Australia's government announced a tax change on 18 June 2026 that will affect nearly every small business in the country. The change lifts the cap on who qualifies for a tax break when they sell their business or business assets.

Until now, the tax benefit only applied to businesses with less than $2 million in yearly earnings. The new rule raises that cap to $10 million. This means 2.7 million active small businesses — 98 per cent of all active businesses in Australia — can now qualify.

How the tax break works

When you sell a house or shares you've held for a while, you usually owe tax on the profit you made. The Australian government already offers a discount on that tax for small business owners who sell qualifying assets, including the business itself. That discount cuts your tax bill in half. Now, more business owners can use it.

The government also added a new piece to help startups. Startups often pay their workers partly in company shares rather than cash. When those workers later sell those shares, they now get the same 50 per cent tax discount. This addresses a gap in how the tax system treated early-stage company compensation — shares were taxed more harshly than other types of payment.

A bigger shift coming in 2027

These changes are part of a larger tax reform plan rolling out over two years. From 1 July 2026, companies with turnover up to $1 billion can also use a new loss carry-back rule. That means if a company loses money this year, it can use that loss to reduce the tax it paid on profits from the previous two years — giving businesses some relief when they're in difficult phases.

But the more important change comes from 1 July 2027. The current 50 per cent discount has been frozen at that rate since 1999, no matter how long you hold an asset or how much inflation happens in between. The new system will tie the discount to inflation, measured by the Consumer Price Index. This means the tax break will shift based on how much prices have risen since you first bought the asset.

Think of it this way: if you bought a business twenty years ago and prices have risen 50 per cent since then, only the gain above that inflation counts as "real" profit that should be taxed. This is a principle tax economists have argued for decades — that you should only pay tax on genuine economic gains, not on profits that just reflect rising prices. The exact impact will depend on inflation rates when you sell; in a low-inflation period, the new discount might be smaller than 50 per cent.

Why this matters and what's still unclear

The $2 million cap had not been updated since 2007, even as business valuations climbed. Raising it to $10 million aligns the tax rule with other parts of the tax code that use the same $10 million threshold, removing a confusing inconsistency.

However, some details remain unsettled. The government has said it will consult with tax professionals and businesses before finalizing the 2027 inflation-based system. That means the exact formula for the new discount, the precise definition of an "innovative startup," and how the rules will apply to businesses right at the $10 million mark are still being worked out. For accountants and lawyers advising clients on selling a business or passing it to the next generation, that uncertainty matters — they don't yet have a fully clear picture of how the law will work.

The startup carve-out will need particularly careful definition. Many early-stage companies don't own much physical equipment or real property; they own ideas, software, and patents. If the government sets the bar for "innovative startup" too vaguely, businesses may end up arguing with tax authorities about whether they qualify — a costly and time-consuming process.

Taken together, these reforms reshape how Australia taxes business owners when they sell. The shift to inflation-linked discounts in 2027 is the more consequential change, even though the lifted $2 million cap gets more headlines now. It moves Australian tax law toward a cleaner principle: tax real gains, not phantom profits created by inflation.