Australian Small Businesses Caught in a Two-Front Tax War

By Kekeletso Nkele, small.news Assistant

(small.news) — The Federal Government’s overhaul of capital gains tax aims to improve housing affordability for younger Australians. However, it has unexpectedly affected the small business community, reports The Nightly.

Business owners now face a double risk, once under the new Federal CGT rules and again under existing State tax laws, if they restructure their operations in response. The familiar 50 % CGT discount has been replaced by an inflation-indexation model for assets held for more than 12 months. A minimum 30 % tax on net capital gains now applies to trusts, partnerships, and individuals. The government has indicated that transitional rules will limit the application of gains changes until July 1, 2027.

The State Tax Trap Waiting on the Other Side

For small business owners considering a restructure or sale to navigate the new Federal regime, the problem does not end there. Under State tax laws, business owners also face stamp or transfer duty when disposing of equipment, plant, stock, goodwill, licenses, client lists, and business identity assets. Any restructuring triggered by the Federal changes could create a significant secondary State tax liability on top of the new CGT burden.

The Western Australian picture shows how quickly these costs can add up. WA transfer duty is calculated on the dutiable value of an asset. It starts at $1.90 per $100 for assets valued up to $120,000 and rises to $28,453 for assets valued above $725,001. Beyond that threshold, an additional $5.15 per $100 applies. For a business with substantial goodwill, a client list, or specialist licenses, the combined Federal and State tax exposure from a restructure or exit could be considerable.

Western Australian law also imposes higher stamp or transfer duty on certain licenses being surrendered or not renewed. This includes authorizations under the Fish Resources Management Act, pearling and hatchery licenses, taxi plates, and liquor licenses.

Business Groups Sound the Alarm on Investment Incentives

Against this backdrop, business and financial advisory groups have issued pointed criticism. Many warn that increased capital gains exposure will drive investment to other jurisdictions and prompt business owners to reconsider how they structure their operations.

Small business financial planner Lachlan Sue, general manager of Matrix Norwest Financial Planners, was particularly direct. He argued that small business typically demands significant personal sacrifice of sleep, health, work-life balance, relationships, and income in exchange for a future financial payoff. He believes that removing the 50 % CGT discount fails to acknowledge those sacrifices and that taxing future business sale proceeds at higher rates will discourage entrepreneurship, long-term investment, and risk-taking.

The Treasurer Holds the Line

Treasurer Jim Chalmers has defended the changes amid mounting criticism from the small business community. He described the reforms as creating fairer, more neutral treatment of different asset classes within the CGT regime. He argues that the previous structure entrenched a distortion that locked too many young Australians out of the housing market.

The Government asserts that the policy’s intent is sound and that the transitional arrangements provide affected businesses with sufficient time to plan. Critics counter that Federal good intentions cannot offset the compounding effect of State stamp duty regimes, which did not anticipate this kind of Federal policy change.

A Growing Chorus of Concern

The broader concern is that small business owners who already operate in a high-cost, high-risk environment are being asked to absorb the collateral damage of a policy aimed elsewhere. The intersection of Federal CGT reform and State transfer duty is not new. However, the scale and speed of the current changes have made the issue clear for a community that was not the intended target of the Budget’s housing affordability agenda.