Important: The CGT changes discussed in this article have not been officially confirmed by the Government as of 6 May 2026. This analysis is based on reporting from sources including the AFR and ABC, along with independent economic commentary. Dynamic Business will cover confirmed announcements on 12 May. This article is general information only and does not constitute financial or tax advice.
Capital gains tax is not something most small business owners think about every day. But for anyone planning to sell a business, dispose of a significant asset, or wind down an investment in the next year or two, what gets announced on budget night next week could matter considerably.
The 50% CGT discount, which has been part of the Australian tax system since 1999, is widely expected to be reviewed. And if it does, the way gains from business sales, property, and shares are taxed will shift in ways that have not been seen in nearly three decades.
What is the CGT discount and why does it matter
Right now, if you hold an asset for more than 12 months and then sell it, you only pay tax on half of the capital gain. The other 50% is discounted away. That applies to individuals and trusts. Companies do not receive the discount. So if you sold a business for a $200,000 gain, you would currently only include $100,000 in your taxable income, paying tax at your marginal rate on that amount rather than the full gain.
For small business owners, the CGT discount often works alongside the small business CGT concessions under Division 152 of the tax law, which offer additional relief including the 15-year exemption, the 50% active asset reduction, the retirement exemption, and rollover provisions. These concessions remain in place regardless of what happens to the general CGT discount, as they are separate provisions. But the general discount is a significant first layer of relief that sits beneath them, and changes to it would alter the tax maths on a range of transactions.
What is being reported
The AFR reported this week, citing anonymous sources with knowledge of the situation, that the most likely model involves replacing the 50% discount with an inflation indexation system, effectively returning to the method used before 1999. Under that model, the cost base of an asset is adjusted for inflation so that only real gains, gains above the rate of inflation, are taxed at the investor’s marginal rate. Gains caused purely by inflation would not be taxed.
The AFR also reported that investors would face the 50% discount for gains accrued under the current model, and the new inflation-based tax for gains made after budget night or 1 July 2026. This is the grandfathering arrangement that has been widely discussed, though the precise design has not been confirmed.
CommBank Economics analysis published last week assessed that the government is likely to go further than originally expected, with CGT indexation applied to all asset classes rather than just residential property, alongside the abolition of negative gearing for new investments. Deloitte Access Economics, in its Budget Monitor report, called for the new discount to be phased in incrementally over several years rather than grandfathering assets under old rules, to give investors time to adjust without abruptly distorting asset markets.
What it means for SME owners specifically
The CGT question is not primarily about investment properties. It is about what happens when you sell your business or a significant business asset, how employee share schemes and management incentive plans are structured, and how investment in your own company is treated when you exit.
Under an inflation indexation model, the outcome for a business sale depends heavily on how fast the business has grown relative to inflation. In a high-growth environment where the business has significantly outperformed inflation, the tax payable under indexation would be higher than under the current 50% discount. In a lower-growth, higher-inflation environment, the opposite could be true. The calculation becomes more complex and more variable than the current flat discount.
The small business CGT concessions remain separate from the general discount and are expected to remain available to eligible businesses. A business with aggregated turnover under $2 million, or net assets not exceeding $6 million, that sells an active asset may still access the 15-year exemption, the active asset reduction, the retirement exemption, or rollover relief under Division 152, regardless of what happens to the general discount. But how the general discount and these concessions interact under a new indexation model is a question that will require specific advice once the details are confirmed.
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