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Budget Progress Report | Tax Reform Implementation for Small Business and Startups

The 2026 Federal Budget introduced one of the most significant packages of business tax reform in recent years. While the Budget outlined the Government’s intentions, it is important to remember that Budget announcements do not become law immediately. Proposed measures must progress through consultation, be drafted into legislation and pass Parliament before they become legally effective.

To help Australian business owners stay informed, we’re launching our Budget Progress Report series. Rather than simply reporting Budget announcements, this series follows each measure as it moves through the legislative process, highlighting what has changed, what remains uncertain and what practical steps businesses should consider along the way.

This first update examines the implementation details released by the Government on 18 June 2026, following an initial consultation period. Since the budget and these implementation details were released, the Government has also secured a parliamentary agreement with the Greens to support the broader tax reform package. While this significantly improves the likelihood of the legislation passing, the reforms have not yet completed the legislative process and some implementation details remain subject to further consultation.

What’s Changed?

More Small Businesses Will Qualify for the 50% Active Asset CGT Reduction

One of the most significant updates is the proposed expansion of eligibility for the existing 50% Active Asset Reduction under the small business CGT concessions.

Rather than changing how the concession operates, the Government has proposed increasing the aggregated turnover threshold from $2 million to $10 million, bringing it into line with the proposed permanent Instant Asset Write-Off threshold. The Government estimates this change would allow around 2.7 million Australian businesses to qualify for the concession.

Importantly, the existing four small business CGT concessions remain unchanged. Businesses that already qualify would continue to access the same concessions, while many more growing businesses could become eligible once the legislation is passed.

For business owners, this could create greater flexibility when selling eligible business assets, improve succession planning opportunities and support long-term exit strategies. If your business has grown beyond the previous $2 million threshold, it may be worthwhile reviewing your future plans once the legislation is enacted.

Greater Legislative Certainty for Business

The Government has also confirmed its intention to move more implementation detail directly into legislation instead of relying on ministerial discretion or future administrative determinations.

While this may sound like a technical change, it provides greater certainty for taxpayers by making the rules clearer and more predictable. Businesses can make longer-term decisions knowing more of the detail will be contained within legislation itself.

Examples include implementation details relating to the Working Australians Tax Offset, CGT measures, gift deduction treatment and various income support exemptions. Although these changes will not affect the day-to-day operations of most businesses, they should reduce ambiguity and provide greater confidence when planning ahead.

Testamentary Trust Clarification

The Government has also clarified that the reforms do not introduce an inheritance tax.

It has confirmed that income distributed through testamentary trusts will continue to remain exempt from the proposed minimum tax arrangements, subject to further consultation on the final legislative detail.

While this measure is primarily relevant to estate planning rather than everyday business operations, it provides welcome reassurance for families using testamentary trusts as part of their long-term wealth planning.

What It Means

New CGT Incentives Proposed for Innovative Startups

One of the more exciting announcements relates to Australia’s innovation sector. However, unlike the expanded small business CGT concessions, these measures remain proposals and are still under consultation.

The Government has proposed introducing a new Innovative Business CGT Concession that could provide a 50% CGT discount for eligible startup founders, Employee Share Scheme participants and early-stage investors.

Eligible taxpayers would be able to choose between applying the proposed discount or using indexation, provided qualifying investments are held for at least five years. Additional eligibility criteria are also proposed, with consultation continuing until 10 July 2026.

If implemented, the concession could encourage greater investment into innovative Australian businesses, improve access to capital for startups and strengthen Australia’s broader innovation ecosystem.

It is important to remember that the final eligibility rules have not yet been legislated and may change following consultation.

What Still Isn’t Law

Although several implementation details have now been clarified, many of the broader business tax reforms announced in the Budget are still progressing through Parliament.

These include:

• Permanent Instant Asset Write-Off
• Permanent Loss Carry Back arrangements
• Refundable loss measures for eligible startups
• Expanded venture capital tax incentives
• The proposed Innovative Business CGT Concession

Together, these measures form part of the Government’s broader tax reform package, but businesses should avoid making significant commercial decisions based solely on proposed legislation until the final laws have been enacted.

