The Government Just Redrew the CGT Line.

The federal government announced a series of carve-outs to its capital gains tax reforms yesterday, four days before the Senate Economics Committee is due to report. The active small business CGT discount expands from $2 million to $10 million in turnover, the proposed 30% minimum tax on testamentary trusts is scrapped, and a new concession for start-up investors is under consultation.

The original package, announced in the May budget, replaced the 50% CGT discount with CPI-indexed cost base adjustments and a 30% minimum tax on realised gains from July 1, 2027. The backlash was immediate. COSBOA warned the reforms would "derail the retirement plans" of small business owners. Over 500 accountants signed a petition. CPA Australia called the trust minimum "a blunt instrument."

The carve-outs cost $475 million over four years. Roughly one-seventeenth of the total CGT revenue the reforms are expected to raise.

The $10 million line

The 50% active asset discount, the most widely used of the four small business CGT concessions, previously covered businesses with turnover under $2 million. It now covers businesses up to $10 million. The government says that brings 2.7 million active small businesses, 98% of all active businesses, inside the concession.

For an SME owner doing $4 million in turnover who was planning a business sale or transition in the next few years, this changes the maths. The 50% discount on active business assets survives for them. Without the carve-out, they would have moved to the new indexed system where the discount depends on holding period and accumulated inflation.

The government is also consulting on a new "innovative business" CGT concession that would preserve the 50% discount for founders, early investors, and employees with equity in eligible start-ups. The detail is still being worked out.

The trust distinction

The trust backflip is narrower than it sounds. What was scrapped is the proposed 30% minimum tax on discretionary testamentary trusts. These are the structures set up through wills and activated after death. The Opposition labelled it a "death tax," and the government dropped it.

The 30% minimum tax on living discretionary trusts, the structures most business owners use to distribute income, is still proceeding from 2028-29. Exemptions apply to primary production income, charitable trusts, special disability trusts, and income relating to vulnerable minors. A standard family discretionary trust distributing business income to adult beneficiaries on lower marginal rates remains in scope.

Treasury expects more than 90% of Australia's 2.7 million active small businesses will not be affected in any given year. The 30% floor hits anyone currently distributing to a beneficiary on a marginal rate below 30%.

What to do

Check which side of the $10 million line your business sits on. If your turnover is under $10 million, the 50% active asset discount is preserved and a future business sale looks largely the same as it did before the budget. If you're above it, the new indexed system applies in full.

If you operate through a living discretionary trust, the 30% minimum is still two years away but the three-year expanded rollover relief window opens July 1, 2027. Restructuring options exist, but they need to be mapped out before the transition date, not after. Your accountant should be modelling what the 30% floor does to your current distribution pattern now, while there's time to adjust the structure.

The Senate Economics Committee reports June 22. Legislation is being drafted in the coming weeks. The rules are still settling.

This article is general information only and is not financial advice.