CGT on Selling a Business: What the 2026 Budget Changes

Before we start: this article is our interpretation of announced federal budget measures and does not constitute financial advice. You should seek independent financial and taxation advice relevant to your circumstances.

If you sell your business after 1 July 2027, the 2026 Federal Budget will change how much Capital Gains Tax (CGT) you pay. For many owners, the difference runs into the hundreds of thousands of dollars on the same sale price. This article is for business owners specifically, because most coverage of the reforms has centred on property investors and share portfolios. The implications for owners thinking about an exit are material, and time-sensitive.

• The 2026 Federal Budget proposes abolishing the 50% CGT discount for individuals, trusts and partnerships from 1 July 2027, replacing it with cost-base indexation and a 30% minimum tax floor.
• A separate proposal introduces a 30% minimum tax on discretionary trust distributions from 1 July 2028.
• How this affects you depends on how your business is structured and when you plan to exit.
• Small Business CGT Concessions, including the 15-year exemption and retirement exemption, are confirmed unchanged.

Why does the 2026 Federal Budget matter to business owners (not just property investors)?

Most commentary on the CGT changes has focused on property investors and share portfolios. Business assets are explicitly covered by the same proposed measures.

If you hold shares in a company personally, or your business operates through a family trust, the calculation of what you will walk away with has changed. How much it has changed depends on your structure, your timeline, and whether you qualify for the small business concessions that remain intact.

This article works through each of those factors. It is not tax advice. It is the context you need to have a better conversation with your adviser.

What are the two proposed 2026 Budget measures affecting business exits?

The 2026 Federal Budget proposes two separate measures that affect business exits: the abolition of the 50% CGT discount from 1 July 2027, and a 30% minimum tax on discretionary trust distributions from 1 July 2028. How significantly each affects you depends on how your business is owned and when you plan to exit.

Measure 1, If you own your business personally or through a trust, how your exit gains are taxed is changing (effective 1 July 2027)

• Current Law: Individuals and trusts who hold a business asset for more than 12 months receive a flat 50% discount on the capital gain.
• Proposed Law (effective 1 July 2027): The 50% discount is abolished. It is replaced by cost-base indexation (the purchase price adjusted for CPI inflation) and a minimum 30% effective tax rate on the real capital gain.

The 30% is a floor, not a ceiling, and this matters.

A lot of media coverage presents the new rate as "30%." It is not. 30% is the minimum. If your marginal tax rate applied to the real gain exceeds 30%, you pay your marginal rate. Most business owners executing a significant exit will push into the highest marginal bracket of 47% (including the Medicare levy).

Under the old rules, the maximum effective rate on a capital gain was 23.5%, half of the 47% top rate, because of the 50% discount. Under the new rules, the maximum effective rate on real post-2027 gains approaches 47%. For many mid-market business owners, that is close to a doubling of the tax burden on their exit proceeds.

For assets held at 1 July 2027, a transitional mechanism applies. An owner can establish the market value of their business at that date as the new cost base. Any gain accrued before that date retains the legacy 50% discount treatment. Any gain after that date falls under the new rules.

There are two ways to establish that baseline value: an independent market valuation, or an ATO apportionment formula applied via an official digital tool. Both paths are confirmed in the Treasury's CGT Reform Factsheet published with the 2026-27 Budget. The measures are not yet legislated, but the transitional framework is now formally documented.

Note: companies are not affected by this change. They never had the 50% discount and already pay corporate tax on gains. The change applies to individuals, trusts and partnerships.

Measure 2, If your business is in a family trust, the way you access your exit proceeds is about to change (effective 1 July 2028)

• Current Law: Family trusts can distribute business sale proceeds to family members on lower marginal tax rates, reducing the overall tax burden on the transaction.
• Proposed Law (effective 1 July 2028): A strict 30% minimum tax is applied to all discretionary trust distributions. If proceeds are distributed to a family member whose marginal tax rate is below 30%, the trustee must pay a top-up tax to reach the floor.

