if it applies, stop), then offset capital losses, then the general Capital Gains Tax (CGT) discount, then the 50% active asset reduction, then the retirement exemption or rollover. Worked through on a $100,000 capital gain for an individual who has held an active asset more than 12 months, the discount takes it to $50,000, the active asset reduction takes it to $25,000, and the retirement exemption can disregard that last $25,000. The gain is taxed at zero. That is the prize, and it explains why the eligibility questions are worth taking seriously.
Why most developments fail before they start
Two features of ordinary development activity knock most projects out. Neither is about the size of your business. They are about the character of the profit and the character of the asset.
Your profit is trading stock, so there is no capital gain to reduce
When you buy land intending to develop and sell it, and you commence the development, that land is generally trading stock, and any profit is ordinary income on revenue account rather than a capital gain. Any capital gain or loss on an asset held as trading stock is disregarded under section 118-25 of the Income Tax Assessment Act 1997 (ITAA 1997). No capital gain means nothing for the small business Capital Gains Tax (CGT) concessions to reduce, because every one of them operates on a capital gain.
The Australian Taxation Office (ATO) makes the point directly. In its summary of how the income-versus-capital difference affects your tax, it states that where property is held as trading stock, the Capital Gains Tax (CGT) provisions do not apply, and the Capital Gains Tax (CGT) discount, the small business Capital Gains Tax (CGT) concessions and the main residence exemption do not apply to any profit from those properties. This is the single most common reason a developer cannot use these concessions. If your feasibility assumes the concessions will shelter your development profit, and the profit is on revenue account, the assumption is wrong and it can overstate your after-tax return by a wide margin. The detail of how and when land becomes trading stock, and the factors the Australian Taxation Office (ATO) weighs, sits in our Capital Gains Tax on property development guide and our guide to income tax on development profit.
Land you are developing is not an “active asset”
Even if you could somehow argue a capital gain, development land tends to fail the active asset test. An asset is an active asset if you use it, or hold it ready for use, in carrying on a business. The Australian Taxation Office (ATO) active asset test guidance is blunt about land that is being developed: “premises still under construction, or land on which you intend to construct business premises, cannot be said to be ‘held ready for use’ and would, therefore, not be active assets at that time”.
The same guidance lists subdivided vacant land among the assets that cannot be active assets. In the Australian Taxation Office (ATO) example, an owner who subdivides and sells blocks that were never used in a business finds those blocks are not active assets, so no concession is available on them. For a developer, that describes a large share of what gets sold. Land in the middle of a development, and freshly created vacant lots, are typically the two things you are disposing of, and both tend to fall outside the active asset definition.
Rent kills it too, so build to hold and rent usually fails
If your plan is to build and hold as a residential rental, the active asset test tends to defeat you from the other direction. An asset whose main use is to derive rent generally cannot be an active asset, even if it is used in a business. The Australian Taxation Office (ATO) active asset guidance turns on whether the occupant has a right to exclusive possession. In its example, an operator renting out properties on a short-stay platform, where tenants have exclusive possession and receive no real services, is deriving rent, and the properties are not active assets.
So the standard developer outcomes both miss. Build to sell fails the first gate because the profit is not a capital gain. Build to hold and rent fails the second gate because the property’s main use is to derive rent. The concessions live in the narrower space between those two, which the next section maps out.
Where a developer can still qualify
There is a real space where the concessions can apply. It generally requires a genuine capital gain (not trading stock profit) on an asset that was actively used in a business (not merely rented, and not sitting mid-development). Four fact patterns tend to fit, and each depends heavily on the specifics, so treat these as starting points to test with your adviser rather than settled conclusions.
Land or premises used in your own business, held on capital account
The cleanest case is property you have used in a genuine business, held as a capital asset. Business premises you own and operate from, a yard, a workshop, or land used in a farming or other active business, can be active assets, because they are used in carrying on a business rather than held to derive rent. In the Australian Taxation Office (ATO) florist example, a shop owned for eight years and used in the business for five still passed the active asset test on sale, because it was an active asset for more than half the ownership period.
