Labor’s most contested tax reform in a generation cleared its first formal hurdle on Thursday and immediately ran into organised resistance.
Treasurer Jim Chalmers introduced the government’s tax reform legislation to the House of Representatives on 28 May, bundling together four budget measures: the capital gains tax overhaul, new limits on negative gearing, a $250 annual offset for workers and sole traders, and a new $1,000 instant tax deduction.
Within hours, a Senate inquiry into the CGT elements of the bill was announced, with the government racing to pass the full package before the planned start date of 1 July 2027. The core of the backlash is that the government framed the CGT changes as a housing affordability measure, but the legislation as introduced applies to all asset classes, including shares, business interests, and investment property. That is a broader reach than many in the business community expected.
The Australian Chamber of Commerce and Industry has called on the government to confine the changes to housing only, warning that extending the reforms across all asset classes will reduce business investment.
COSBOA, the peak body for small business, has raised concerns about what it describes as unintended consequences for genuine small businesses and family enterprises, particularly those that have grown their value through reinvestment rather than drawing high wages.
For more detailed overage, please see: Senate inquiry launched into Labor’s CGT overhaul as business backlash grows
What is actually changing
Under the current system, individuals, trusts, and partnerships who have held an asset for more than 12 months pay tax on only half the capital gain when they sell. That 50% discount has been in place since 1999.
From 1 July 2027, as confirmed on the federal government’s budget website, the 50% flat discount will be replaced with inflation-adjusted indexation, meaning the original purchase price is adjusted for inflation before the gain is calculated. A minimum tax rate of 30% will then apply to whatever gain remains. For assets with gains that significantly outpace inflation, the tax bill will be higher than under the current system.
Assets purchased before budget night on 12 May 2026 and sold before 1 July 2027 retain the existing discount in full. Transitional arrangements apply to assets bought before that date and sold after July 2027. Investors in new residential builds will have the option to choose between the old discount and the new model, according to the budget website.
Discretionary trusts will separately face a 30% minimum tax rate on income from 2028-29, adding further complexity for business owners who currently hold assets through trust structures, as noted by accounting firm William Buck.
What to do now
The Senate inquiry gives the business community a formal channel to push for amendments, and the outcome of that process could meaningfully change how the final legislation reads. For SME owners, the most urgent question is straightforward: does your business qualify for the existing small business CGT concessions? If your annual turnover sits below $2 million or your net assets below $10 million, your position may be largely unchanged. If you have grown past those thresholds, the changes are directly relevant to any exit or succession plan you are considering.
The $20,000 instant asset write-off, made permanent from 1 July 2026 as part of the same budget package, offers some relief for ongoing investment decisions but does not change the picture for business owners focused on eventual sale.
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Larisa Badon
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