In brief
- The Albanese government has announced changes to its capital gains tax reforms.
- The active small business discount will be expanded to more businesses, while "innovative" start-ups will also receive a concession.
The government has announced changes to its capital gains tax (CGT) reforms announced in last month's budget, with more small businesses eligible for a carve-out, a new tax exemption being looked at for start-ups and a tax on discretionary trusts dumped.
In its May budget, the government announced capital gains tax rules would change from 1 July 2027, with the standard 50 per cent discount for individuals, trusts, and partnerships to be replaced with cost base indexation and a 30 per cent minimum tax rate.
On Thursday, Prime Minister Anthony Albanese said the 50 per cent active asset discount — which is applied on top of the standard CGT discount for small businesses with an annual turnover of up to $2 million — would be expanded to cover businesses with a turnover of up to $10 million.
"We back Australian small businesses and the important role that they play in Australia. They're the blood running through the veins of our local communities and they're vital for our economy," Albanese told reporters in Sydney.
He also said the government will introduce new tax concessions for start-ups, following concerns that measures rolled out in the budget would harm entrepreneurship.
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Around 2.7 million small businesses will have access to tax concessions, Treasurer Jim Chalmers said.
A 30 per cent minimum tax on discretionary testamentary trusts, which has been likened to a death tax by the Opposition, will also be scrapped.
What is CGT?
According to the Australian Tax Office, CGT is "the tax you pay on profits from disposing (or sale) of assets, including investments, such as property, shares and crypto assets".
Despite its name, CGT is not a separate or standalone tax. It's part of your income tax.
If you dispose of an asset (the term broadly applied when you cease to be the owner of an asset), that's considered 'realising' a capital gain and it may trigger a 'CGT event'. That is when you would need to report any capital gains or losses on your tax return.
Capital gains increase the tax you'll need to pay, while capital losses can be offset against any capital gains in the same year they occur (or in future years) to reduce the tax you need to pay.
In 1999, the Howard government introduced the capital gains discount, meaning that assets — like property or shares in a company — held for more than 12 months were entitled to a 50 per cent tax discount. That capital gains discount has been widely credited with Australia's decades-long property boom, but has also come under fire in recent years for its part in creating Australia's housing affordability crisis.
What did the government announce in May?
That 50 per cent CGT discount was in the crosshairs when the Albanese government unveiled its 2026 federal budget last month.
The CGT rules are set to change from 1 July 2027, with the 50 per cent discount for individuals, trusts, and partnerships to be replaced with cost base indexation and a 30 per cent minimum tax rate.
The government's view was that cost-based indexation would ensure that only real capital gains would be subject to tax. The new flat 30 per cent tax rate was expected to align the tax rate on real capital gains with the marginal tax rate faced by the average worker.
The 50 per cent CGT discount would continue to apply to gains arising before 1 July 2027. Capital gains on pre-1985 assets arising before 1 July 2026 were also to remain exempt.
What's changed and who is affected?
The biggest change announced on Thursday to the proposed budget reforms is that more small businesses will be eligible for a tax discount.
Prime Minister Anthony Albanese said the 50 per cent active asset discount, which currently applies to small businesses with an annual turnover of up to $2 million, would be expanded to cover businesses with a turnover of up to $10 million.
According to the government, this will align eligibility for the concession with the turnover threshold for the instant asset write-off.
The government says the expanded eligibility will mean 2.7 million small businesses and 98 per cent of all active businesses will be eligible for the active asset discount.
The government will also look at new tax concessions for start-ups, following concerns that measures rolled out in the budget would harm entrepreneurship. A consultation paper has been released on the design of a new 50 per cent CGT discount for early-stage investors in "innovative start-up businesses".
Founders and employees who receive shares in those start-ups would be included under the proposed discount.
The government will also exempt discretionary testamentary trusts from its planned minimum 30 per cent tax on discretionary trusts. Testamentary trusts are drafted into a will and only activate after the person who made the will dies.
There are also provisions to ensure that deductible and gift donations reduce capital gains that are subject to the minimum tax. The government says this change is to better maintain tax incentives in relation to charitable giving.
The response so far
The Albanese government has been under pressure from the Opposition and the small business sector since the budget announcement that the flat 50 per cent discount would be replaced with cost-based indexation and a 30 per cent minimum tax rate.
Opposition leader Angus Taylor was quick to slam the changes.
"If you could not trust Labor on tax a month ago, you cannot trust them now. Labor's toxic taxes need an axe, not carve outs," he said in a post on his X account.
The Western Australian government said it planned to continue advocating for CGT relief for the mining and exploration sectors.
"We're very keen to have the exploration sector carved out," said WA Treasurer Rita Saffioti.
"It is, as people describe it, the original startup, so we're very keen to see how we can work to support the exploration industry in WA given that that exploration industry leads to billions of dollars in investment."
Greens leader Larissa Waters said her party would look at the new CGT exemptions for small businesses and ensure they were factored into the party's decision-making.
Waters reiterated the Greens' belief that the budget does not meaningfully address the housing crisis and that the budget has inequality "baked in".
"We have been entirely clear from budget night that we think keeping 95 per cent of the tax perks for ultra-wealthy property investors is not going to fix the housing crisis," Waters said.
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