What is the maximum net asset value test?

How the test works

The small business CGT concessions in Division 152 of the Income Tax Assessment Act 1997 can reduce or remove a capital gain on an active business asset. One basic condition is a size test, and there are two main ways to meet it: aggregated turnover under $2 million, or the maximum net asset value test. You need only one of them, plus the other conditions, such as the active asset test.

Under the net asset test, you add up the net value of the CGT assets held just before the CGT event by:

• you
• entities connected with you, which broadly means entities that control you, that you control (from about 40%) or that share a controller with you
• your affiliates and entities connected with them, but only their assets used, or held ready for use, in a business run by you or an entity connected with you

Net value means market value less the liabilities related to those assets, and less provisions for annual leave, long service leave, unearned income and tax. The total must not exceed $6 million, and that limit is not indexed for inflation.

What counts and what is left out

The test is not limited to business assets. Investments and cash count too. The ATO says even an interest-earning personal bank account counts, because any income-producing use stops an asset being treated as purely personal. If you are an individual, you leave out:

• shares, units or other interests in an entity connected with you, because that entity's own assets are already counted (liabilities related to those interests still count)
• assets used solely for personal use and enjoyment
• your main residence, except a part used to produce income in a way that would make loan interest deductible (apportioned)
• rights to amounts in a super fund or approved deposit fund
• insurance policies on your life

The first point matters for most owners. If you own the business through a company or trust you control, the test looks through your shares or units and counts the entity's assets instead, including its goodwill, at market value.

Why market value, not book value, decides it

The test uses market value, not the figures in your accounts. Goodwill a business has built itself is often not on the balance sheet at all, and equipment is usually written down for tax. Near the line, that gap can change the answer.

It can work the other way too: a business with thin profits may be worth less than the assets in its books. The ATO may review a market value used in your tax affairs, and the onus of supporting it stays with you. If you are close to the line, Independent Business Valuation can give your adviser a reasoned, documented market value for the business and its goodwill, prepared by a suitably qualified business valuer at Valuo.

The test after 1 July 2027

The four small business CGT concessions continue after 1 July 2027. From the income year that includes 1 July 2027, the turnover threshold for the 50% active asset reduction rises from $2 million to $10 million, while the other concessions keep the existing tests, including the $6 million net asset test.

Timing still matters. The test looks at values just before the CGT event that produces the gain, which for many owners will be a later sale. A valuation as at 30 June 2027 is prepared for the new transitional CGT rules, so it does not by itself show whether you pass this test at a later date. Independent Business Valuation values the business; your tax adviser decides which dates you need and whether you meet the test. If you need more than one date, each additional valuation date is $495 + GST. The fixed fee applies once we confirm the interest, purpose, structure and records fit the fixed-fee scope. Anything outside it is quoted in writing before we start.