CGT & Discretionary Trust Changes 2027–2028: What Australian Small Businesses Need to Know

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Upcoming CGT and Discretionary Trust Changes: What Small Business Owners Need to Know

The Federal Government has announced proposed changes to Capital Gains Tax (CGT) and discretionary trusts that may affect many Australian small businesses from 1 July 2027 and 1 July 2028.

While the proposed reforms have attracted significant attention, many small business owners may be relieved to know that key small business tax concessions are expected to remain available.

Small Business CGT Concessions Are Staying

The four existing Small Business CGT Concessions will continue to be available for eligible businesses:

• 15-Year Exemption

• 50% Active Asset Reduction

• Retirement Exemption

• Active Asset Rollover

These concessions can significantly reduce or even eliminate capital gains tax when selling active business assets such as business premises, goodwill, client lists, or other qualifying business assets.

For many business owners planning retirement or succession, these concessions remain one of the most valuable tax planning opportunities available.

Changes to the CGT Discount from 1 July 2027

Currently, individuals and trusts may be eligible for a 50% CGT discount on assets held for more than 12 months.

Under the proposed reforms, the current 50% discount will be replaced with a new inflation-based calculation method from 1 July 2027.

Importantly, gains accumulated before 1 July 2027 are expected to retain the existing treatment, meaning the changes are prospective rather than retrospective.

This provides certainty for business owners who have built up value in their businesses over many years.

New 30% Minimum Tax on Discretionary Trusts

From 1 July 2028, discretionary trusts may become subject to a 30% minimum tax at the trustee level.

The Government's stated objective is to align the taxation of trust income more closely with the taxation of employment income.

This proposal primarily impacts discretionary trusts that distribute income to beneficiaries on lower marginal tax rates.

What About Family Businesses?

Many family-owned businesses operate through discretionary trusts.

Where family members genuinely work in the business, paying commercial wages and salaries may continue to be a legitimate alternative to trust distributions.

Proper documentation and compliance with employment obligations will remain essential.

Restructuring Relief Available

Recognising that some businesses may wish to change their structure, the Government has proposed a three-year restructuring relief period commencing 1 July 2027.

This may allow eligible businesses to transition from a discretionary trust to another structure, such as:

• A company

• A fixed trust

• Other eligible business structures

without triggering immediate CGT or income tax consequences.

Who May Be Exempt?

According to the Government's explainer, several categories are expected to be excluded from the new minimum trust tax rules, including:

• Primary production income

• Certain testamentary trusts

• Fixed trusts

The detailed legislation and consultation process will determine the final scope of these exemptions.

What Should Business Owners Do Now?

Although these changes are not expected to commence for several years, business owners should begin reviewing their current structures and long-term plans.

Areas worth reviewing include:

• Business ownership structures

• Trust distribution strategies

• Succession planning

• Asset protection arrangements

• Division 7A exposures

• Future business sale plans

Early planning often provides the greatest flexibility and may help avoid costly restructuring decisions later.

Final Thoughts

While the headlines surrounding CGT and trust reform may seem concerning, the proposed changes also create opportunities for proactive planning.

For many small business owners, the existing Small Business CGT Concessions remain intact and continue to provide significant tax benefits.

Every business situation is different. If your business operates through a discretionary trust or you are considering selling a business asset in the future, professional advice should be obtained before making any decisions.

Need assistance reviewing your business structure or tax planning strategy? Contact our team today to discuss how these proposed changes may affect your business.