The consensus and early analysis from a range of legal and accounting firms has indicated that distributing trust proceeds to a corporate beneficiary (a 'bucket company') creates a specific trap under the proposed rules: the company receives no tax credits for the minimum tax already paid by the trustee, creating an effective double-taxation on the same proceeds. The combined effective rate in this scenario could significantly exceed the 30% floor. These mechanics remain subject to final legislation.

Both measures are proposed, not yet legislated. Firm planning decisions should await confirmed legislation. However, understanding your current position now is still worthwhile.

Small Business CGT Concessions: What Changed and What Didn't in the 2026 Budget

The 2026 Federal Budget did not alter or remove the existing Small Business CGT Concessions. However, understanding how these untouched concessions interact with the new 30% minimum tax floor is the most critical planning detail for mid-market business owners.

For owners who qualify, these remain the most powerful tax planning tools in the Australian corporate landscape, and the financial gap between qualifying and not qualifying has never been wider.

What are the four Small Business CGT Concessions?

There are four concessions. Used individually or in combination, they can significantly reduce or eliminate CGT on a business sale:

• The 15-Year Exemption: If you are over 55, retiring, and have held active business assets for 15 years, the entire capital gain can be completely tax-free.
• The 50% Active Asset Reduction: Allows you to reduce the capital gain on an active business asset by a further 50%.
• The Retirement Exemption: Allows you to shield up to a $500,000 lifetime limit of sale proceeds by directing it into a superannuation fund. If you are over 55, you do not need to actually retire.
• The Small Business Rollover: Allows you to defer your capital gain if you reinvest the proceeds into a replacement active asset within the specified timeframe.

The 15-year exemption is the most powerful. For an eligible owner, it bypasses the new CGT rules entirely.

Who qualifies for the concessions? (The two thresholds)

To access these concessions, a business must meet one of the following two tests:

• The $2 Million Turnover Test: The aggregated annual turnover of the business and any connected entities is less than $2 million.
• The $6 Million Net Asset Test: The total net value of CGT assets owned by you, your business, and any connected entities, excluding your family home and superannuation, is less than $6 million just before the sale.

For businesses with higher turnover, the $6 million net asset test is the relevant filter. Owners sitting close to that line need a precise current valuation to know which side they are on. The difference between qualifying and not qualifying has never carried a higher financial consequence than it does under the proposed new rules.

How do the concessions interact with the new CGT rules?

The concessions reduce or eliminate the gain, but they do not remove the relevance of the new rules for everyone. Owners who qualify for the 15-year exemption can disregard the new CGT framework almost entirely. For everyone else, the interaction between the concessions and the new rules needs to be modelled for their specific situation.

How does your current corporate structure determine your CGT exposure?

The single most important variable is not the size of your business. It is how the business is owned.

• Individuals holding shares personally: If you own shares in your company directly and sell them, that is a personal CGT event. The proposed changes apply. Gains accrued before 1 July 2027 retain the legacy treatment if a valuation baseline is established at that date. Growth after that date falls under the new rules.

• Family trust structures: If your business operates through, or is owned by, a family trust, both the CGT discount changes and the proposed trust minimum tax are relevant. A sale of business assets or shares after 1 July 2028 means the trust distributes proceeds under a new tax floor. The interaction with the Small Business Concessions is complex and depends on the trust's structure and the personal circumstances of the beneficial owners.

• Company structures: If a company sells its operating assets, the company pays corporate tax on the gain at either 25% (base rate entities) or 30% (large companies). The new 30% minimum tax floor is a separate measure that applies only to individuals and trusts, it does not apply to companies. A base rate entity paying 25% corporate tax is not affected by that floor because the floor was never directed at corporate taxpayers. The company's tax and the individual's CGT floor are two separate rules operating on two separate taxpayers.

• Holding company and interposed structures: The more complex the structure, the more variables there are. The general principle holds: once proceeds reach an individual, whether directly or after passing through a company or trust, personal tax rules apply. Owners in complex structures face additional considerations around stamp duty if they are considering restructuring ahead of 2028. More on that below.

