The $10 Million CGT Carveout: How Small Businesses Win in Labor’s New Capital Gains Tax Reform

The sweeping Capital Gains Tax (CGT) reforms announced in the latest Federal Budget sent shockwaves through Australia’s investment and business communities. With the traditional 50% CGT discount being removed for many asset classes from 1 July 2027 and replaced by a new indexation framework, countless business owners immediately began questioning how the changes would affect their eventual retirement, succession plans and business exit strategies.

However, hidden behind the headlines is a very different story for small business owners.

Following post-Budget consultation, Treasury has confirmed that all four existing Small Business CGT Concessions will remain in place. Even more significantly, the Government proposes to increase the turnover threshold for the 50% Active Asset Reduction from $2 million to $10 million from 1 July 2027, dramatically expanding access to one of Australia’s most valuable business tax concessions. According to Treasury, this change would make all 2.7 million active small businesses eligible for the concession and allow approximately 98% of active businesses to access the broader Small Business CGT Concession regime.

The result is that while many investors are focused on what they are losing under the new CGT system, small business owners may have emerged as some of the biggest winners. Treasury’s own examples continue to demonstrate scenarios where eligible business owners can significantly reduce — and in some cases completely eliminate — the tax payable on the sale of an active business asset.

Has the Government Reinstated the 50% CGT Discount for Small Business Owners?

The short answer is no. One of the biggest misconceptions surrounding Labor’s new Capital Gains Tax (CGT) reforms is that small business owners have somehow retained the traditional 50% CGT discount while other investors have lost it. Treasury’s latest Small Business Explainer does not support that view. From 1 July 2027, the general 50% CGT discount will still be replaced by the new inflation indexation system for post-2027 capital gains. What the Government has preserved is the separate Small Business CGT Concession regime, including the 50% Active Asset Reduction.

The real win for small business owners is not the return of the old 50% CGT discount. The real win is that the Government has expanded eligibility for the Small Business CGT Concessions by increasing the turnover threshold for the 50% Active Asset Reduction from $2 million to $10 million from 1 July 2027. This means many businesses that previously missed out on valuable CGT concessions may now qualify for them, even though the traditional 50% CGT discount is being phased out for post-2027 gains.

The 1 July 2027 Line in the Sand: Protecting Your Accumulated Business Value

The first vital technical reality that business owners must understand is that these reforms are prospective. Treasury has confirmed that the new CGT rules do not begin until 1 July 2027.

This means any business value, goodwill, client relationships or commercial property growth that has accumulated before 1 July 2027 remains protected under the existing CGT framework. Treasury has specifically stated that business value built before this date retains access to the legacy 50% CGT discount treatment, regardless of when the asset is ultimately sold. This is one of the most important grandfathering provisions contained within the reform package.

When a business asset is eventually sold after 1 July 2027, the gain is effectively split into two periods. The growth accrued up to 1 July 2027 remains subject to the old rules, while growth occurring after that date falls under the new regime. For many long-established businesses, this grandfathering protection may preserve a significant portion of the historical tax benefit that owners have spent decades building.

The $10 Million Cap Fine Print: Why Your Net Assets Still Control Your Exit Tax

This is where the story takes an unexpected turn for small business owners.

While the baseline CGT rules are shifting to indexation, the four foundational small business CGT concessions remain available for eligible taxpayers. Crucially, the Government is lowering the tax barrier by expanding access to the 50% Active Asset Reduction, with the turnover threshold increasing from $2 million to $10 million from 1 July 2027.

However, a critical piece of fine print that many business owners may miss is that the Treasury note does not say the same $10 million turnover threshold automatically applies to the other three concessions: the 15-Year Exemption, Retirement Exemption and Active Asset Rollover. For business operators with annual turnover between $2 million and $10 million, access to those additional concessions may still depend on satisfying the existing small business CGT eligibility rules, including the $6 million net asset value test.

Depending on your structure and circumstances, these concessions can be strategically layered:

1. The 50% Active Asset Reduction: Expanded to cover businesses with turnover up to $10 million, subject to eligibility.
2. The 15-Year Exemption: May completely disregard the capital gain where the active asset has been owned for at least 15 years and the relevant retirement or incapacity conditions are satisfied.
3. The Retirement Exemption: Allows eligible taxpayers to disregard up to $500,000 of capital gains over their lifetime, subject to the relevant conditions.
4. The Active Asset Rollover: Allows an eligible gain to be deferred where a replacement active business asset is acquired within the required timeframe.

