Capital gains tax has been part of Australia’s tax system since 1985, but right now it is getting more attention than it has in decades. With the federal budget due on 12 May 2026, significant changes to capital gains taxation are firmly on the table. If you own investment property, shares, or business assets, or hold investments through a family trust, it is worth understanding this before budget night.
The basics: what CGT is and how it works
Capital gains tax (CGT) is not a separate tax — it is part of Australia’s income tax system. It applies when you sell or otherwise dispose of an asset and make a profit. That profit (the capital gain) is added to your taxable income and taxed at your marginal income tax rate.
The assets it most commonly applies to include investment properties, shares and managed funds, cryptocurrency, and business assets. Your family home is generally exempt, provided you have been living in it as your primary residence.
The key lever in the current system is the 50% CGT discount. If an individual or trust has held an asset for more than 12 months, only half of the capital gain is included in their taxable income. That single rule has made a significant difference to the after-tax returns of long-term investors. Complying superannuation funds receive a smaller discount of 33.33%.
To put that in practical terms: if you bought an investment property for $400,000 and sold it for $700,000, your gross capital gain would be $300,000. With the 50% discount applied, only $150,000 would be added to your taxable income. The tax you pay depends on your marginal rate, but the discount has historically reduced the bill substantially.
Where CGT applies to business owners specifically
Beyond investment property and shares, CGT applies when you sell business assets, including business premises, goodwill, and other active assets. The good news for small business owners is that there are four specific concessions available under current law that can significantly reduce or even eliminate CGT on the sale of business assets.
These include a 15-year exemption (if you have owned an active asset continuously for 15 years, are at least 55, and the sale connects to your retirement or permanent incapacity, the entire gain can be disregarded), a 50% active asset reduction, a retirement exemption allowing up to $500,000 lifetime to be exempt from CGT, and a rollover option allowing you to defer a capital gain for two years if you acquire a replacement asset.
These concessions are not going away under the proposals currently being discussed, but the broader changes could still affect how they interact with your overall tax position.
What changes are being proposed for the May budget
Treasurer Jim Chalmers is broadly expected to reveal changes to Australia’s CGT discount in the May budget, reshaping a discount that currently provides an estimated $22 billion in tax breaks this financial year alone.
Two reform directions are being actively discussed.
The first is replacing the current 50% flat discount with an inflation-adjusted (indexation) model. This takes the system back to the model in place before 1999, where investors would be taxed only on the real capital gain above inflation, rather than receiving a blanket 50% reduction regardless of how much the asset actually grew in real terms.
Reports suggest that under the most likely scenario, investors would retain the 50% discount for gains accrued under the current rules, with the inflation-based tax applying to gains made after budget night or 1 July 2026. This is known as partial grandfathering, in which existing assets held before the change are treated differently from those acquired after.
The second option being floated is simply cutting the discount from 50% to either 25% or 33%, rather than moving to an indexation model. Policymakers are weighing this cut for individuals, partnerships, and trusts holding assets for more than 12 months.
Some more ambitious forecasts suggest the changes could go further, with analysis from CommBank Economics flagging the possibility of a full return to CGT indexation across all asset classes, not just residential property, paired with the abolition of negative gearing for new investments.
What this means for family trusts
A family trust can currently claim the 50% CGT discount on assets held for more than 12 months, with the trustee then distributing the discounted capital gain to a beneficiary who includes it in their personal assessable income. The trustee’s discretion to direct the gain to a beneficiary in a lower tax bracket is a significant planning opportunity under the current system.
If the discount is reduced or replaced with indexation, a minimum investment tax of 27.5% on non-labour income, including income from family trusts, has also been proposed to reduce the benefit of income splitting through trust structures.
These are proposals, not confirmed law. But if they proceed, the planning benefits that many business owners currently use through trusts could be meaningfully reduced.
What to be mindful of right now
The budget lands on 13 May. If changes are announced, they could apply from that night or from 1 July 2026. A few things are worth considering before that date.
If you have investment assets with significant unrealised gains and have been considering selling, the timing question matters. Gains realised before any legislative change takes effect would generally fall under current rules.
If your business assets are held in a trust or company structure, it is worth understanding how proposed changes affect your specific situation, particularly if you are approaching a sale or transition in the next few years.
The small business CGT concessions are complex, and getting the eligibility wrong is a costly mistake. The ATO monitors these claims closely, and errors in asset valuation, the active asset test, or aggregated turnover calculations are among the most common issues.
No confirmed CGT changes have been enacted as of the time of publishing. The reforms being discussed originate from proposals and pre-budget modelling rather than enacted legislation. Before making any financial decisions, verify the current status through the ATO or Treasury, or speak to your adviser directly.
If you have questions about how any of these changes could affect your business or investment position, the team at MBC Group Services can help you work through what it means for your specific situation.