How does your planned exit timeline change the tax calculation?

Timeline

Exposure to new CGT rules

Core strategic focus

The immediate exit (Within 12 months)

None, legacy rules still apply

Execute under current rules. Focus on preparation and concession eligibility.

The medium-term exit (1 to 3 years)

High, sale likely after 1 July 2027

Establish a valuation baseline by 1 July 2027. Model the split calculation.

The long-term exit (5+ years)

Full, entirely under the new regime

Centre strategy on qualifying for the 15-year exemption. Build value to offset higher tax impost.

The immediate exit (within 12 months)

A typical business sale takes 9 to 18 months from first preparation through to settlement. From mid-2026, the window to exit entirely under the current rules is narrow. It is not closed, but it requires moving now.

Owners in this position benefit from the full 50% CGT discount on the entire gain, and full access to the Small Business Concessions. The tax outcome for a well-prepared owner exiting before 30 June 2027 can be significantly better than for the same owner exiting 12 months later.

The medium-term exit (1-3 years)

This is the most complex position. A sale in 2028 or 2029 involves a split calculation: the gain accrued before 1 July 2027 is treated under the legacy rules (if a valuation baseline is established at that date), and the gain accruing after falls under the new rules. The 1 July 2027 valuation is what determines the split.

One possible complexity for owners in this window may relate to earn-out arrangements. If you agree a sale price before 30 June 2027 but include an earn-out tied to 2028-2029 performance, the realisation of that earn-out may be treated as a separate CGT event under the new rules. Legal structuring of the sale agreement matters here. It is worth raising specifically with your adviser if your deal is likely to include contingent consideration.

The long-term exit (5+ years)

Owners planning to exit in 2030 or beyond are fully inside the new regime. The 50% discount will not be available. Exit strategy must shift toward qualifying for the 15-year Small Business Exemption, which remains completely intact, and building enterprise value to absorb the higher tax cost on gains that fall outside the concessions.

The Business Valuation Question: Why is 1 July 2027 a critical deadline?

1 July 2027 is the date that determines how your capital gain is split between the old tax rules and the new ones. Any growth in your business value before that date can be protected but only if you establish a formal valuation at that date.

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Why a formal business valuation is mandatory for most owners

If your exit is after 1 July 2027, the value of your business on that date is the dividing line between what gets taxed under the old rules and what gets taxed under the new ones. Without a formal, independent valuation at that date, the ATO may apply its own estimation method to establish that line.

That estimation method is expected to apply straight-line apportionment, assuming the business grew at an identical rate every single day across its entire holding period. For most businesses, that assumption is wrong. Growth is rarely linear.

Case Example: The true cost of the ATO default straight-line apportionment

To understand how these transitional rules impact your exit strategy, consider this worked example of a fictitious business: XYZ Manufacturing.

This scenario shows how the two paths produce materially different tax outcomes for the same owner, the same business, and the same sale price.

Consider this business was founded in 2017 with a nil cost base. By 1 July 2027, after a decade of aggressive growth, the enterprise value has reached $10 million. The founders step back, the market matures, and the business plateaus. They sell in 2032 for the same $10 million. The owner is on the top marginal tax rate of 47%.

The Timeline: Founded in 2017 with a $0 cost base.

The Growth: Aggressive growth over a decade, hitting an enterprise value of $10 million by 1 July 2027.

The Plateau: The founders step back, the market matures, and the asset value flattens.

The Exit: Sold in 2032 (a 15-year total holding period) for the same $10 million.

The Tax Bracket: The owner is on the top Australian marginal tax rate of 47% (excluding levies).

