Selling a business can be a significant financial decision. After years of building a business, developing goodwill and investing in assets, owners naturally want to understand how much tax they may need to pay when they sell.
From 1 July 2027, important changes to Australia’s Capital Gains Tax (CGT) rules will affect how certain capital gains are calculated. The existing 50% CGT discount will be replaced by inflation-based cost-base indexation for eligible gains accruing from that date. A minimum 30% tax rate will also apply to certain real capital gains.
These changes are particularly relevant to business owners considering retirement, selling business assets or transferring ownership.
However, the new rules do not mean every business owner will automatically pay more tax. The outcome depends on the business structure, asset ownership, timing of the capital gain and eligibility for small business CGT concessions.
This guide explains what business owners need to know about the 2027 CGT changes and how to prepare for a business sale.
What Are the New CGT Rules in Australia From 1 July 2027?
Under the current Australian tax system, eligible individuals and trusts can generally claim a 50% CGT discount when selling an asset held for at least 12 months. The discount may also flow through to eligible beneficiaries of trusts.
From 1 July 2027, this general discount will be replaced by an inflation-based cost-base indexation system for eligible gains accruing from that date.
The main changes include:
- The general 50% CGT discount will be replaced by cost-base indexation for eligible post-transition gains.
- The cost base of qualifying assets will be adjusted for inflation using the relevant CPI rules.
- A minimum 30% tax rate will apply to certain real capital gains.
- Capital gains accrued before 1 July 2027 will retain their existing discount treatment, subject to eligibility.
- The four existing small business CGT concessions will remain available.
- The turnover threshold for the small business 50% active asset reduction will increase from $2 million to $10 million from 1 July 2027.
These reforms are not a flat 30% tax on the total amount received from selling a business. The calculation concerns qualifying capital gains after applicable adjustments and concessions.
How Will the New CGT Rules Affect Business Sales?
A business sale can involve several assets, including goodwill, machinery, equipment, commercial property and intellectual property. Their tax treatment may differ.
1. Replacement of the 50% CGT Discount
Under the existing rules, eligible individuals and trusts may reduce qualifying capital gains by 50% if the relevant asset has been owned for at least 12 months.
From July 2027, the general discount will no longer apply to eligible gains accruing after the transition date.
For example, suppose an individual sells an eligible asset and makes a capital gain of $200,000.
Under the existing rules, an eligible taxpayer may generally reduce the gain to $100,000 using the 50% discount, before other adjustments.
Under the new system, the calculation will instead consider the inflation-adjusted cost base and the real capital gain.
The result will depend on the asset’s purchase cost, holding period and applicable tax rules.
2. Inflation-Based Cost-Base Indexation
Cost-base indexation accounts for inflation when calculating a capital gain.
For example, suppose a business owner purchases an eligible asset for $300,000 and later sells it for $500,000.
The nominal capital gain is $200,000.
If the eligible indexed cost base is $350,000, the gain after indexation would be $150,000.
This is a simplified example. Actual calculations depend on the statutory CPI formula, eligible cost-base elements and other adjustments.
Business owners should also remember that internally generated goodwill may have a low or nil cost base, so the benefit of indexation can vary considerably between assets.
3. Introduction of the Minimum 30% Tax Rate
The new arrangements also introduce a minimum 30% tax rate on certain real capital gains.
This may affect individuals who previously expected to pay less tax by realising a capital gain in a year when their other taxable income was relatively low.
However, the minimum tax is not calculated on the entire business sale price. It applies to qualifying gains under the new legislation.
The availability of small business concessions and other applicable adjustments must also be considered.
What Happens to Business Gains Accrued Before July 2027?
This is an important part of the new legislation.
The CGT reforms apply prospectively. Gains accrued before 1 July 2027 retain the existing 50% discount treatment, subject to the relevant eligibility requirements, even if the asset is sold later.
For example, imagine a business asset was purchased for $200,000 and increased in value to $400,000 by 30 June 2027. The owner eventually sells it for $500,000.
The total increase is $300,000:
- Pre-July 2027 increase: $200,000.
- Post-June 2027 increase: $100,000.
The pre-transition gain retains the existing treatment, while the post-transition component is calculated under the new arrangements.
The transitional provisions determine how the gain is separated and calculated. Appropriate valuation evidence and historical purchase records can help support the calculation.
Business owners holding assets across this date should organise their records well before the transition.
Are Small Business CGT Concessions Still Available?
Yes. The Government is retaining all four existing small business CGT concessions.
These concessions can help eligible business owners reduce, disregard or defer capital gains when selling qualifying business assets.
Small Business 15-Year Exemption
Eligible owners may disregard a capital gain completely if they satisfy the 15-year ownership requirement, active asset conditions and other eligibility rules.
Generally, the individual must also be at least 55 and retiring, or permanently incapacitated.
Small Business 50% Active Asset Reduction
This concession allows eligible taxpayers to reduce a qualifying capital gain by 50%.
It is separate from the general 50% CGT discount.
From 1 July 2027, the turnover threshold for this concession will increase from $2 million to $10 million. Other eligibility requirements, including the active asset test, will continue to apply.
Small Business Retirement Exemption
Eligible business owners can disregard capital gains up to a lifetime limit of $500,000.
Additional superannuation requirements apply to individuals under 55.
Small Business Rollover
This concession allows eligible business owners to defer all or part of a capital gain.
Generally, the deferral can last for two years, with further deferral possible in qualifying replacement-asset circumstances.
The rollover is a tax deferral, not necessarily a permanent exemption.
Does Your Business Structure Affect CGT When Selling?
Yes. The business structure and legal ownership of assets can significantly affect the tax outcome.
