Why the 2027 CGT reforms should be on every shareholder’s radar
Why the 2027 CGT reforms should be on every shareholder’s radar
The biggest CGT changes this century
For decades, Australian business owners and shareholders have operated within a stable capital gains tax (CGT) framework.
Since 1999, the CGT discount regime has been a foundation of long-term investment planning, influencing key business ownership structures, succession planning and exit strategies. That landscape is now changing.
From 1 July 2027, the Australian Government will replace the long-standing 50 per cent CGT discount for individuals, trusts and partnerships (33.3 per cent for superannuation funds) with a new regime based on cost base indexation and a minimum 30 per cent tax on capital gains.
The reforms generally apply only to gains accruing after 1 July 2027, with transitional provisions for assets already held at that date. Gains attributable to periods before 1 July 2027 will remain subject to the current CGT discount regime.
Private company shareholders, family business owners, founders, private equity investors and family groups should carefully evaluate how the reforms may affect future wealth creation and exit outcomes.
The reforms don’t mean businesses should sell before 1 July 2027, but they do mean shareholders should begin preparing now.
What is changing?
In summary, the reforms introduce three significant changes:
- The CGT discount is replaced with the regime summarised in points 2 and 3 below for relevant gains attributable to a period from 1 July 2027
- Cost base indexation will be introduced, allowing taxpayers (excluding companies) to adjust eligible cost-base expenditure for inflation from 1 July 2027 until the asset is disposed of
- A minimum 30 per cent tax rate will apply to relevant post-1 July 2027 capital gains.
The practical outcome for many shareholders may be a higher effective tax burden compared with the historical CGT discount model, particularly where asset growth materially exceeds inflation or where the cost base of the asset is nominal.
Business owners should act now
Many private business owners assume the reforms matter only when they are ready to sell. In practice, some of the most important decisions may need to be made years before a transaction.
Assets held when the new regime commences may require gains to be apportioned between the periods before and after 1 July 2027. This will place greater emphasis on documentation, valuation evidence and accurate historical records. Obtaining formal valuation advice should therefore be considered.
Business owners who have not maintained detailed records of ownership changes, share issues, restructures or historical cost bases could face increased complexity when an eventual sale occurs. The result is that valuation and record-keeping may become as strategically important as tax structuring.
Implications for shareholder exits
For many privately owned businesses, a future sale will be the largest liquidity event their shareholder's experience. Historically, exit modelling often involved applying the CGT discount and then assessing the availability of other concessions.
The new framework introduces the need to reconsider:
- Ownership structures and potential restructuring
- Timing of shareholder exits
- Re-modelling of after-tax sale proceeds
- Estate and succession strategies
- Family trust distribution arrangements.
These considerations become particularly important where shareholders are approaching retirement or succession events over the next five to ten years.
Rather than accelerating a sale simply because tax rules are changing, business owners may need to consider whether existing ownership structures remain fit for purpose under the new regime – particularly where the ultimate shareholder is a discretionary trust.
For family groups that hold business interests through discretionary trusts, the reforms may prompt a broader review of ownership structures. While discretionary trusts remain attractive from an asset protection and succession planning perspective, the ability to stream capital gains to beneficiaries may no longer deliver the same level of tax efficiency where beneficiaries are subject to different CGT outcomes. The reforms may therefore increase the importance of understanding who is expected to realise future gains and whether existing structures remain appropriate for long-term wealth creation and intergenerational planning.
The reforms also raise broader considerations for M&A, succession planning and the timing of future shareholder exits.
Expect increased transaction activity before 30 June 2027
Major tax reforms often influence shareholder behaviour well before they commence. Although a business should never be sold solely because of tax changes, some shareholders may choose to bring forward transactions that are already under genuine consideration.
Private equity investors and corporate acquirers are already assessing how the reforms may reshape vendor expectations and transaction pipelines. Activity has increased, particularly among private equity funds with substantial capital available to deploy over the next three to four years.
Some vendors may prefer the certainty of transacting under the existing rules rather than navigating a new framework, particularly where the current CGT regime may produce a comparatively favourable after-tax outcome.
We expect this momentum may continue through 30 June 2027 and into the period immediately thereafter, especially in the mid-market.
Actions you should consider now
Review your ownership structure
Because many existing structures were established under rules that will differ after 30 June 2027, shareholders should assess whether their ownership arrangements remain aligned with their long-term objectives under the new regime.
Understand the value of your business
Valuations will become increasingly important as the commencement date approaches. Understanding current enterprise and equity value provides a sound foundation for scenario modelling and future planning.
A valuation obtained around 1 July 2027 may become one of the most important pieces of evidence supporting a future exit, particularly where a significant portion of a business's value has been created prior to the commencement of the new regime. This ensures the true growth and value of the business is captured and taxed appropriately.
Model different exit scenarios
Effective planning starts with understanding potential outcomes. Shareholders should consider modelling:
- Sale before 1 July 2027
- Sale shortly after commencement
- Longer-term hold strategies
- Intergenerational ownership transitions.
Review succession planning
The reforms may affect not only third-party sales but also family succession arrangements. Business owners should revisit shareholder agreements, estate planning documentation and future ownership objectives to ensure alignment.
Avoid rushed restructures
Tax legislation is complex, and action taken without a full understanding of the reforms can produce unintended consequences. Structural changes made without a clear commercial rationale may create issues that outweigh any potential tax benefit. Careful, well-informed preparation is essential.
The broader opportunity
While media headlines have focused on comparatively higher taxes, sophisticated business owners may view the reforms differently. The changes provide an opportunity to:
- Improve exit readiness
- Modernise ownership structures
- Strengthen governance
- Refresh succession plans
- Clarify shareholder objectives
- Improve business valuation visibility.
In many cases, the greatest value will come not from tax minimisation, but from being better prepared for strategic opportunities when they emerge.
Closing thoughts
The CGT reforms due to commence on 1 July 2027 represent one of the most significant shifts in Australia's investment tax landscape in a generation.
Whether you are a founder, family business owner, investor or shareholder, the reforms have the potential to influence future wealth outcomes and transaction decisions.
Businesses and shareholders best positioned to navigate the changes will not necessarily be those who act first, but those who prepare early.
The period before 30 June 2027 may ultimately prove to be less about tax reform and more about strategic readiness. For many Australian business owners, that conversation should already have started.
How BDO can help
BDO’s Tax, M&A and Valuations teams can help you understand how the proposed reforms may affect your business, from succession planning and valuation through to a future sale.