Case Study Comparison: Independent Valuation vs. ATO Formula

Tax Calculation Metric

Scenario A: Independent Market Valuation

Scenario B: Default ATO Apportionment Formula

1 July 2027 Valuation Method

Independent, evidence-backed professional report

Retrospective time-based math (15-year hold)

Assumed Pre-2027 Capital Gain

$10,000,000 (True actual growth)

$6,666,667 (Smooth math: 10/15ths of gain)

Assumed Post-2027 Capital Gain

$0 (True actual plateau)

$3,333,333 (Smooth math: 5/15ths of gain)

Tax Applied to Pre-2027 Gain

50% CGT Discount applied ($5m taxed at 47%)

50% CGT Discount applied ($3.33m taxed at 47%)

Tax Applied to Post-2027 Gain

No gain recorded ($0 tax)

No discount available ($3.33m taxed at 47%)

Total Capital Gains Tax Bill

$2,350,000

$3,133,332

The Financial Penalty

$0 (True asset value fully protected)

$783,332 in unnecessary tax paid

Scenario A: Owner obtains a formal independent valuation as at 1 July 2027

The valuation establishes that 100% of the $10 million gain occurred before 1 July 2027. The entire gain is eligible for the legacy 50% discount. Taxable amount: $5 million. Tax at 47%: $2,350,000.

Scenario B: Owner relies on the ATO's straight-line estimation formula

The formula has no visibility of when the growth actually happened. It applies an even daily rate across the 15-year holding period. It calculates that 10 out of 15 years (66.6%) of the gain occurred pre-2027, and 5 out of 15 years (33.3%) occurred post-2027.

Pre-2027 apportioned gain: $6,666,667 (50% discount applied). Tax: $1,566,666. Post-2027 apportioned gain: $3,333,333 (no discount, taxed at 47% marginal rate, which exceeds the 30% floor). Tax: $1,566,666. Total tax: $3,133,332.

The difference: $783,332 in unnecessary tax.

The Cost of Failing to Establish an Historical Tax Record

The default formula does not actively penalise a business owner for selling late; it penalises them for failing to document their history. Because a mathematical formula cannot see when your actual business operations grew, it assumes your growth happened in a perfectly smooth line across your entire holding period.

As a result, every dollar of early-stage growth that gets dragged into the post-2027 bracket is taxed at close to double the rate it should have been.

Important Caveat: While the final legislation is currently being drafted and the ATO's official digital calculator has not yet been released, the underlying policy framework is clear. The Treasury’s Capital Gains Tax Reform Factsheet confirms that the default fallback tool will mathematically estimate your 1 July 2027 business value based on your growth rate over your total asset holding period. Peak bodies like Chartered Accountants Australia & New Zealand (CA ANZ) warn that this default method creates a retrospective "smoothing" effect. Securing an independent market valuation that complies with the ATO’s Market Valuation Guidelines is designed to supersede this mathematical formula. This framework aims to lock in your actual historical growth, helping to protect you from a generic assumption that could artificially increase your final tax bill. Always consult a registered tax agent to assess how these transitional rules apply to your specific business structure.

The supply question, why acting early is practical, not panic

Hundreds of thousands of Australian businesses will need to establish their value as at 1 July 2027. That is the date that matters for the CGT transitional calculation, and the practical question for business owners right now is not whether to get a valuation, but how to prepare for one.

The right starting point is an initial high-level appraisal of your current position. What does the business look like today? What should change before 1 July 2027 to maximise the value you lock in at that date? And what is the plan to formally value it at the right time? That process, started early, is what separates the owners who capture the full transitional benefit from those who don't.

Consider what that preparation is worth. As the XYZ Manufacturing example shows, the difference between an owner who establishes a formal valuation at 1 July 2027 and one who relies on the ATO's default formula can run to hundreds of thousands of dollars on the same business at the same sale price. If you wanted to generate an equivalent uplift in net profit this year, you might need to double your revenue. For most business owners, that is a significantly harder task than being organised, getting early advice, and having a clear plan.

That is also why quality matters. I have already written to the Commissioner of Taxation about this as a practical implementation issue. A surge in demand through 2026 and 2027 will attract providers offering quick, low-cost reports that will not withstand ATO scrutiny. Informal broker appraisals and rules of thumb will not establish a defensible cost base. Independent, evidence-based work is what holds up. Starting early means you have the time to do it properly.

