The 2026-27 Federal Budget is expected to include significant changes to Australia's capital gains tax (CGT) framework. For business owners thinking about selling, restructuring or planning succession, these proposed changes could have a material impact on your after-tax position. Here is what we know so far and what it means for Australian SMEs.
Important: The 2026-27 Federal Budget is scheduled for 12 May 2026. The details below are based on strong policy signals, PBO costings and Treasury modelling. Final legislation may differ from what is outlined here. Always speak to your accountant before making decisions based on proposed changes.
The centrepiece of the proposed reform is the replacement of the current 50% CGT discount with a return to CPI cost-base indexation - the system that operated in Australia from 1985 to 1999.
Under the current rules, individuals and trusts who hold a CGT asset for more than 12 months receive a flat 50% discount. Only half the capital gain is included in your taxable income, regardless of how much the asset appreciated in value.
Under the proposed model, your purchase price (cost base) would be adjusted upward by CPI inflation over the holding period. You would then pay tax only on the real gain - the amount above inflation. This means the longer you hold an asset, the higher your indexed cost base, but only to the extent that CPI has moved.
Key point: Assets acquired before the cut-off date (expected to be budget night or 1 July 2026) are expected to be grandfathered under the existing 50% discount rules.
The difference between the two systems is significant - and for high-growth businesses, the impact is substantial.
| Scenario | 50% Discount (Current) | CPI Indexation (Proposed) |
|---|---|---|
| Business purchased for | $200,000 | $200,000 |
| Business sold for (after 5 years) | $600,000 | $600,000 |
| Capital gain | $400,000 | $400,000 |
| Discount / indexed cost base | 50% discount = $200,000 | CPI ~3% p.a. = $232,000 cost base |
| Taxable capital gain | $200,000 | $368,000 |
| Difference | 84% larger taxable gain under indexation | |
The faster your business grows in value relative to inflation, the bigger the gap. For startups and high-growth SMEs, the 50% discount was significantly more generous than CPI indexation will be.
This is the good news for eligible business owners. The Division 152 small business CGT concessions are not targeted by the proposed reforms and are expected to continue unchanged.
| Concession | What It Does | Key Condition |
|---|---|---|
| 15-year exemption | Full CGT exemption on the sale | Asset held 15+ years, owner is 55+ and retiring |
| 50% active asset reduction | Reduces the capital gain by a further 50% | Asset must be an active business asset |
| Retirement exemption | Disregard gains up to $500,000 lifetime cap | Proceeds directed to super if under 55 |
| Rollover relief | Defer CGT by reinvesting in a replacement asset | Replacement asset acquired within 2 years |
These concessions can be stacked. For example, under the current system a business owner selling an active asset could apply the 50% general discount plus the 50% active asset reduction - effectively reducing the taxable gain by 75%. Under the proposed changes, the general discount portion would move to indexation, but the active asset reduction still applies on top.
Talk to us before you make any decisions. We help Australian business owners understand their finance options before, during and after a business sale - including bridging finance, overdrafts to cover CGT liabilities and working capital during transitions.
Get a free assessment →If you are planning to sell a business acquired after the cut-off date, your CGT bill under indexation will likely be higher than under the 50% discount - particularly if the business has grown strongly. For a business that has doubled or tripled in value, the difference could be tens of thousands of dollars in additional tax.
Business owners considering transferring ownership to family members or restructuring their business should review their plans with their accountant. The timing of any CGT event relative to the cut-off date matters. Transactions completed before the cut-off lock in the existing 50% discount.
The proposed changes may shift the calculus on whether to hold business assets in a company, trust or individual name. Companies already do not receive the 50% CGT discount (they pay a flat 25-30% rate on the full gain), so the impact is primarily on individuals and trusts. Review your structure with your tax adviser.
A larger CGT liability means more cash going to the ATO at settlement or when your next tax return is lodged. Business owners who have reinvested sale proceeds back into the business or another venture may face a liquidity squeeze when the tax bill comes due.
Practical tip: A business overdraft or line of credit can bridge the gap between a settlement and when you need to pay your CGT liability. This avoids the need to liquidate other assets at a discount to cover the tax bill. Talk to us about your options.
Separately, the Government released draft legislation in April 2026 that broadens CGT rules for foreign investors in Australian land and resources. Key changes include:
If you are a business owner with foreign investors or considering selling to an overseas buyer, these changes could affect your transaction timeline and structure.
OverdraftMe helps business owners access overdrafts, lines of credit and short-term business loans to cover tax obligations - including CGT liabilities after a business sale. 50+ lenders on panel. No upfront fees.
Get a quote →Potentially yes. If the 50% CGT discount is replaced with CPI cost-base indexation for assets acquired after the cut-off date, business owners selling high-growth businesses could face significantly higher tax bills. However, small business CGT concessions under Division 152 remain unchanged and can still reduce your taxable gain substantially.
No. The Division 152 small business CGT concessions - including the 15-year exemption, 50% active asset reduction, retirement exemption (lifetime cap $500,000) and rollover relief - are not targeted by the proposed reforms. Businesses with aggregated turnover under $2 million or net assets under $6 million can still access these concessions.
The 50% CGT discount halves the entire capital gain regardless of how much the asset appreciated. CPI indexation adjusts your purchase price for inflation so you only pay tax on the real gain above inflation. For fast-growing businesses, indexation typically results in a larger taxable amount than the flat 50% discount.
That depends on your individual circumstances, the expected grandfathering provisions, and whether your business qualifies for small business CGT concessions. Rushing a sale purely for tax reasons can be costly. Speak to your accountant and a specialist business finance broker before making any decisions.
A business overdraft can provide short-term liquidity to cover a CGT liability without forcing you to liquidate other assets at a loss. Many business owners use overdraft facilities to bridge the gap between a settlement date and when they need to pay tax on the capital gain.
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