Capital losses and small business CGT concessions after the 2026 Budget

Under the new 2026–27 Budget settings, you can still use capital losses and the small business CGT concessions to reduce tax on business and property gains – but the order, timing and structure of transactions matter much more. For many small business owners, the difference between a rushed sale and a planned one will be six‑figure tax savings and a stronger balance sheet for their next property decision.

In plain terms:

1. Capital losses still reduce capital gains before any CGT discounts or concessions.
2. The small business CGT concessions (15‑year exemption, 50% active asset reduction, retirement exemption and rollover) remain, but interact with the new minimum tax on gains.
3. With more complex rules and higher effective tax rates, sequencing which asset you sell and when becomes a key strategy lever for both business and property.

This guide is written for time‑poor small business owners, investors and self‑employed professionals who need decision‑grade clarity – not tax‑law theory – so you can move on strategy this week.

Capital losses apply before CGT discounts and small business concessions.

1. Quick refresher: how CGT, losses and small business concessions work

1.1 Capital gains and losses – the basic flow

At a high level, capital gains tax in Australia works like this:

1. You dispose of a CGT asset (shares, property, business goodwill, units in a trust, etc.).
2. You calculate your capital gain (sale proceeds minus cost base) or capital loss.
3. You offset capital losses (current year and carried forward) against capital gains.
4. You apply any discounts or concessions.
5. The remaining net capital gain is included in your assessable income and taxed at your marginal rate.

The key point: capital losses always apply before discounts or small business CGT concessions. That order still holds under the proposed new rules.

1.2 What’s changing under the 2026–27 Budget proposals?

The Budget and associated CGT reform bill (Treasury Laws Amendment (Tax Reform No. 1) Bill 2026) propose, in broad terms:

• Replacing the 50% CGT discount for many individuals and trusts with CPI indexation plus a 30% minimum tax on capital gains.
• Bringing some previously pre‑CGT assets into the net.
• New categories of capital gains with tailored treatment.
• Additional complexity around negative gearing and quarantining rental losses for many residential properties.

The detail is still moving, and much will be set in regulations and ATO guidance. However, nothing in the current proposals removes the small business CGT concessions – though their interaction with a minimum tax on gains becomes more delicate.

For a broader context on the reforms, see our cluster hub: Capital Gains Tax Changes for Property Investors and SMSFs (especially the discussion on choosing structures for your next property).

1.3 The four small business CGT concessions – in 60 seconds

For eligible small business taxpayers (broadly those under the $2m turnover or $6m net asset test), there are four key concessions:

1. 15‑year exemption – if you’ve owned an active asset for 15+ years and meet age/retirement or permanent incapacity conditions, you can often ignore the entire capital gain.
2. 50% active asset reduction – halves the remaining gain on an active asset.
3. Retirement exemption – lets you disregard up to $500,000 of capital gains over your lifetime; if under 55, amounts must be paid into super.
4. Rollover concession – allows deferral of a gain if you acquire a replacement active asset within a specific timeframe.

These apply after you’ve:

• Calculated each asset’s gain or loss.
• Netted capital gains and losses.

The Budget reforms don’t abolish these concessions, but:

• A minimum tax on gains may limit how low your effective rate can go.
• There may be new integrity rules for restructures and rollovers.
• Property used in your business or held through an SMSF needs closer scrutiny to pass the active asset test.

2. Active asset test: when is property a ‘business asset’?

For many readers, the real question is: When does a property qualify as an active asset so I can access the small business CGT concessions?

2.1 The core active asset rule (for property)

An asset is generally an active asset if:

• You own it, and
• It is used or held ready for use in the course of carrying on a business (by you, your affiliate or a connected entity), or
• It’s an intangible asset inherently connected with a business you carry on.

For property, in practice this often means:

• Your business trading premises – e.g. a warehouse, office or café you operate from.
• A property your trading entity leases from you at market rent and actually uses in the business.

It usually does not include:

• A purely passive rental property leased to unrelated tenants.
• Vacant land you’re holding purely for capital growth with no active business use.

2.2 Two key time‑based tests

There are two timing elements to watch:

1. Active asset test period – broadly from when you acquired the asset until the earlier of the CGT event or cessation of business.
2. Within that period, the asset must be an active asset for at least:
   • Half the test period if you held it for 15 years or less, or
   • 7.5 years if held for more than 15 years.

This is crucial for properties that change use over time – say a warehouse that becomes a passive rental or vice versa.

2.3 Worked example – mixed business and passive use

You bought a small commercial unit in 2010 for $600,000. From 2010–2020 you ran your own design studio from it. In 2020 you moved and started renting it to an unrelated business as a passive investment.

• Sale in 2030 for $1.4m.
• Holding period: 20 years.
• It was an active asset for 10 years (2010–2020) out of 20.

Under the 7.5‑year rule, it likely still qualifies as an active asset, even though it has been passive for the last decade – opening the door to the small business concessions.

Compare that with a residential unit you’ve always rented to unrelated tenants – that’s usually not an active asset.

3. Capital losses: how to position them around property and business sales

Under the new CGT settings, cleanly using your capital losses will matter more than ever. The ordering rules aren’t changing, but the stakes are higher because:

• The CGT discount is being reshaped into CPI indexation plus a minimum tax on gains for many taxpayers.
• Some existing planning strategies (like simply holding long‑term for a 50% discount) lose punch.

3.1 The order of applying capital losses and concessions

The general current sequence (still expected to apply) is:

1. Calculate capital gains and losses for each asset.
2. Offset capital losses against capital gains (you can choose which gains to apply them to first).
3. Apply the CGT discount (where available, and as reshaped by the reforms).
4. Apply the small business CGT concessions (if eligible).

Under many draft proposals, a minimum tax rate on capital gains then acts as a floor.

3.2 Why this ordering matters in practice

Because losses come first, you should generally:

• Apply losses to gains that are not eligible for small business CGT concessions (e.g. a pure investment property or share portfolio).
• Preserve as much as possible of gains that can be washed through the small business concessions (particularly the 15‑year exemption and retirement exemption).

In other words, you usually want to:

Match your scarcest tax concessions to your biggest, least flexible gains, and your losses to everything else.

3.3 Example: offsetting share losses against a property gain

Assume the following in 2028–29 under the new regime (numbers simplified and indicative only):

• $600,000 capital gain on selling a business premises used in your café (eligible active asset).
• $200,000 carried‑forward capital loss from prior share investments.
• You qualify for the 50% active asset reduction and have $300,000 of your lifetime retirement exemption remaining.

Option A – use losses on the active asset gain (less ideal):

1. Apply $200,000 capital loss to the $600,000 gain → $400,000 remaining.
2. 50% active asset reduction → $200,000.
3. Retirement exemption of $200,000 → $0 taxable.

You’ve used $200,000 of retirement exemption and all your losses.

Option B – use losses on a different gain (often better):

Suppose you also sell a non‑business investment property with a $200,000 gain.

1. Apply $200,000 capital loss to the investment property gain → $0 on that property.
2. Café premises gain of $600,000 is untouched by losses.
3. 50% active asset reduction → $300,000.
4. Retirement exemption of $300,000 → $0 taxable.

Result:

• You’ve still paid no CGT,
• But you’ve used your retirement exemption more efficiently (to shelter an entire $300,000 gain), and converted a capital loss that would have otherwise helped only modestly under the minimum tax into a total wipe‑out of a non‑concessionable gain.

The right answer depends on your long‑term plans, but you can see why sequencing is now a strategic decision, not an afterthought.