Australia has enacted the first major redesign of the general 50% capital gains tax discount since it was introduced in 1999. From 1 July 2027, eligible gains accruing to Australian resident individuals and trusts will generally move to cost base indexation, with a 30% minimum tax applying to relevant gains made by Australian resident individuals, including gains received through trusts.
For business owners considering a sale, restructure, or exit, the change creates a clear date to plan around.
This guide explains the new rules, the small business concessions, and the treatment of different structures, SMSFs, and commercial property.
Disclaimer: This article provides general information based on Australian tax legislation current at the time of publication. Tax outcomes depend on individual circumstances, and professional advice should be obtained before making tax or business decisions.
What Is Capital Gains Tax and When Does It Apply to a Business?
Capital Gains Tax (CGT) is the income tax treatment that applies when a CGT event produces a capital gain. In Australia, CGT is not a separate, standalone tax; rather, the net capital gain is included in the assessable income of the taxpayer or entity that makes the gain. A capital gain or loss on a disposal is typically calculated by comparing the asset’s cost base or reduced cost base with the capital proceeds. Other calculation rules apply to CGT events that do not involve an ordinary sale. For a business asset, the tax consequences arise when a transaction or situation known as a ‘CGT event’ occurs in relation to a ‘CGT asset’.
In a business context, CGT applies when one of the following events takes place:
- Selling or disposing of a business asset: This is the most common trigger and includes selling tangible assets like commercial property and land, or other CGT assets such as shares, units in a trust, and goodwill.
- Gifting or transferring an asset: Moving a business asset to another party, such as gifting it or transferring ownership to a trust or a separate company.
- Loss or destruction of an asset: Experiencing the involuntary loss or destruction of a business asset (for instance, through a fire or natural disaster) and receiving compensation or an insurance payout.
- Creating contractual rights: Entering into specific binding agreements, such as signing a restraint of trade (non-compete) clause when selling your business or granting another party a licence to use your brand.
- Changing business structures: Restructuring your operations or transferring active assets from one entity to another, though specific small business restructure roll-overs may apply to defer the immediate tax liability.
- Liquidations and share cancellations: Receiving a final distribution from a liquidator when a company is wound up, or having shares your business owns in another entity cancelled, surrendered, or redeemed.
What Is Changing About Capital Gains Tax From 1 July 2027?
The reforms announced in the 2026–27 Federal Budget are now legislated through the Treasury Laws Amendment (Tax Reform No. 1) Act 2026, which received Royal Assent on 26 June 2026.
Four changes matter most to business owners.
1. Indexation Replaces the General 50% Discount
For eligible assets held for at least 12 months, Australian resident individuals and trusts will generally no longer receive the 50% discount on gains accruing from 1 July 2027.
Relevant cost base expenditure will instead be indexed using the Consumer Price Index, so the taxable gain reflects growth above inflation.
The rules also apply to eligible gains attributed to individuals through partnerships and trusts. Separate residency rules apply, and the existing discount continues in specified cases, including eligible new residential dwellings and qualifying affordable housing.
2. A 30% Minimum Tax on Relevant Gains
After indexation and any applicable small business concessions, additional income tax may bring the tax on a qualifying capital gain of an Australian resident individual up to 30% before tax offsets.
No top-up applies where the ordinary tax attributable to the gain already reaches at least 30%.
Recipients of specified income support and related payments are exempt for the relevant income year. Gains qualifying for the new residential dwelling or affordable housing discount rules are also excluded.
3. Assets You Already Own, Including Pre-1985 Assets
For an eligible asset held before 1 July 2027 and realised later, the gain is split. The pre-1 July 2027 component remains subject to the existing discount rules, while the later component is generally subject to indexation and the minimum tax rules.
On realisation, the taxpayer can generally use the asset’s market value immediately before 1 July 2027, or choose a prescribed apportionment method.
A contemporaneous valuation is not mandatory. It may still be worth obtaining one for unlisted businesses and unique commercial assets, where establishing value years after the fact is difficult.
Assets acquired before 20 September 1985 will also cease to be fully grandfathered. Value accrued before 1 July 2027 remains exempt, while later growth becomes subject to the new rules. Working out structuring and tax advice ahead of that date is more useful than reacting to it afterwards.
4. Small Business CGT Concessions
The four small business CGT concessions remain available, and access to one of them is expanding.