Sole Trader
A sole trader owns business assets personally. Capital gains from selling eligible assets are generally included in the individual’s tax position.
The new CGT arrangements will apply to qualifying gains accruing after 1 July 2027.
If you operate independently, reviewing your Sole Trader Tax Return requirements can help you understand the reporting obligations associated with a business sale.
Partnership
A partnership generally lodges its own partnership tax return, but the partners are assessed on their respective shares of partnership income.
Where a partnership asset is sold, the capital gain must be dealt with under the applicable partnership and CGT rules.
Each partner’s circumstances may affect the final tax outcome.
You can review the relevant Partnership Tax Return services when preparing for the sale and related tax reporting.
Company
A company is a separate legal entity, so its business assets generally belong to the company.
There are two common ways to sell a company-operated business:
- Asset sale: The company sells its business assets and calculates the resulting tax consequences.
- Share sale: Shareholders sell their shares, potentially creating a capital gain in their individual tax positions.
Companies generally do not qualify for the standard 50% CGT discount, and the new discount replacement does not apply to them in the same way as it does to individuals and trusts.
Eligible shareholders may be able to access small business CGT concessions when selling qualifying shares, subject to the relevant conditions.
For reporting requirements, see the Company Tax Return services.
Trust
A trust may own business assets and distribute capital gains to eligible beneficiaries under the trust deed and applicable tax rules.
The type of trust, ownership arrangements and beneficiaries can influence the final tax treatment.
Relevant post-transition gains may be subject to the new indexation arrangements, depending on the trust and beneficiary circumstances.
Trustees can review the Trust Tax Return services when preparing for a business sale.
Should You Sell Your Business Before or After 1 July 2027?
There is no universal answer. Selling before the transition date does not automatically produce a better tax outcome because gains accrued before July 2027 retain their existing treatment even if the asset is sold later.
Before deciding on a sale date, consider:
Existing business value: Understand how much of the capital gain accrued before the transition date.
Small business concessions: Check whether you qualify for the 15-year exemption, retirement exemption, active asset reduction or rollover.
Business structure: An asset sale and a company share sale can have different tax consequences.
Commercial considerations: Do not rush a sale solely to meet a tax deadline if doing so could affect the sale price or contractual terms.
Contract date: For many business sales, the CGT event occurs when the sale contract is entered into, rather than when settlement takes place.
Getting the tax implications reviewed before signing a binding agreement can help avoid costly mistakes.
What Should You Prepare Before Selling Your Business?
Good preparation makes it easier to understand the tax consequences of a sale.
Here are five areas worth reviewing.
1. Organise Your Financial Records
Keep your business tax returns, financial statements, asset registers and purchase documents organised.
You may need evidence of original asset costs, capital improvements, depreciation claims and other cost-base adjustments.
2. Obtain an Appropriate Valuation
A business valuation helps establish its commercial worth.
For assets held across the July 2027 transition, valuation evidence around 30 June 2027 may also be important for supporting the CGT calculation.
3. Identify What Is Included in the Sale
Clearly identify the assets being transferred, including goodwill, equipment, property, intellectual property and trading stock.
Not every component is treated as a capital gain. Trading stock and depreciating assets can have different tax consequences.
4. Check Your Small Business CGT Eligibility
Review your turnover, net asset value, active asset status, ownership arrangements and other relevant conditions.
Do not assume that operating a small business automatically makes you eligible for every concession.
5. Consider GST and Other Tax Obligations
A business sale may also involve GST, trading stock adjustments and balancing adjustments for depreciating assets.
For example, a GST-free sale of a going concern must satisfy specific legal requirements. It should not be assumed that every business sale qualifies.
Business owners should review these matters before finalising the sale agreement.
Frequently Asked Questions
1. What are the new CGT rules from 1 July 2027?
The general 50% CGT discount will be replaced by inflation-based cost-base indexation for eligible gains accruing from 1 July 2027. A minimum 30% tax rate will also apply to certain real capital gains.
2. Will the small business 50% CGT concession still exist?
Yes. The small business 50% active asset reduction will remain available to eligible taxpayers. Its turnover threshold will increase from $2 million to $10 million from July 2027.
3. Should I sell my business before July 2027?
Not necessarily. Pre-transition gains retain the existing discount treatment, even if the asset is sold later. The best timing depends on your business circumstances and tax position.
4. Will I pay 30% tax on my business sale?
Not automatically. The minimum tax applies to certain real capital gains under the new rules, not the entire sale proceeds.
5. Can I still claim the small business retirement exemption?
Yes. Eligible business owners can potentially disregard capital gains up to the $500,000 lifetime limit, subject to the relevant requirements.
6. Does CGT apply differently to companies and trusts?
Yes. Companies generally do not receive the standard 50% CGT discount. Trusts and their beneficiaries may be subject to the new indexation arrangements, depending on the applicable rules and beneficiary circumstances.
7. When should I get tax advice before selling?
Ideally, before signing the sale agreement. Early planning allows you to review asset ownership, potential concessions, GST and the timing of the CGT event.
Conclusion
The CGT changes commencing on 1 July 2027 are important for Australian business owners planning to sell, retire or transfer ownership.
Although the general 50% CGT discount is changing, the existing small business CGT concessions are being retained. Gains accrued before the transition date also retain their existing treatment, subject to eligibility.
Understanding your business structure, asset values and available concessions before entering into a sale agreement can help you prepare for the tax consequences and avoid unexpected liabilities.
Planning to Sell Your Business in 2027?
Before finalising your business sale, make sure you understand the potential CGT implications and tax reporting requirements. Tax Return in Perth can assist with business tax return preparation and relevant tax compliance.
Contact Tax Return in Perth to discuss your business sale and tax return requirements with our Perth team.
