What the new CGT rules mean for SME clients

The federal government’s recent announcement regarding small business capital gains tax (CGT) concessions introduces significant changes that financial advisers must prepare for. By increasing the turnover threshold for the 50 per cent active asset reduction from $2 million to $10 million, the government has fundamentally altered the exit landscape for small-to-medium enterprise (SME) clients.

To advise business owner clients effectively, we must view this announcement in the context of the broader tax reforms set to take effect from 1 July 2027. The headline change is the abolition of the general 50 per cent CGT discount for individuals, trusts, and partnerships, replacing it with cost base indexation and a 30 per cent minimum tax rate on capital gains.

When these two policy shifts interact, they create a new three-tier system for business owners. Depending on their aggregated turnover, clients will face vastly different tax realities upon the sale of their active business assets.

The new three-tier system

Tier 1: Up to $2 million turnover Previously, these business owners enjoyed the general 50 per cent CGT discount alongside the four small business CGT concessions under Division 152. While the general discount is being removed, they still qualify for all four small business concessions (the 15-year exemption, the 50 per cent active asset reduction, the retirement exemption, and the rollover concession). This provides advisers with the maximum flexibility to significantly reduce or eliminate their clients’ capital gains tax upon exit.

Tier 2: $2 million to $10 million turnover Historically, this cohort relied heavily on the general 50 per cent CGT discount. With its impending removal, the government has extended the 50 per cent active asset reduction to this group. From a planning perspective, this is not a new benefit. It effectively replicates the discount they previously enjoyed, preserving the status quo for businesses in this growth phase.

Tier 3: Over $10 million turnover This group faces the most severe consequences. These businesses previously utilised the general 50 per cent CGT discount. Under the new rules, this discount is abolished, and they do not qualify for the expanded active asset reduction. Clients who scale their businesses beyond the $10 million threshold will face a significantly higher tax burden upon exit, as the full capital growth (post-indexation) becomes taxable.

The practical impact on client exits

Consider an entrepreneur who started a business in their twenties or thirties and sells it ten years later with a calculated capital gain of $1 million after cost base indexation. Due to their age and circumstances, assume they do not qualify for the 15-year exemption or the retirement exemption.

Turnover	Previous Rules	New Rules
Up to $2 million	Taxable gain: $250,000 (50% active asset reduction + 50% CGT discount)	Taxable gain: up to $500,000 (50% active asset reduction) unless qualify for one of other Div 152 concessions
$2 million to $10 million	Taxable gain: $500,000 (50% CGT discount only)	Taxable gain: up to $500,000 (50% active asset reduction only)
Over $10 million	Taxable gain: $500,000 (50% CGT discount only)	Taxable gain: up to $1,000,000 (no discount available)

Note: Cost base indexation may reduce the calculated capital gain below these figures. The above assumes a $1 million gain after indexation to isolate the impact of the concession tiers. Businesses with net assets below $6 million may also access the concessions via the alternative maximum net asset value test, regardless of turnover.

Strategic implications for advisers

For financial advisers, this new landscape requires a shift in how we approach business owner clients.

First, it is critical to clarify to clients that this is not a broad extension of all small business CGT concessions. There are four concessions under Division 152. Only one (the active asset reduction) has been extended to the $10 million turnover threshold. The other three remain subject to the $2 million aggregated turnover test (or the $6 million maximum net asset value test).

Second, the structural tax jump between Tier 2 and Tier 3 creates a significant planning consideration for clients approaching the $10 million turnover mark. Advisers must model the after-tax outcome of scaling the business versus exiting before crossing the threshold. In some cases, the additional revenue generated by growing the business may be entirely consumed by the loss of the active asset reduction upon sale.

Finally, these changes reinforce the importance of early structuring advice. The “set and forget” approach to corporate structures is no longer viable. Advisers must work closely with clients’ accountants to ensure their structures remain appropriate for their current growth tier, and that any potential restructuring occurs well before an exit event is contemplated.

The abolition of the CGT discount and the introduction of these new tiers represent the most significant rewrite of private business taxation in decades. As advisers, our role is to help clients navigate these artificial ceilings and ensure their hard-earned capital growth is protected.

Sheshan Wickramage is the principal financial adviser at Wick Financial. He advises business owners and high-net-worth families on wealth strategy, tax planning, and generational wealth transfer.