From 1 July 2027, the aggregated turnover threshold for the small business 50% active asset reduction increases from $2 million to $10 million. This increase applies to that concession only. The 15-year exemption, retirement exemption, and rollover remain subject to the $2 million threshold or the maximum net asset value test.
For businesses turning over between $2 million and $10 million, this is significant. It preserves a form of 50% relief on active business assets at the same time as the general discount is being withdrawn.
What Is Law and What Is Still Proposed
| Now law | Still proposed |
| Indexation replacing the 50% discount from 1 July 2027 | 30% minimum tax on discretionary trusts from 1 July 2028 |
| 30% minimum tax on relevant individual gains | Rollover relief for restructuring out of discretionary trusts |
| Removal of pre-1985 grandfathering for post-2027 growth | A new 50% CGT discount for early-stage and start-up investors |
| $10 million threshold for the 50% active asset reduction | |
| Restrictions on SMSF limited recourse borrowing |
How Capital Gains Tax Works When You Sell a Business
Eligible Australian business owners selling an active business may be able to reduce, disregard, or defer a gain using four small business CGT concessions, provided all relevant conditions are met.
Two gateway tests come first.
Step 1: Satisfy the Basic Conditions
The relevant CGT event must produce a gain, and an entity-size pathway must be available. The two most common pathways are:
- The CGT small business entity test: Aggregated turnover must be under $2 million, or under $10 million from 1 July 2027 for the 50% active asset reduction only.
- The maximum net asset value test: The total net value of relevant CGT assets owned by you, connected entities, and relevant affiliates must not exceed $6 million just before the CGT event, after applying the statutory inclusions and exclusions.
Special pathways may apply to partners where the partnership is a CGT small business entity. Sales of shares or trust interests can attract additional participation and modified active asset conditions.
Because connected entity, affiliate, and control rules feed into both calculations, group structures should be reviewed well before a sale rather than at the contract stage.
Step 2: Pass the Active Asset Test
The asset must have been used, or held ready for use, in the course of carrying on a business for at least half its ownership period. Where the asset has been owned for more than 15 years, the requirement is at least 7.5 years.
There is a common trap here. An asset whose main use is deriving rent generally fails the active asset test, even where it is commercial property.
The Four Concessions
Once the gateway tests are met, four concessions become available. They interact in a prescribed calculation order, with choices available in some cases.
1. The 15-year exemption
An eligible gain may be disregarded entirely where the asset was continuously owned for at least 15 years. An individual must be 55 or over and the event connected with retirement, or be permanently incapacitated.
A company or trust must also meet the significant individual requirements, including having a significant individual for periods totalling at least 15 years during ownership. An individual generally needs a small business participation percentage of at least 20% to be a significant individual, and further conditions apply beyond that test.
2. The 50% active asset reduction
An eligible remaining gain is generally reduced by half, although the taxpayer may choose not to apply the reduction.
3. The retirement exemption
An eligible individual can disregard up to a $500,000 lifetime limit. Retirement is not actually required, despite the name.
If the individual is under 55 just before making the choice, an amount equal to the chosen exempt amount must be paid into a complying superannuation fund or retirement savings account within the required timeframe. Company and trust claims carry additional payment and significant individual conditions.
4. The small business rollover
All or part of an eligible gain can be deferred in the small business rollover. Continuing the deferral generally requires a replacement active asset or qualifying capital improvement within the replacement asset period, usually one year before to two years after the CGT event.
A new gain may arise if the replacement conditions are not met, or if a later change happens to the replacement asset.
Historical ownership, active use, and participation requirements often cannot be repaired once a sale contract is signed. Early pre-sale due diligence can identify eligibility and documentation problems while there is still time to address them.
How Your Business Structure Changes Your Capital Gains Tax Outcome
| Business Structure | Tax Rate on Capital Gain | Access to General 50% Discount (Pre-2027) | Access to Small Business CGT Concessions |
| Sole Trader | Individual marginal rate, subject to the new minimum tax rules | Yes, with transitional rules preserving eligible pre-1 July 2027 gains | Yes, subject to conditions |
| Partnership | Generally assessed to partners | Available to eligible individual partners, with transitional rules | Determined under the partnership and partner rules |
| Company | Company tax rate (25% or 30%) | No | Yes, subject to conditions |
| Discretionary Trust | Generally assessed to beneficiaries, or to the trustee in specified cases | Generally, yes; transitional rules preserve eligible pre-1 July 2027 gains | May flow to beneficiaries, subject to conditions |
- Sole traders and the business are the same legal person, so there is no separate corporate liability shield.