The catch for developers is the capital account requirement. This route works where the gain is a capital gain, which usually means the land was held and used, not acquired and developed for resale. A landholder who has run a business on the land for years, and then realises it, may be on capital account for the underlying land value. The development uplift, if the land is worked up for sale, can be a different story and may be taxed as income. Our Capital Gains Tax on property development guide works through that split and the Capital Gains Tax (CGT) event K4 election that landholder-developers often face.
Build to hold and operate, where you provide services rather than just rent
If you build to hold and run an operating business from the property, rather than simply letting it, the active asset test can be met. The distinction is services and control, not the building type. The Australian Taxation Office (ATO) motel example is the model: a motel is an active asset because its main use is not to derive rent. Guests do not get exclusive possession, they get a right to occupy a room under conditions, and the business provides cleaning, breakfast, laundry and other services.
For a developer weighing what to build, this is the practical lever. Serviced apartments, a boutique accommodation building, a caravan or holiday park, student accommodation with genuine services, or a similar operating model can look active in a way a block of long-lease residential units does not. Whether any given scheme qualifies depends on the degree of control retained, the length of stay, and the extent of services, so it is fact-specific and worth confirming before you rely on it. The point for feasibility is that the choice between “let it” and “operate it” can change not only the income profile but also whether a later sale is eligible for these concessions. This is a genuine build-and-hold decision, and it interacts with depreciation too, which we cover in the Division 43 depreciation guide for build-to-hold developers.
Land owned by one entity and used by your connected trading entity
A common structure holds the land in one entity and runs the business in another. The concessions can still reach the land. The Australian Taxation Office (ATO) active asset guidance confirms that an asset leased to a connected entity or affiliate for use in its business may still be an active asset, because it is the use of the asset in that entity’s business that determines its status. The passively-held assets rules let an owner who is not carrying on a business themselves still qualify, where the asset is used in the business of an affiliate or connected entity.
Mixed use is judged on the facts. In the Australian Taxation Office (ATO) example, an owner uses 45% of a parcel for a repair business and leases the rest to third parties, but because the business portion generates 80% of the income, the land’s main use is not to derive rent, so it is an active asset. For a developer who ends up holding a completed asset used by a related operating business, this can be the difference between qualifying and not. Where the land is leased to genuine third parties for rent, though, that use is passive and counts against active asset status.
Selling the development entity itself, through shares or units
If you sell the company or trust that runs the development business, rather than the land, the shares or units can be active assets, but only if they pass extra conditions. They have to meet the 80% test and the Capital Gains Tax (CGT) concession stakeholder conditions. Broadly, at least 80% of the entity’s assets by market value have to be active assets or business-connected cash and financial instruments, and there has to be a significant individual holding at least 20%.
This is where developers should be most careful. Whether development land held as trading stock counts as an active asset for the 80% test, and whether a share sale produces a capital gain rather than being recharacterised, are technical questions that turn on the facts and on how the entity has operated. It can work, and it is a legitimate part of exit planning, but it is not a default, and the interaction with the trading stock rules means it needs specific advice before you build a strategy around it.
First you have to be a “small business”: the $6 million and turnover tests
Before any of the four concessions, you have to clear the basic eligibility conditions, and the first of them is a size test. The Australian Taxation Office (ATO) eligibility overview requires you to meet one of a handful of entry conditions, and then to pass the active asset test.
The two main entry doors are the turnover test and the net asset test. You qualify if you are a Capital Gains Tax (CGT) small business entity with aggregated turnover under $2 million, or if you satisfy the Maximum Net Asset Value (MNAV) test. Under the Maximum Net Asset Value (MNAV) test, the net value of the Capital Gains Tax (CGT) assets of you, your affiliates, and entities connected with you must not exceed $6 million just before the Capital Gains Tax (CGT) event. The Australian Taxation Office (ATO) notes the $6 million limit is not indexed, so it does not creep up with inflation.
