Succession Planning for Australian SMEs
CGT on death, Division 152 small business concessions in estates, superannuation death benefit tax, buy-sell agreements, trust deed succession, and key person insurance structures.
Australia has no inheritance or estate tax, but CGT on latent gains and superannuation death benefit tax (up to 32% on the taxable component for non-dependant adult children) create significant exposures in SME succession. Division 128 defers CGT at death without forgiving it. Division 152 small business CGT concessions can eliminate or reduce the gain entirely, provided the estate sells or restructures active assets within two years of death and all conditions are met.
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Guidance, not advice. We explain the rules, we don't assess your situation. Always seek financial or tax advice from your accountant, or contact ATO. Read our editorial scope →
CGT on death: Division 128 deferral (not forgiveness)
On death, business and investment assets pass to the legal personal representative or directly to beneficiaries. This is technically a disposal, but Division 128 disregards any capital gain or loss at the time of death. The beneficiary inherits the deceased's cost base. The latent gain is preserved and deferred until the beneficiary eventually sells the asset.
Division 152 small business CGT concessions in succession
Division 152 provides four concessions for active business assets. In an estate context, the legal personal representative or beneficiary can access these concessions where the deceased would have qualified had they disposed of the asset immediately before death, provided the asset is sold or restructured within two years of death.
15-year exemption
Completely eliminates CGT where the deceased owned an active asset for at least 15 years and met the basic conditions. The most valuable concession available, converting decades of latent gains into a tax-free outcome.
Retirement exemption
Up to $500,000 lifetime cap of capital gains on active assets disregarded. Available to estates where the LPR, beneficiary, or testamentary trustee disposes within two years of death.
Small business rollover
Permits deferral for at least two years (longer if replacement active assets are acquired). Useful where the estate needs time to restructure rather than sell outright.
Superannuation death benefit tax
Super sits outside the estate unless paid to the legal personal representative. For SME owners with large balances and adult children, the effective 17% to 32% drag on the taxable component of inherited super drives a critical planning decision: withdraw efficiently before death, or accept the death benefit tax.
Buy-sell agreements and insurance structures
Co-owners enter buy-sell agreements that, on death, disability, or retirement, force a transfer of equity at a pre-agreed valuation. The agreement is typically funded by insurance. The tax overlay is critical: ensure the ultimate sale can qualify for Division 152 concessions and that the agreement does not destroy active-asset status or significant-individual tests.
Insurance ownership structures
Self-ownership: each owner insures their own life and assigns proceeds under the buy-sell agreement. Cross-ownership: each owner holds policies on the other owners. Entity ownership: the company or trust owns the policies. Each structure has different CGT, income tax, and control implications when a partner dies. The choice must account for Division 152 eligibility and share valuation.
Key person insurance
Protects the business against loss of profits or increased costs on death or disability of a critical person. Proceeds are generally assessable as income if premiums were deductible (revenue purpose). Where the policy protects capital value, proceeds may sit on capital account, but premiums are likely non-deductible.
Family trust and company succession strategies
Changing the trustee of a discretionary family trust can generally be done without a CGT event, provided there is no change in beneficial ownership. This allows control to transfer between generations through appointment and removal of trustees and changes to appointor roles. For company structures, succession typically occurs through share transfers rather than asset transfers, which can trigger CGT for the seller and, in some states, stamp duty on significant shareholdings in land-rich entities.
Worked example: plumber selling business through estate
Doug, a sole trader plumber in Geelong, dies in 2025-26 having owned his business for 18 years. His business assets (goodwill and equipment) have a combined market value of $650,000 with a cost base of $80,000. His daughter Tessa, the sole beneficiary, is an independent adult.
Statute references
- ITAA 1997 Division 128 (CGT on death, disregard of gain, cost base rules)
- ITAA 1997 Division 152 (small business CGT concessions: 15-year, active asset, retirement, rollover)
- ITAA 1936 s 27H (superannuation death benefits tax treatment)
- SIS Act 1993 (binding death benefit nominations, trustee obligations)
Frequently asked questions
Is there an inheritance tax in Australia?+
How does the 15-year exemption work in an estate context?+
What is a binding death benefit nomination and why does it matter?+
Can a family trust change trustees without triggering CGT?+
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