- Partners apply the CGT rules to their respective interests, which means eligibility for the concessions can differ from one partner to the next within the same firm.
- Companies have never received the general 50% discount, so the 2027 change does not alter their position on that point. The 25% rate applies only to entities satisfying the base rate entity requirements, and the 30% rate applies otherwise. Extracting sale proceeds for shareholders creates a separate set of tax consequences that should be modelled alongside the sale itself.
- Discretionary trusts can distribute eligible capital gains and concessions to beneficiaries, subject to the trust deed, tax law, and valid trustee resolutions.
How Capital Gains Tax Works Inside an SMSF
A complying Self-Managed Superannuation Fund (SMSF) can receive favourable capital-gains tax treatment, subject to strict rules.
Accumulation Phase Tax Rates
- Standard rate: A complying SMSF is generally taxed at 15% on its assessable income, including its net capital gain.
- One-third discount: After capital losses are applied, an eligible capital gain on an asset held for at least 12 months is reduced by one-third. If the discounted gain is fully taxable at 15%, this is equivalent to 10% of the gain before the discount.
Retirement Phase Exemptions
Some or all of a fund’s net capital gain may be exempt under the exempt current pension income rules where assets support retirement-phase income streams. Starting a pension does not automatically make every subsequent gain tax-free. The result depends on:
- Whether the fund uses segregated assets or the proportionate method.
- Whether it also holds accumulation interests.
- The transfer balance cap and related pension exemption rules.
The 2027 CGT Reforms
Complying superannuation funds are excluded from the new CGT indexation rules and 30% minimum CGT rate applying to individuals from 1 July 2027. These reforms do not remove an SMSF’s existing one-third CGT discount.
Separately, Division 296 tax may apply at the member level where a person’s total super balance exceeds the applicable large-super-balance threshold. It does not change the SMSF’s ordinary 15% income-tax rate.
Contributions and the Small Business Retirement Exemption
The small business retirement exemption can facilitate super contributions. For an eligible contribution to count against the separate CGT cap instead of the ordinary non-concessional contributions cap, a valid CGT cap election must be given to the fund on or before the contribution is made.
Compliance and Borrowing Restrictions
An SMSF holding business real property must comply with:
- Annual market-value reporting and independent audit requirements.
- The sole-purpose test.
- Related-party acquisition rules.
- The 5% in-house asset limit, where applicable.
- New borrowing rules: From 10 August 2026, a new limited recourse borrowing arrangement for real property generally qualifies only where the property is business real property, broadly, property used wholly and exclusively in one or more businesses. Transitional exceptions apply to certain earlier arrangements, refinancings, and acquisitions.
Professional SMSF accounting services and an approved independent SMSF audit can support compliance, but trustees remain legally responsible for the fund.
How Capital Gains Tax Applies to Commercial Property Held by a Business
Commercial property used in the owner’s business can qualify as an active asset where all conditions are met. Property mainly rented to unrelated third parties generally fails the test.
There is an important exception. Property owned by one entity and used in a business carried on by an affiliate or connected entity may still qualify, because that business use can be attributed to the owner. This is what allows the common arrangement where a trust owns the building and a related operating company trades from it.
How Ownership Structure Changes the Outcome
- An operating company receives no general CGT discount, and the property sits exposed to the liabilities of the trading entity
- A separate holding trust can separate property from trading risk, although guarantees and security arrangements may reduce that protection in practice
- An SMSF may offer concessional tax treatment and some creditor protection, but strict acquisition, use, related party, and borrowing rules apply
Do Not Overlook GST
A commercial property sale may be a taxable supply for GST purposes.
A leased property can sometimes be sold as a GST-free going concern, but a lease alone is not enough. All of the following must be satisfied:
- The seller supplies everything necessary for the continued operation of the leasing enterprise
- The seller carries on that enterprise until the day of supply
- The purchaser is registered or required to be registered for GST
- The supply is for consideration
- The parties agree in writing that the supply is of a going concern
Mixed-use property and related party leasing arrangements require a fact-specific review of the CGT asset, its historical use, and its GST treatment. Getting that review done before a contract is drafted is considerably easier than unwinding it afterwards, and it flows through to how the transaction is reported in your company tax returns.