The Government has now reached an agreement with the Greens that is expected to allow much of the broader tax reform package to pass the Senate this week. However, the legislation must still complete the remaining parliamentary process before the measures become law. In addition, several implementation details, including aspects of the proposed Innovative Business CGT Concession, remain subject to ongoing consultation and could change before final legislation is enacted.

What You Can Do

While there is no immediate action required for most businesses, this is an ideal opportunity to begin reviewing how the proposed reforms may affect your future planning.

Consider:

• Reviewing whether your business may qualify for the expanded small business CGT concessions.
• Revisiting succession and business exit strategies in light of the higher turnover threshold.
• Delaying major structural decisions where appropriate until legislation is finalised.
• Monitoring consultation outcomes if you are a startup founder, investor or Employee Share Scheme participant.
• Speaking with your adviser before relying on any proposed tax measures.

Remaining informed throughout the legislative process allows you to prepare for change without acting prematurely.

What Happens Next?

Following the recent post-budget agreement between Labor and the Greens, the Government now has a clearer pathway to passing much of its broader tax reform package through the Senate. Even so, the legislative process is not yet complete. The House of Representatives must consider any Senate amendments before the legislation can receive Royal Assent and become law. Treasury will also continue consulting on several implementation measures, with further legislation expected later this year.

As legislation progresses, we will continue monitoring developments and provide practical updates through future editions of our Budget Progress Report series, helping you understand what has changed and what it means for your business.

The Government’s latest implementation update provides greater confidence around several important business tax reform measures outlined in the budget, particularly the proposed expansion of the small business CGT concessions and the move towards greater legislative certainty.

At the same time, several significant initiatives remain proposals and will continue to evolve as consultation and parliamentary debate progress. While these reforms may present valuable opportunities for many Australian businesses, it is important to distinguish between announced policy and enacted law.

Staying informed will help you make better business decisions and avoid acting too early on measures that may still change. If you are considering selling a business, investing in a startup or reviewing your business structure, now is an ideal time to discuss the potential implications with your adviser before making significant decisions. Our Business Services team is here to help – you can contact us via our website or call us on (08) 9301 2200.

written by:

Dean Birch

With close to two decades of experience in tax consulting across Australia and the United Kingdom, Dean Birch is a highly regarded tax specialist known for his ability to interpret complex legislation and translate it into practical, commercial outcomes for clients. His career spans public practice, large corporate environments and hands-on management roles, giving him a well-rounded understanding of both technical tax issues and real-world business challenges.

Dean specialises in providing tax advisory services to corporate entities, government agencies, not-for-profit organisations, Aboriginal corporations and small to medium enterprises. His areas of expertise include income tax, indirect taxes, employment taxes, Fringe Benefits Tax, GST, capital gains tax, salary packaging, fuel tax credits, PAYG and superannuation guarantee matters. He is particularly valued for his pragmatic approach and his ability to deliver clear, workable solutions in highly regulated and complex environments.

Having spent more than 15 years in senior management roles within a multinational organisation in the UK, Dean brings strong commercial insight to his advisory work. This experience enables him to look beyond compliance and focus on how tax outcomes support broader operational and strategic objectives.

Committed to delivering high-quality advice and supporting the broader advisory team, Dean plays an active role in technical training and mentoring. He is known for his practical mindset, clear communication style and collaborative approach, all of which align strongly with McKinley Plowman’s commitment to delivering thoughtful, client-focused advice.

Outside of work, Dean has a wide range of interests. He’s a classic car enthusiast and proudly owns a Triumph Spitfire back in the UK, though he admits it’s getting far less road time since he moved to Australia! A long-time Nottingham Forest supporter, Dean continues to cheer them on from afar (no matter how nerve-wracking the season gets). When he’s not following the football, you’ll often find him exploring new places, enjoying good coffee, or catching up with friends.