The federal government’s proposed Capital Gains Tax (CGT) reforms have undergone significant changes following intense scrutiny from business groups, tax professionals, and Senate crossbenchers. After announcing sweeping tax measures in the May Budget, the government has now softened several key provisions in an effort to secure support for the legislation as it progresses through Parliament.
These developments are particularly important for small business owners, investors, family trusts, and estate planning professionals who have been closely monitoring the proposed reforms.
Major Changes to the Proposed CGT Reforms
The government’s revised position represents a substantial retreat from some of the most controversial aspects of the original package.
Expanded Small Business CGT Concessions
One of the most welcomed changes is the expansion of the small business eligibility threshold for the 50% active asset CGT discount.
Under the original proposal, businesses with an annual turnover of up to $2 million would qualify for the concession. The revised legislation increases this threshold to $10 million, significantly broadening access to valuable CGT relief for small and medium-sized enterprises.
This change is expected to benefit thousands of Australian businesses planning asset sales, succession strategies, or business restructures.
Discretionary Testamentary Trusts Exempted
The government has also abandoned plans to apply a minimum 30% tax rate to discretionary testamentary trusts.
These trusts, commonly established through wills to manage assets after death, attracted criticism from industry groups and commentators who argued the measure resembled a form of “death tax.” In response, the Treasurer confirmed that all discretionary testamentary trusts will be exempt from the proposed minimum tax provisions.
The exemption provides certainty for families relying on testamentary trusts for intergenerational wealth transfer, asset protection, and support for vulnerable beneficiaries.
Treasurer’s Discretionary Powers Removed
Another significant concession involves the removal of proposed ministerial powers that would have allowed the Treasurer to determine which asset classes could receive CGT discounts.
Critics argued that such broad discretionary powers created uncertainty and risked politicising tax outcomes. The government’s decision to remove these provisions has been welcomed by tax experts who advocated for greater transparency and legislative certainty.
Senate Review and Stakeholder Feedback
The revised reforms are contained within the Treasury Laws Amendment (Tax Reform No. 1) Bill 2026 and the accompanying Income Tax Rates Amendment Bill.
Both bills have already passed the House of Representatives and have been examined by the Senate Economics Legislation Committee through an accelerated inquiry process.
A wide range of stakeholders lodged submissions, including peak business organisations, tax specialists, housing industry representatives, and social advocacy groups.
The Tax Institute has called for broader structural reform and greater clarity around the operation of the proposed measures. Meanwhile, the Housing Industry Association and other industry bodies have argued for additional exemptions and safeguards, particularly for low-income carers and vulnerable Australians who may be unintentionally affected by the reforms.
What Happens Next?
The legislation now faces a critical stage in the Senate.
Following the Senate Economics Committee’s report, the government will need to negotiate with the Greens and key crossbench senators to secure enough votes for passage before Parliament rises for the mid-winter break.
While the government’s concessions have eased some concerns, debate continues over whether the amended reforms strike the right balance between raising revenue, improving fairness, and supporting economic growth.
What This Means for Taxpayers
For small business owners, investors, and families using trust structures, the government’s backdown provides greater certainty and potentially significant tax savings compared to the original proposals.
However, the legislation is not yet law, and further amendments remain possible as Senate negotiations continue.
Businesses and individuals affected by CGT, trust taxation, or succession planning should closely monitor developments and seek professional advice to understand how the final legislation may impact their circumstances.
As the debate continues, the outcome of these reforms could shape Australia’s tax landscape for years to come.
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