The government recognises that many small business owners regard their business as their retirement fund, they want to build up the goodwill and book value of the business over time so when they retire this can be sold, and they can use that instead of a superannuation account.

Provided the sale meets the specified criteria (which I won't go into here, suggesting you go see a good accountant if you feel this may apply to you), up to $500,000 of any capital gain received on the sale of active assets of a small business sold after 1 July 1997 can be exempted from capital gains tax and may become eligible to be a CGT Exempt Component.

In order to qualify, the taxpayer must be either an individual, private company or trust (not a listed company or trust) and the net assets of the disposing taxpayer (plus assets of certain connected entities and affiliates) must be less than $5,000,000.

If you cash out your CGT Exempt Component, the component is tax free. If you don't qualify for the exemption, you pay capital gains tax.