When Should You Start Planning for Capital Gains Tax?
There is no universal two-to-three-year statutory planning period. Some conditions are tested immediately before the CGT event, while ownership, active use, and significant individual requirements can look back over much longer periods.
The practical answer is that planning should start well before a sale is on the table. A pre-sale checklist should cover:
- Review connected entity and affiliate control percentages, so aggregated turnover and net asset values stay within the relevant thresholds
- Confirm who the significant individual will be for corporate and trust structures, and whether the sale connects to their retirement
- Test the active asset position on any property, including lease arrangements and apportionment for mixed-use premises
- Confirm cost base substantiation exists and is documented well enough to withstand scrutiny
- Model the outcome under both the current and post 1 July 2027 methods, to understand net proceeds in different financial years
- Decide whether a pre-2027 disposal is worth accelerating, with the caveat that tax should not drive a commercial decision on its own
Future-Proof Your Business Before the 2027 Tax Changes
To understand how the upcoming 2027 capital gains tax reforms will impact your established, growing business, contact Mizael Partners on 1300 444 004 to arrange a free 30-minute consultation and strategic advisory session. We are here to help you navigate these complex structural decisions well ahead of any future exit. As a Chartered Accounting firm operating under a professional standards scheme, we note that this article provides general information only and does not account for individual circumstances, meaning your specific position should be confirmed with an advisor rather than assumed.
FAQs
Can you avoid the new rules by selling before 1 July 2027?
Generally, yes. Where the relevant CGT event happens before that date, the new indexation and minimum tax rules do not apply. The existing CGT rules still apply, so tax may remain payable, or may be reduced by losses and available concessions.
Do the reforms remove the small business concessions or change SMSF rates?
No. All four concessions remain, and access to the 50% active asset reduction expands from 1 July 2027 when the turnover threshold rises to $10 million.
Does a company lose the 50% discount?
No. Companies have never been entitled to the general 50% CGT discount. Their net capital gains continue to be included in taxable income at the applicable company rate.
Official Sources
- https://budget.gov.au/content/factsheets/download/tax-explainers-negative-gearing-capital-gains-tax.pdf
- https://www.ato.gov.au/individuals-and-families/investments-and-assets/capital-gains-tax/calculating-your-cgt/cost-base-of-asset
- https://www.legislation.gov.au/C2026A00049/latest
- https://www.ato.gov.au/businesses-and-organisations/income-deductions-and-concessions/incentives-and-concessions/small-business-cgt-concessions
- https://treasury.gov.au/publication/p2026-781365
- https://www.ato.gov.au/businesses-and-organisations/income-deductions-and-concessions/incentives-and-concessions/small-business-cgt-concessions/small-business-cgt-concessions-eligibility-conditions/cgt-small-business-entity-eligibility
- https://www.ato.gov.au/businesses-and-organisations/income-deductions-and-concessions/incentives-and-concessions/small-business-cgt-concessions/small-business-cgt-concessions-eligibility-conditions/maximum-net-asset-value-test
- https://www.ato.gov.au/businesses-and-organisations/income-deductions-and-concessions/incentives-and-concessions/small-business-cgt-concessions/small-business-15-year-exemption
- https://www.ato.gov.au/businesses-and-organisations/income-deductions-and-concessions/incentives-and-concessions/small-business-cgt-concessions/small-business-50-percent-active-asset-reduction
- https://www.ato.gov.au/businesses-and-organisations/income-deductions-and-concessions/incentives-and-concessions/small-business-cgt-concessions/small-business-retirement-exemption
- https://www.ato.gov.au/businesses-and-organisations/income-deductions-and-concessions/incentives-and-concessions/small-business-cgt-concessions/small-business-roll-over
- https://www.ato.gov.au/individuals-and-families/super-for-individuals-and-families/self-managed-super-funds-smsf/smsf-administration-and-reporting/how-smsfs-are-taxed
- https://www.ato.gov.au/individuals-and-families/super-for-individuals-and-families/self-managed-super-funds-smsf/smsf-investing/restrictions-on-smsf-investments/smsf-borrowing-restrictions/limited-recourse-borrowing-arrangements/changes-to-limited-recourse-borrowing-arrangements