50% CGT discount to cover more start-ups and small businesses
Key takeaways
- The federal government announced today that it will change the CGT discount rules, allowing businesses with up $10 million turnover to keep the old 50% discount.
- More start-up founders and small business owners who sell their business will get to keep the 50% CGT discount under changes to the new rules.
- What's next: the government says it will put the changes into legislation in the next couple of weeks.
The federal government has softened a key tax change from the 2026 budget: more start-ups and small businesses will keep the old 50% capital gains tax (CGT) discount.
Now, owners of businesses with turnovers of up to $10 million can sell their business and keep the 50% CGT discount on their profits. Previously this exemption was limited to businesses with $2 million turnover.
Why the change?
In May the federal government announced major changes to taxation, including scrapping the 50% CGT discount that Australian investors and businesses had enjoyed for over 25 years.
While the government called this a necessary move to help housing affordability, many business owners and founders complained that these changes disincentivised Australians to start businesses.
The government is replacing the old discount with a new cost based indexation model, with a minimum 30% tax for all capital gains. This method factors in inflation when taxing capital gains, but represents a tax increase for many investors and business owners.
63% of the experts Finder surveyed in June said the original CGT reforms were bad for small businesses. 68% said there should CGT exemptions for start-ups.
The new carve-out for start-ups
Before today, businesses with $2 million turnover were able to keep the old 50% CGT discount if their owners sold. Now it's being expanded to businesses with $10 million turnover.
It's a big expansion and will allow many more owners and founders to keep more of their profits when they cash out. The prime minister today claimed that "all 2.7 million active small businesses and 98 per cent of all active businesses will be eligible for generous CGT concessions."
The changes have not been fully fleshed out yet and may change as the legislation moves through parliament. The government says business owners, founders, early investors and employees with shares in the start-ups they work for will also be exempt.
Today's changes do not affect property investors or Australians who invest in shares. If you sell an investment property or cash in some shares, you'll pay capital gains tax under the cost base indexation model announced in May.
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