⏰ Budget Night is 12 May 2026 — 28 days away. The Albanese Government is widely expected to announce CGT changes. The word now appearing in media commentary is removal, not just reduction. If you hold your business through a trust, you need to understand your position under both current rules and the scenarios being discussed — before the announcement, not after.
A significant proportion of Australian family businesses are structured through discretionary trusts — sometimes called family trusts. It is an extremely common structure, used for tax flexibility, asset protection, and estate planning.
Most of the CGT reform coverage has focused on individual shareholders and property investors. If your business sits inside a trust, the mechanics are different and the reading is more nuanced.
This article explains, in plain English, how the current CGT discount rules apply to trusts, what changes being discussed would mean, and what the small business CGT concessions do (and do not) protect you from.
This is not tax advice. It is an explainer. Talk to your accountant about your specific situation before Budget Night.
How the CGT discount currently works for trusts
Under current law, a discretionary trust can access the 50% CGT discount — but not directly. Here is how it works in practice.
When a trust sells an asset (for example, a business or shares in a business) and realises a capital gain, the trustee distributes that gain to beneficiaries as part of the annual distribution resolution. Individual beneficiaries who receive their share of the capital gain can then apply the 50% CGT discount to their portion, provided the trust held the asset for more than 12 months.
The result: a $1 million capital gain distributed to individual beneficiaries effectively becomes a $500,000 taxable gain. At a 45% marginal rate, that is $225,000 in tax — not $450,000.
That is the current state of play. It is well-established, ATO-confirmed, and has been in operation since the CGT discount was introduced in 1999.
What "removal" would mean
If the general CGT discount is removed entirely, the distribution mechanism still works — but the discount that makes it useful disappears. Beneficiaries would pay tax on 100% of their distributed capital gain at their marginal rate.
On a $1 million gain:
- Current rules: $225,000 tax (50% discount, 45% marginal rate)
- No discount: $450,000 tax — the same transaction, doubled tax bill
For family businesses where the trust holds significant goodwill, property, or equity value, this is not a small number.
A cut rather than full removal — for example, to 25% or 33% as some proposals have suggested — would land somewhere in between. The direction of movement is clear. The exact outcome is not yet known.
The small business CGT concessions: your first question
Before worrying too much about the general discount, the right question is: does your trust qualify for the small business CGT concessions?
These concessions — separate from and more generous than the general discount — can reduce a capital gain from a business sale to near zero if you qualify. They include:
- 15-year exemption: Complete CGT exemption if the trust has owned the business continuously for 15+ years and the owner is 55+ and retiring (or permanently incapacitated)
- Active asset reduction: Reduces the capital gain by 50% (on top of, or in place of, the general discount)
- Retirement exemption: Up to $500,000 of capital gain made tax-free, over your lifetime
- Small business rollover: Defers the gain into a replacement asset
To access these concessions, the trust must pass the basic conditions:
- Small business entity test: Aggregated annual turnover under $2 million, OR
- Net asset value test: The net value of assets owned by the trust and related entities is under $6 million (excluding certain personal assets like your home and superannuation)
The asset being sold must also be an "active asset" — used in the course of carrying on the business, not held purely as investment.
If your trust qualifies for the small business concessions, a cut to the general CGT discount may barely affect you. The concessions are far more powerful than the general discount, and the Allegra Spender tax white paper — the most detailed reform proposal on the table — explicitly proposed leaving the small business concessions intact.
The risk is if you do not qualify.
Who is most exposed
Trusts that may face meaningful CGT impact from a discount change include:
- Above the thresholds: If the trust's net assets exceed $6 million (e.g., includes commercial property, business goodwill, investment assets), the net asset value test may not be met
- Mixed-purpose trusts: Trusts holding both business and investment assets sometimes fail the active asset test on the business portion
- Non-qualifying business activities: Some business structures — particularly those where income is passive or where the primary asset is the trust's investment portfolio — do not qualify
- Company beneficiaries: Where trust income is distributed to a corporate beneficiary, the discount rules for companies apply differently (companies do not currently get the general CGT discount at all)
The grandfathering question
A common assumption among business owners in sale discussions: "Even if the rules change, deals already in progress will be protected."
This may not be true.
Grant Thornton issued a formal client alert in April 2026 specifically warning: "grandfathering cannot be assumed." In Australia, tax changes can apply from the date of announcement — which means a sale that has not settled before Budget Night could potentially be caught by new rules, even if a heads of agreement or term sheet is already signed.
This is not a certainty. But it is a risk worth understanding before you assume your deal in progress is protected.
What to do before May 12
There is no single right answer here. But there are smart questions to ask your accountant now:
- Does our trust qualify for the small business CGT concessions? Run the tests: turnover, net assets, active asset. If yes, a change to the general discount may be less material than you feared.
- What is our estimated CGT exposure under current rules? Know your baseline. You cannot assess the impact of a change without knowing where you start.
- If the discount is removed entirely, what is our tax bill? Model the worst case. It focuses the conversation.
- Is there anything we can do between now and Budget Night that is genuinely sensible? Not panic-driven, but structurally sound — and reversible if the budget does not change things.
- If we have a sale in progress, is settlement timing something we can influence? This is a concrete, practical question with a concrete answer.
The broader point
Budget Night creates a hard deadline for clarity that does not normally exist in succession planning. Most business owners can defer the "I should understand my tax position" conversation indefinitely — until something forces it.
May 12 is forcing it.
The owners who will be most relaxed on the morning of May 13 are the ones who already know: whether they qualify for the small business concessions, what their exposure looks like under different scenarios, and what levers (if any) they have.
That is not a complicated exercise. But it does require sitting down with your accountant before the announcement — not the week after.
Not sure where you stand?
Start with a valuation assessment. It gives you a clear picture of what your business is worth, the structure implications, and what the likely CGT position looks like under current rules. No broker. No obligation. Nicholas reviews every submission personally.
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