The 2026 Federal Budget proposes abolishing the 50% CGT discount and reverting to an inflation-indexed model from 1 July 2027. Nash Advisory explains what the changes could mean for founders and business owners planning a sale, and why the next 12 months may be critical.
What's actually changed
- 50% CGT discount would be replaced with CPI-based cost base indexation. Rather than automatically halving the capital gain, the cost base of an asset would be adjusted upward for inflation each year, so that tax is only paid on the gain that exceeds the cumulative effect of inflation. This would represent a return to the system that operated before the Howard government introduced the 50% discount in 1999.
- A proposed minimum effective 30% tax rate framework would apply to certain capital gains outcomes. This is intended to reduce the benefit for investors who accumulate assets during their working life but sell during retirement when their marginal tax rate is lower.
- A transitional framework is proposed for assets purchased before 1 July 2027 and sold after that date. Under these rules, the existing 50% discount would apply to the portion of the gain attributable to the period before 1 July 2027, while the new indexation model would apply to any gain above the asset's value at that date. Taxpayers may be able to establish the asset's value at the transition date either through a formal valuation or using a growth rate formula to be provided by the ATO.
For assets both purchased and sold before 1 July 2027, the existing 50% discount would continue to apply in full.
What hasn't changed
The four small business CGT concessions under Division 152 of the Income Tax Assessment Act 1997 are proposed to remain entirely intact.
These concessions - the 15-year exemption, the 50% active asset reduction, the retirement exemption, and the small business rollover - are among the most powerful tax planning tools available to Australian business owners. In many cases, they can reduce or entirely eliminate the capital gains tax payable on the sale of a business.
The 15-year exemption allows a business owner who has continuously owned an active asset for at least 15 years to disregard the entire capital gain - a complete exemption. The 50% active asset reduction halves the remaining gain after other concessions and the general CGT discount have been applied. The retirement exemption allows capital gains to be disregarded up to a lifetime limit of $500,000 (with amounts contributed to superannuation if the owner is under 55). And the small business rollover allows deferral of all or part of a capital gain for two years, or longer if a replacement active asset is acquired.
In many cases, qualifying small business owners may be able to apply multiple concessions in combination, including the general CGT discount (or, after 1 July 2027, the proposed indexation adjustment), the 50% active asset reduction, and the retirement exemption, potentially reducing the taxable gain substantially or even to zero.
"The preservation of the small business CGT concessions is the most important detail in this budget for business owners considering a sale," says Tom Butler, Director at Nash Advisory. "The headlines are dominated by the removal of the 50% discount, and understandably so, as it's a major structural change. But for qualifying small businesses, the concessions under Division 152 were always the more powerful mechanism, and they remain fully available. The real question for business owners isn't whether the concessions still exist, it's whether they're structured to access them."
Who should be concerned
The proposed change to the general CGT discount does matter for business owners in certain circumstances.
If your business does not qualify for the small business concessions, typically because aggregated turnover exceeds $2 million or net assets exceed $6 million, then the general CGT discount may be your primary means of reducing the tax on a sale. The shift from a flat 50% discount to inflation-based indexation could result in a higher or lower tax outcome depending on how long you've held the asset and the rate of real growth versus inflation over that period. In general, assets that have experienced strong real growth above inflation may face a higher tax burden under the indexation model than they would under the current 50% discount.
The proposed minimum effective 30% tax rate framework also warrants attention. This would apply to the portion of the capital gain assessed under the new indexation model — that is, the gain attributable to the period from 1 July 2027 onward, not the entire gain. However, for business owners who planned to sell in retirement when their marginal rate might be significantly below 30%, even a partial application of this minimum rate could result in a higher effective tax outcome than they may have anticipated.
For business owners holding assets through discretionary trusts, the announced minimum 30% tax on trust income from 1 July 2028 adds a further layer of complexity. While details are still emerging, the interaction between the proposed trust tax changes, the CGT reforms, and existing small business concessions will require careful analysis.
Why the next 12 months matter
The transitional rules create a clear window. Assets sold before 1 July 2027 would benefit from the existing 50% CGT discount in full. After that date, the hybrid transitional model and the proposed minimum tax framework would apply.
For business owners who were already considering a sale, or who are approaching a natural transition point, whether driven by retirement, a partner's exit, or a strategic inflection in the business, the period between now and 30 June 2027 represents a defined opportunity to crystallise value under the current, well-understood framework.
A well-timed, well-structured process in a strong market will almost always deliver a better outcome than a hasty transaction driven solely by tax considerations, but it is a reason to accelerate the planning process. If a sale was something you were thinking about in the next two to three years, there may be a clear advantage to bringing that timeline forward.
"We're already seeing an uptick in conversations with business owners who had been thinking about a sale in the medium term but are now asking whether it makes sense to move sooner," says Tom Butler. "Our advice is consistent: don't sell just because of a tax change, but don't ignore it either. If the business is well-positioned, the market is favourable, and you were heading in this direction anyway, then the next 12 months offer a compelling window. The smartest owners are the ones who start preparing now, so that when they do go to market, they're in control of the timing rather than reacting to a deadline."
What business owwners should do now
- Review your eligibility for the small business CGT concessions with your tax advisor. Structuring errors, connected entity issues, or inadvertent breaches of the active asset test can disqualify a business that would otherwise qualify. The time to identify and address these issues is well before a transaction, not during one.
- Understand whether your business structure is optimal. The proposed trust taxation rules and the interaction with the CGT changes may mean that structures established under previous settings are no longer fit for purpose. The government has proposed rollover relief for three years from 1 July 2027 to assist small businesses that wish to restructure, but restructuring is neither simple nor inexpensive, and it needs to be done with the end transaction in mind.
- Get an independent view of what your business is worth. Whether you're planning a sale, considering bringing in a capital partner, or simply wanting to understand the financial implications of the CGT changes for your specific situation, a rigorous valuation provides the foundation for every decision that follows.
- If you have a business partner who is approaching retirement or considering their exit options, the CGT changes add an additional reason to have that conversation sooner rather than later.
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Nash Advisory works with business owners across Australia on business sales, acquisitions, and partnership transitions. Through its membership of the REACH global M&A partnership spanning 35+ countries, Nash provides access to a broad network of domestic and international buyers. If you are considering selling your business now or in the future, contact Nash Advisory for a confidential discussion.
