There is a big difference between buying an asset and building one. The tax system has always known that — and this week’s changes are a reminder of why it matters.

Most people look at capital gains tax as a technical tax issue. I do not see it that way.

To me, this is really a story about business owners, risk-taking, and whether Australia properly understands how wealth is actually created.

There is a difference between buying an asset and building one

When someone buys an investment property or a parcel of shares, they are allocating capital into an asset that already exists. That is investing. There is risk involved, of course, but the investor is generally relying on the market, the economy, rents, earnings, interest rates or sentiment to drive the value of that asset over time.

When someone builds a business, it is different. They are not just buying value. They are creating it.

They build the client base. They hire the staff. They pay the wages. They sign the lease, buy the systems, and deal with suppliers, regulation, tax, compliance, cash flow, debt, and all the stress that comes with being responsible for something that may or may not work.

That distinction is exactly why proposed changes to capital gains tax were always going to create concern among business owners.

What Labor actually proposed

On paper, the original idea sounded reasonable. As part of the May 2026 Budget, the Government moved to reduce the benefit of the automatic 50% CGT discount and shift — from 1 July 2027 — towards a system based on inflation-indexed gains, with a 30% minimum tax floor. The argument was that the system should be fairer, raise more revenue, and not overly reward passive asset ownership, particularly in property.

One argument you’ll hear is that Australia’s tax settings have pushed too much capital into passive property speculation, locking younger Australians out of housing while rewarding asset owners under rules designed for a different economy. It’s a live debate — and worth understanding, because the rules it concerns can shift over time.

But the problem with the original proposal was never the debate. The problem was that it risked catching the wrong people.

A small business owner is not the same as a passive investor. A founder is not the same as a property speculator. A family business built over 20 years is not the same as an asset that was simply bought and held.

How the small business concessions work today

Under the current rules, an individual or trust that owns an asset for more than 12 months generally receives a 50% CGT discount. Make a $1 million gain, and only $500,000 is included in taxable income. (Note: this general discount is the part being phased out from 1 July 2027 — more on that below.)

For small business owners, the rules can go further through the small business CGT concessions. These can reduce, defer, or in some cases eliminate the capital gains tax payable when a business is sold. Some people look at that and say it is too generous. I think that misses the point.

The system has historically recognised that owners are in a different position. They usually are not sitting back waiting for an asset to rise. They are spending years building the value themselves. They go without income in the early years. They reinvest instead of taking money out. They carry debt and put their family finances at risk. They work nights, weekends and holidays, and they carry the pressure of making payroll every month.

And in many cases the real financial reward does not arrive each year through income. It comes at the end — when the business is sold. That sale may be the owner’s retirement plan. It may be the reward for 15 or 20 years of taking risk when others chose the safety of employment.

A worked example

Take a simple illustration. A person starts an accounting firm, advice practice, medical clinic, building company or trade business from scratch. They work in it for 15 years — building the team, the client base and the systems — and eventually sell for $3 million.

Because they built the business rather than purchased it, the cost base may be very low. That means a large portion of the sale price can be treated as a capital gain. Depending on age, structure, retirement plans and eligibility, the concessions can apply in a specific order:

The concession “waterfall” (current rules)

1. The 15-year exemption If the asset was owned continuously for at least 15 years and the owner is 55 or over and retiring (or permanently incapacitated), the entire gain can be disregarded.
2. The general 50% CGT discount Available to individuals and trusts (not companies) on assets held 12+ months.
3. The 50% active asset reduction A further 50% reduction. Stacked with the general discount, a gain can be reduced by up to 75%.
4. The retirement exemption and small business rollover Further reductions or deferral, subject to conditions and lifetime caps.

For an owner who qualifies for the 15-year exemption, that $3 million gain may be removed entirely. That is not a minor detail. For many owners it is the difference between retiring with confidence and losing a major portion of what they spent decades building.

This is exactly why the structure and timing decisions matter — and why they should never be left until the year of sale. The eligibility tests are technical, and the right structure planned early can change the outcome dramatically.

Tax policy is not just about revenue — it changes behaviour

This is the part that often gets lost in the political debate. If the after-tax reward for building a business is reduced too heavily, people respond. Some take less risk. Some stop growing. Some avoid hiring. Some sell earlier than they otherwise would. Some decide the stress of building simply is not worth it.

That is bad for Australia. We already have a productivity problem, a shortage of strong private-sector investment, and a need for more businesses willing to innovate, employ, train and expand. The last thing the economy needs is a tax system that makes genuine builders feel punished for creating something productive.

What changed this week

This is where the latest announcement matters. On 18 June 2026 the Government confirmed it will lift the turnover threshold for the small business 50% active asset reduction from $2 million to $10 million, bringing it into line with the instant asset write-off threshold. On the Government’s own numbers, that means all 2.7 million active small businesses — around 98% of active businesses — would be eligible.

The Treasurer has been careful to reject the word “backflip,” framing the change as the outcome of consultation already flagged in the Budget. Politically, that is his right. But however it is described, the practical effect is the same: the original $2 million threshold was becoming unrealistic, and it has been corrected.

Why was $2 million unrealistic? Because revenue is not profit. A professional services firm with eight or ten staff can cross $2 million in turnover and still be very much a small business — as can a medical clinic, a trade business, a building company or a consultancy. Turnover is the top line. Profit is what is left after the business has paid everyone else. Lifting the threshold to $10 million better reflects today’s reality, where wages, rent, insurance, software, finance and compliance costs have all climbed.

The start-up piece

Alongside the threshold lift, the Government released a consultation paper on a proposed Innovative Business CGT Concession — a 50% discount aimed at early-stage investors, founders and employee share scheme participants in qualifying young companies. Start-ups are a special case: founders often take little or no income for years and build toward a future exit. If the system becomes too harsh at that exit point, Australia becomes less attractive for founders, investors and innovation capital. A targeted concession here makes sense.

One important caveat

These are announcements and consultations, not yet law. The threshold lift is to be delivered through amendments to the bill currently before the Senate, and the broader package still has to pass Parliament. A Senate inquiry has been examining the reforms this week. So the detail can still move — which is all the more reason not to make irreversible decisions on the strength of a press release.

The PMW view

From our perspective, this is not about defending every tax concession forever, and it is not about saying business owners should never pay tax. It is about understanding incentives. If Australia wants more productivity, innovation, employment and private investment, the tax system needs to support productive risk-taking. Business owners are not the problem in the economy — they are a large part of the solution. They take risk before there is certainty, employ before there is comfort, and carry responsibility before there is reward.

The practical message for owners is simple: do not leave CGT planning until the year you sell. By then it may be too late. The structure of your business, the ownership of shares or units, the active asset test, the use of trusts, the timing of retirement, and your superannuation strategy all matter — and they interact. A business sale is often the biggest financial event of an owner’s life. It should not be treated as an afterthought.

Rules change. Governments change. Tax policy changes. But the principle does not: build productive assets, plan early, understand the consequences, and never assume the rules will stay the same forever.

Common questions

Manny Tran GradDip (FinPlan), ABFP®, CRPC®

Director and Senior Financial Adviser

PLAN MY WEALTH

With 17+ years’ experience and over 1,000 retirement plans built for Australian families, Manny works with clients aged 50 to 65 across Bundoora, metropolitan Melbourne, and nationally via video consultation. His focus is helping pre-retirees replace uncertainty with a clear, evidence-based plan.

The Watermans Bundoora, Level 2, 1/3 Janefield Drive, Bundoora VIC 3083
+61 433 564 003 · manny@planmywealth.com.au · Book a free consultation