By applying the expanded 50% Active Asset Reduction to the indexed post-2027 real gain, eligible mid-sized business operators may significantly reduce the impact of the new CGT regime. Where the broader small business CGT conditions are also satisfied, the remaining concessions may further reduce, defer or potentially eliminate the tax payable on an active business sale.

Which Business Assets Still Qualify for the Small Business CGT Concessions?

One of the biggest misconceptions emerging from the Budget debate is that all business-related assets will automatically qualify for the surviving CGT concessions. That is not the case.

The Small Business CGT Concessions are primarily designed to apply to active business assets. In practical terms, this commonly includes business goodwill, commercial property used in the business, interests in trading businesses, and other assets that are genuinely connected to carrying on an active business.

For many business owners, the most valuable asset is not the equipment sitting in the warehouse or the vehicle parked outside. It is the accumulated goodwill, reputation, customer base and commercial value built up over decades of trading. These are often the assets that generate the largest capital gains when a business is eventually sold and are therefore the assets most likely to benefit from the surviving Small Business CGT Concession regime.

By contrast, the concessions are generally not designed to provide relief on ordinary trading stock, inventory or day-to-day operating assets. The real planning opportunity lies in understanding how the CGT rules apply to the business itself and the capital value that has been created over time.

Final Thoughts: A Word of Caution Before Restructuring Your Business Structure

While Treasury has proposed a 3-year corporate restructuring rollover relief window for certain business entities starting 1 July 2027, we believe it is far too early for business owners to execute major structural overhauls based solely on the Budget announcements and explanatory material released so far.

Significant legislative detail is still missing from the proposed small business capital gains tax changes, particularly for more complex structures involving discretionary trusts, unit trusts and multiple entities. With the new trust measures not scheduled to commence until 1 July 2028 and a Federal Election due before then, there remains plenty of time for further consultation, legislative refinement and potential policy changes.

For now, our view is simple: understand the direction of the reforms but avoid rushing into major restructuring decisions until the final legislation is enacted and the practical implications become clearer. 

At Investax in Sydney and Camden Professionals in Perth, we specialise in reviewing complex business structures and helping business owners navigate major legislative changes before critical deadlines arrive.

If you are planning to sell a business, retire, transition ownership to the next generation, or simply want to understand how these reforms may affect your long-term position, we encourage you to arrange a Strategic Tax Consultation (STC). 

Book a Tax Strategic Consultation with Investax to understand how the right tax structure, planning, and long-term strategy can help you minimise tax, protect your assets, and make smarter financial decisions before costly mistakes are made. Whether you are investing in property, growing a business, or planning your next financial move, getting advice upfront can make a significant difference.

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FAQS

Q: Has the Government reinstated the traditional 50% CGT discount for small business owners?

A: No. From 1 July 2027, the general 50% CGT discount is being replaced by a new inflation indexation system and a 30% minimum tax rate on real gains. What the Government has preserved is the separate Small Business CGT Concession regime, not the legacy general discount.

Q: Which specific business assets trigger a CGT event under the new system?

A: Treasury identifies business names, client databases, commercial real estate and business goodwill as examples of CGT business assets. Everyday tools of trade, such as work vans, computers or tools, are generally not subject to CGT and are handled through standard income or deduction rules. Trading stock and inventory are also dealt with under ordinary income tax rules, rather than the CGT framework.

Q: How does the 1 July 2027 “line in the sand” protect my existing business value?

A: The new CGT rules are prospective. Business value built up before 1 July 2027 retains the old 50% discount treatment, even if the asset is sold later. Growth after 1 July 2027 moves into the new indexation system.

Q: Does the new $10 million turnover threshold grant automatic access to all four Small Business CGT Concessions?

A: No. Treasury’s latest note specifically says the turnover threshold for the 50% Active Asset Reduction will increase from $2 million to $10 million from 1 July 2027. The note does not say the same $10 million threshold automatically applies to the 15-Year Exemption, Retirement Exemption or Active Asset Rollover. For those concessions, businesses may still need to satisfy the existing eligibility rules, including the $6 million net asset value test.

Q: Is it a good idea to restructure my business entity immediately based on these updates?

A: Not necessarily. Treasury has proposed a three-year restructuring rollover relief window from 1 July 2027, but it is still too early for many business owners to make major structural changes based only on the current explanatory material. Key legislative details are still missing, the discretionary trust minimum tax is not proposed to commence until 1 July 2028, and the rules may still be refined before final legislation is passed.

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