What counts, and what does not, matters for developers who tend to hold assets across several entities. The net asset test aggregates connected entities and affiliates, so a family or group that controls multiple entities counts them together. On the other side, the Australian Taxation Office (ATO) excludes your main residence to the extent it is used privately, your superannuation, personal use assets, and life insurance policies. A developer with a modest turnover but a large balance sheet can easily breach the $6 million ceiling once connected entities are added up, which is a frequent reason otherwise eligible sales miss out.
One change to note but not overstate. The turnover threshold for the 50% active asset reduction alone rises from $2 million to $10 million from 1 July 2027, aligning it with the instant asset write-off threshold. This is now law, in the Treasury Laws Amendment (Tax Reform No. 1) Act 2026, which received assent on 26 June 2026. The Treasury small business explainer and the Prime Minister’s announcement confirm the other three concessions keep the $2 million turnover test, and the $6 million net asset test is unchanged. The increase takes effect from 1 July 2027, so confirm it applies to your year of sale.
What the concessions are actually worth: a worked example
The relief can be large enough to change whether a hold-and-sell strategy stacks up, so it helps to see it on real numbers. Take a developer who builds a small serviced-apartment building, operates it as a genuine accommodation business with services and no exclusive possession, so the property is an active asset, and later sells at a $1,000,000 capital gain on capital account. Assume the group passes the $6 million Maximum Net Asset Value (MNAV) test. These figures are illustrative, and your own position depends on your facts, so treat them as a model rather than a promise.
Held for at least 15 years, with the owner 55 or older and retiring, the 15-year exemption in Subdivision 152-B can disregard the entire $1,000,000 gain, and up to the Capital Gains Tax (CGT) cap amount, which is $1,865,000 for 2025-26, may be contributed to superannuation without counting against the non-concessional contributions cap. Held for less than 15 years, an individual could apply the general 50% Capital Gains Tax (CGT) discount to reach $500,000, then the 50% active asset reduction to reach $250,000, then the retirement exemption to disregard the remaining $250,000, which lands the taxable gain at zero (with the exempt amount paid to superannuation if under 55). Compare that with the same $1,000,000 earned on a build to sell, taxed as ordinary income with no discount and no concessions, where the full $1,000,000 is assessable. At the top marginal rate the difference is real money, and it is the kind of number that decides a deal.
This is where modelling the two schemes side by side earns its keep. A feasibility model won’t work out your Division 152 position, that is a job for your tax adviser, but in a tool like Feasly you can build the build-to-sell scheme and the build-to-hold-and-operate scheme as separate scenarios and compare their pre-tax margin, Internal Rate of Return (IRR) and Residual Land Value (RLV) before you layer the tax treatment over the top. Seeing the pre-tax returns clearly is what lets you judge whether the concessional exit is worth the years of holding and operating it requires.
How entity choice changes the answer
The entity that owns the asset changes which parts of the relief you get, so it is worth setting against your structure. This sits alongside the wider structuring question of company versus trust versus special purpose vehicle, which turns on more than these concessions alone.
An individual or a trust gets the most out of the stack, because both can use the general 50% Capital Gains Tax (CGT) discount, then the 50% active asset reduction on top, then the retirement exemption. That is the 75%-plus reduction shown above. A trust also has to identify a significant individual and a Capital Gains Tax (CGT) concession stakeholder to access the retirement and 15-year concessions, so the distribution pattern matters.
A company is different. A company never gets the general 50% Capital Gains Tax (CGT) discount, so the income-versus-capital distinction changes its outcome less than it changes an individual’s. A company can still use the 50% active asset reduction, the retirement exemption and the 15-year exemption, but to pay out a retirement exemption amount it must make a payment to a Capital Gains Tax (CGT) concession stakeholder. Helpfully, the Australian Taxation Office (ATO) confirms that Division 7A of the Income Tax Assessment Act 1936 does not treat those retirement exemption payments as deemed dividends, which removes one common trap. For developers choosing between holding an operating asset in a company or a trust, the loss of the general discount in a company is often the deciding factor.
