Changes to Tax Reforms for Small Businesses and Trusts

In June 2026, the government announced changes to the tax reforms announced in the 2026 budget. This was after an intense backlash from the small businesses and a period of consultation. 
The announced changes include:
* Raising the eligibility for the 50% discount on Capital Gains Tax (CGT) for small businesses from $2 million turnover to $10 million.
* Innovative startup investors and founders can formally go through a consultation process to receive a 50% CGT discount.
* Donations that are deductible will reduce the capital gains you need to pay a 30% tax on.
* Genuine Testamentary Trusts (such as for deceased estates) are fully exempt from the new 30% tax.
* Certain CGT adjustments (such as donations to charities) will be incorporated into the legislation as amendments instead of implementation through legislative instrument. 
Raising the small business threshold
For small businesses to access CGT concessions, they need to meet certain conditions. Originally a small business had to have under a $2 million turnover across the group or net wealth (not including superannuation, personal assets or the family home) of under $6 million. You only needed to meet either one, not both.
The latest changes increased the $2 million threshold to $10 million, which allows small businesses to receive a 50% discount on the capital gains of business assets. Or, depending on the timing, there could be a base inflation adjustment on the business profit and then a reduction of 50%.
Discount for innovative start-ups
A consultation paper, Innovative Business CGT Concession, sets out a 50% CGT discount for early business investors and founders of innovative businesses. The eligibility criteria includes:
* A turnover of less than $50 million.
* New shares issued by companies less than 10 years old (or 15 under specific circumstances; for example, biotech companies).
* You cannot sell the shares for at least five years.
* The organisation has to meet criteria for an innovative start-up.
* The discount has a lifetime cap and once reached, the company pays CGT according to the normal rules.
Deductible charitable donations
There were concerns about the 30% CGT impacting the ability or reduction of making charitable donations after paying the tax. The government now allows for donations or gifts to reduce capital gains before assessment for the 30% minimum tax.
Testamentary trust exclusion
Originally the government included testamentary trusts in the new 30% tax. Now they are excluded as long as the trust is set up for genuine reasons. However, there is a limit to the exclusion. It is only covers any income from the assets of a deceased estate. 
Keep in mind that the exclusion will only apply to entities that are tax exempt or trusts that benefit individuals after 1 July 2028.
New tax on discretionary trusts
After much debate about the new 30% tax for discretionary trusts from July 2028, the government released a consultation paper on July 8.
While the government will go ahead with the tax reforms, the following were some observations that came out of the paper:
* A 30% credit that is not refundable will not offset the Medicare levy, so that means the real minimum tax rate is 32% not 30%.
* Discretionary trusts that have corporate beneficiaries will need to restructure before the new tax commences to avoid the possibility of paying up to a 70% tax rate.
* There is no indication of CGT relief.
These tax reforms are complex with more changes to come as the government continues its consultation. Ben will continue to monitor these changes so he has the latest information available. Feel free to contact Ben with any questions about how the new tax reforms affect small businesses and trusts.