Geraldton Accountant for Tax, Business & Investment Advice

Australia’s capital gains tax rules are changing significantly from 1 July 2027.

For business owners, those changes could make the Small Business CGT Concessions even more important when planning a future business sale.

The reason is simple: while the existing Small Business CGT Concessions remain, some of the broader CGT concessions available outside Division 152 are becoming less favourable.

What is changing?

From 1 July 2027, major changes will apply to the general CGT regime.

Broadly, these include:

• changes to the general 50% CGT discount
• changes to the treatment of pre-CGT assets
• a new 30% minimum tax applying to certain capital gains.

Transitional rules apply, meaning the outcome can depend on when the gain accrued and when the relevant CGT event occurs.

One Small Business CGT Concession is also expanding

There is also an important change for certain business owners.

From 1 July 2027, the aggregated turnover threshold applying to the Small Business 50% Active Asset Reduction increases from $2 million to $10 million.

This may allow some larger businesses to access that particular concession where they could not previously qualify through the turnover pathway.

Importantly, the change is specific to the 50% Active Asset Reduction. It does not mean the eligibility rules for all Small Business CGT Concessions have increased to $10 million.

Why this matters when selling a business

For many business owners, the tax outcome on a future sale may increasingly depend on whether the Small Business CGT Concessions are available.

That can make a significant difference to the amount ultimately retained after tax.

The important point is that eligibility cannot usually be determined from the sale price or turnover figure alone. The answer depends on the specific business, ownership structure, transaction and concession being considered.

That is why business sale planning should start before a transaction is locked in.

From 1 July 2027, understanding your Small Business CGT Concession position may become even more valuable than it is today.‍

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General information only. The CGT reforms apply from 1 July 2027 and are subject to detailed transitional and eligibility rules. Professional advice should be obtained before entering into a business sale or relying on any CGT concession.

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A common misconception is that if your capital gain exceeds $6 million, you automatically cannot access the Small Business CGT Concessions.

That is not necessarily correct.

The $6 million Maximum Net Asset Value Test is not a cap on the size of the capital gain.

It is one of several pathways that may allow a taxpayer to satisfy the basic conditions for the Small Business CGT Concessions.

A $10 million capital gain does not automatically mean you fail‍

For example, a taxpayer may qualify as a CGT small business entity where their aggregated turnover is less than $2 million.

If that pathway is satisfied, and the other relevant Division 152 conditions are met, the fact that the capital gain itself is $10 million does not automatically prevent access to the concessions.

The taxpayer does not also have to satisfy the $6 million Maximum Net Asset Value Test simply because the gain exceeds $6 million.

What if turnover is above $2 million?

If aggregated turnover is $2 million or more, the CGT small business entity pathway may not be available.

However, the taxpayer may still potentially qualify through the $6 million Maximum Net Asset Value Test or another applicable pathway.

The MNAV test looks broadly at the net value of relevant CGT assets just before the CGT event.

Importantly, the calculation can extend beyond the entity selling the asset and may also involve connected entities and affiliates.

Not every liability is necessarily taken into account either, so the calculation can be more complex than simply subtracting total liabilities from total assets.

The important question is how you qualify

When considering the Small Business CGT Concessions, the question should not simply be:

“Is my capital gain over $6 million?”

The better question is:

“Which Division 152 eligibility pathway applies to my circumstances?”

That can depend on turnover, net asset values, connected entities, affiliates, the asset being sold, the active asset requirements and the structure of the transaction.

A capital gain above $6 million does not automatically prevent access to the Small Business CGT Concessions.

But neither does a capital gain below $6 million automatically mean you qualify.

That is why eligibility should be reviewed carefully before a business sale is locked in.‍

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General information only. Eligibility for the Small Business CGT Concessions depends on the particular facts and the detailed requirements of Division 152 of the Income Tax Assessment Act 1997. The application of the aggregated turnover and Maximum Net Asset Value tests can involve connected entities, affiliates and specific rules regarding which assets and liabilities are included. Professional advice should be obtained before entering into a business sale or relying on the concessions.

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Valuation can be critical when determining whether the Small Business CGT Concessions are available.

The recent Kilgour v Commissioner of Taxation decision provides an important example.

In 2016, all of the shares in Punters Paradise Pty Ltd were sold to News Corp for approximately $31 million.

The shares were held by three corporate trustees for three trusts. One held a 60% interest, while the other two each held a 20% interest.

The two 20% shareholders each received approximately $6.21 million for their respective shareholdings.

This was significant because the market value of the shares was critical to determining whether the relevant $6 million Maximum Net Asset Value Test could be satisfied.

Could the 20% interests be worth less?

The taxpayers argued that their individual 20% shareholdings should be valued separately from the overall sale of the company.

Expert valuation evidence put each 20% interest at substantially less than the amount actually received and argued that part of the price paid by News Corp reflected strategic or synergistic value.

The Full Federal Court rejected the taxpayers' appeal.

A particularly important aspect of the decision was that the minority shareholdings were not being sold in isolation.

All three shareholders had decided to sell, cooperated in the sale process and offered 100% of the company to a single purchaser.

The Court considered that commercial reality relevant when determining the market value of each shareholding.

What does this mean for business owners?

The case does not establish that the actual sale price will always automatically equal market value.

However, an actual arm's-length transaction — particularly one occurring at or very close to the valuation time — can provide strong evidence of market value.

It also shows that a minority shareholding cannot necessarily be valued as though it were being sold independently where, in reality, it forms part of a coordinated sale of the entire company.

For Small Business CGT Concession purposes, that distinction can be significant where the value of the shares is material to whether the $6 million Maximum Net Asset Value Test is satisfied.

Don't leave valuation until after the deal

Business owners should not assume that a minority discount or theoretical standalone valuation will necessarily determine their Division 152 position.

The actual sale process, the willingness of shareholders to sell together, the purchaser market and the commercial circumstances surrounding the transaction can all affect the valuation analysis.

Where eligibility for the Small Business CGT Concessions depends on valuation, the position should be reviewed carefully before the sale transaction is locked in.

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‍General information only. Eligibility for the Small Business CGT Concessions, including the application of the Maximum Net Asset Value Test and market value principles, depends on the specific facts and circumstances and the detailed requirements of Division 152 of the Income Tax Assessment Act 1997. Professional advice should be obtained before relying on any valuation or entering into a business sale.

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