What the 1 July 2027 Capital Gains Tax (CGT) reforms change
The four concessions survive the 2026-27 reform round, so the framework in this guide holds, with two changes to factor in. The Treasury small business explainer confirms the four small business Capital Gains Tax (CGT) concessions are staying.
The first change is the turnover threshold increase for the 50% active asset reduction, from $2 million to $10 million from 1 July 2027, covered above. It widens access to that one concession without touching the net asset test or the other three.
The second is broader and affects the capital side generally. From 1 July 2027, the flat 50% Capital Gains Tax (CGT) discount is replaced, under the same Act, by a discount for inflation, with cost bases indexed from that date, plus a 30% minimum tax rate on real gains. The change is prospective, so value built up before 1 July 2027 keeps the old 50% discount rule whenever you sell. For a developer holding an operating asset on capital account for the long term, this changes the arithmetic of a future sale, and it interacts with the small business concessions that sit on top of the discount. Separately, a proposed 30% minimum tax on discretionary trust income from 1 July 2028, with exemptions for primary production and other categories, is worth checking if you hold through a discretionary trust. Unlike the measures above, it is not yet law: it was at Treasury consultation stage at the time of writing, so treat its detail as subject to change.
States, territories and New Zealand: where this applies
The small business Capital Gains Tax (CGT) concessions are Commonwealth concessions, so they apply the same way in every Australian state and territory. Division 152 of the Income Tax Assessment Act 1997 (ITAA 1997) is federal law administered by the Australian Taxation Office (ATO), and there is no New South Wales, Victorian, Queensland, South Australian, Western Australian, Tasmanian, Australian Capital Territory or Northern Territory variation to the concessions themselves. That is a rare simplification in property tax, where so much varies by jurisdiction.
What does vary by state is the taxes that sit alongside a development, principally transfer duty (stamp duty) and land tax, which are levied by each state and territory revenue office and are not affected by whether you access these Capital Gains Tax (CGT) concessions. Keep those as separate cost lines in your feasibility. They interact with your holding period and structure, but they do not change your Division 152 position.
New Zealand is different again, and the honest answer is that these concessions have no New Zealand equivalent, because New Zealand has no general Capital Gains Tax (CGT). New Zealand developers do not face a small business Capital Gains Tax (CGT) concessions question in the Australian sense. The nearest thing is the bright-line test, a limited form of property gain taxation with its own rules and timeframes, which we cover in the New Zealand bright-line test guide for developers. If you develop on both sides of the Tasman, do not carry the Australian concessions across, because they do not apply there.
Bringing it back to your feasibility
Start by settling the character of your profit, because that decides everything else. If you are building to sell, assume the small business Capital Gains Tax (CGT) concessions will not shelter your development profit, because that profit is almost certainly trading stock on revenue account, and model your after-tax return on that basis. Pencilling in the 50% discount or the concessions on a build to sell is the most common way a developer’s after-tax margin gets overstated.
If you are weighing a build to hold and operate, or you hold an asset genuinely used in a business, the door can open, but the eligibility turns on detail. You need a capital gain rather than trading stock profit, an active asset rather than a rent-producing one, and you need to clear the $6 million net asset or turnover test across your connected entities. Those are questions to put to your tax adviser early, because the answer can change what you choose to build and how long you plan to hold it.
For the numbers themselves, model the alternatives before the tax treatment decides them. Building a build-to-sell scenario and a build-to-hold-and-operate scenario side by side, and comparing their margins, Internal Rate of Return (IRR) and Residual Land Value (RLV), tells you what each path is worth before tax, which is the base you then apply the concessions to. The concessions can be worth hundreds of thousands of dollars on the right facts, so it is worth knowing early whether your project can reach them, and getting Division 152 advice before you count on it.
This guide is general information for property developers, not legal, tax, or financial advice. Rates, thresholds and rules change and depend on your circumstances and structure. Confirm the current position with the Australian Taxation Office (ATO) and your own tax and legal advisers before you rely on any figure here.