The succession cliff: why the 2026 CGT changes have accelerated a problem already running out of time

The CGT changes have accelerated an existing succession problem. Nearly half of Australian small business owners are over 50, and most have no formal exit plan. The budget has added a hard deadline to a decision most were already deferring.

The average age of a small business owner is now 50, up from 45 in 2006. The proportion of owners under 30 has fallen from 17% in the mid-1970s to 8% today. An estimated 340,000 businesses are approaching transition as their owners reach retirement age.

Most of those owners have not prepared. Because running a business does not leave much room for planning how to leave one.

The risk is not only personal. When a viable business fails to transition, it usually does not enter formal insolvency. It closes. The Reserve Bank has noted that roughly ten times as many firms exit by ceasing trade as enter formal insolvency. When that happens, Australia loses more than a business name. It loses jobs, local services, institutional knowledge, and taxable economic activity.

As I wrote in Yahoo Finance, for many business owners approaching retirement, the sale proceeds are not a bonus. They are the retirement plan. There is often no cushion. The budget has added new urgency to a problem that was already running out of time.

The policy gap the budget has created

The federal budget provides rollover relief for businesses that want to restructure out of a discretionary trust into a company between 2027 and 2030, a three-year window to transition before the trust minimum tax takes full effect. In principle, that is a sensible piece of transitional policy.

The problem is that the Commonwealth controls federal tax, not state stamp duty. Transferring business assets, goodwill, or commercial property from a trust into a company will likely trigger transfer duty in states including New South Wales, Victoria and Western Australia. The federal escape route runs directly into a state-level toll booth.

This is not a theoretical concern, it’s one of the practical implementation issues I have raised with the Productivity Commission. The budget's policy intent and the state tax reality create a fiscal trap for business owners trying to do exactly what the legislation encourages them to do.

These conversations are ongoing. But the gap is real, and owners in trust structures who are considering restructuring need state-specific advice before assuming the rollover relief is available to them at no cost.

A note on family trusts and asset protection

One important note before making any structural decisions: family trusts remain effective structures for asset protection. If you are considering restructuring out of a trust in response to these proposed changes, that decision needs to be weighed against the protection benefits the trust currently provides, not evaluated on tax implications alone. Get specific advice before changing anything.

What to do next: planning your business exit under the new CGT rules

The first step is understanding where you currently sit. That means knowing your approximate enterprise value today, how your business is owned, your realistic exit timeline, and whether you are likely to qualify for the Small Business Concessions.

None of those questions should be answered with estimates or rules of thumb. The decisions that flow from them are consequential enough to warrant precise numbers.

It is also worth noting that the budget changes are layered on top of problems that already existed. Most business sales fail before the tax question is even reached, because the business was not prepared for a buyer in the first place. I covered the most common reasons in SmartCompany.

If you want to understand what your business is worth today, and what that means for your exit planning under the new rules, that is the work Exit Advisory Group's independent business valuation service is built for.

If the economic backdrop behind this article is relevant to where you are in your thinking, my recent conversation with Warren Hogan, Managing Director of EQ Economics and Chief Economic Adviser to Judo Bank, covers the ground directly. Warren gives his view on where interest rates are heading, why the succession cliff is a genuine economic risk, and what business owners with a two to three year exit horizon should be watching. His advice on timing an exit into volatile conditions is specific and worth hearing.

Further listening:The Economy, the Succession Cliff, and Your Exit, Simon Bedard with Warren Hogan, Buy Grow Sell

ABOUT SIMON BEDARD

Simon Bedard is the Founder and Managing Director of Exit Advisory Group and a Registered Business Valuer. He serves as National Chair of the Australian Institute of Business Brokers, the peak industry body representing business brokers and advisers across Australia.

Simon has spent more than 20 years in M&A, finance and business advisory, and has guided hundreds of business owners through valuations, exit planning and sale processes. He is the author of Exit Like an Expert: The Ultimate Guide to Selling Your Business (2026) and the host of the Buy Grow Sell podcast.