The Australian Government has moved to soften some of its planned CGT reforms, following feedback from small business and investor groups. Late last week, the Prime Minister and Treasurer unveiled adjustments designed to carve out or cushion the impact on key groups – small business owners, innovative start‑ups, and genuine testamentary trusts. These changes aim to provide more certainty and support to taxpayers in these categories while the broader CGT reform agenda continues through Parliament.
The concessions to address industry concerns with the proposed CGT reform include:
1. Small business CGT relief expanded – the turnover threshold for small business CGT concessions will be increased from $2 million to $10 million. This means businesses with up to $10m annual turnover can still qualify for the existing small business 50% active asset CGT reduction when they sell a business or business asset. The Government will introduce amendments to the legislation currently before the Senate to give effect to this change. The $6m threshold for the maximum net asset value test is not being increased as part of these changes.
2. New concession for start-ups – The government will introduce an ‘Innovative Business CGT Concession’ to support early-stage investors including founders and employee share scheme participants of innovative start-up businesses. The concession proposed is a 50% discount on eligible capital gains subject to a lifetime cap of $10m per individual. Subject to further consultation, eligible shares must be new equity issued by a company that:
- is under 10 years old (or under 15 years in certain biotech and medtech cases);
- has turnover below $50 million;
- meets principles based innovation criteria; and
- are held for at least five years before being sold, with a lifetime cap on the concession.
This carve-out ensures entrepreneurial investors won’t be disadvantaged by the broader proposed CGT changes especially when their shares have a low or zero upfront cost base. Consultation is open until 10 July and will inform the final design, to be implemented in a later tranche of tax reform legislation.
3. Testamentary trusts protected – In response to targeted consultation following the Budget, the Government will exempt income from all types of discretionary testamentary trusts from the minimum tax provided they are established for genuine testamentary purposes. In other words, income distributed from a genuine inheritance trust will continue to be taxed under current rules, rather than automatically at 30%. This addresses fears that the new regime would effectively impose a perceived ‘death tax’ on inheritance trusts.
The softened measures are still proposals and will be included in legislation that Parliament needs to pass, likely in the coming months. We expect the core CGT reforms to take effect from mid-2027 as scheduled, with these new carve-outs built in. No immediate action is required from taxpayers while the details are being finalised. In the meantime, stay informed on the progress of these reforms and contact your local Moore Australia office if you would like to discuss how these changes may affect you.
