The shift to CGT indexation from 1 July 2027 hits business owners hardest where goodwill has a zero cost base.
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For sole traders and businesses operating through discretionary trusts, the change is not simply a matter of recalculating tax on a future sale. In many cases it will fundamentally change the economics of selling, and it raises urgent questions about whether your current structure is still right. Our standing view on why business structure matters applies here with new force.
The Problem With a Zero Cost Base
The most significant issue for many business owners is goodwill. When a business is built from scratch, as most are, the goodwill that develops over time has a cost base of zero. There was no purchase price paid for it. It was created through years of effort, reputation, and client relationships.
Under the current rules, the goodwill gain qualifies for the 50% CGT discount when the business is sold. Under the new rules, any growth in goodwill from 1 July 2027 onwards will only be reduced by indexation. But indexation adjusts the cost base for inflation, and if the cost base is zero, there is nothing to index.
Worked example: Goodwill of $1 million sold in 2030
A sole trader sells their business in 2030 with goodwill valued at $1,000,000. The business was built from scratch, so cost base is zero. Owner is on the top marginal rate.
| Scenario | Discount / reduction | Taxable gain | Tax at 47% |
|---|---|---|---|
| Under old rules (50% discount) | 50% of $1m = $500,000 | $500,000 | $235,000 |
| Under new rules (indexation on zero base) | Nothing to index | $1,000,000 | $470,000 |
| Difference | +$235,000 tax |
The tax on this portion of goodwill is effectively doubled. The 30% minimum tax also applies, locking in a high floor regardless of marginal rate.
Small Business CGT Concessions Still Apply But Are Worth Less
The Small Business CGT Concessions remain available. These include the 50% active asset reduction, the retirement exemption of up to $500,000 lifetime, the 15-year exemption, and the small business rollover provisions.
However, where indexation produces no reduction on a zero cost base, the starting gain is larger, and the concessions are applied to a higher taxable amount. The dollar value of those concessions is partially eroded by the larger underlying gain they are working against. The concessions are not gone. They are simply applied to a less favourable base.
Is Your Business Structure Still Right?
This makes the question of business structure more important than it has been in 25 years. Different structures will produce different outcomes under the new rules. For professional services in particular, our guide to practice structures walks through the trade-offs.
| Structure | How goodwill is treated on sale | Suitability under new rules |
|---|---|---|
| Sole trader | Owner’s marginal rate, no discount on post-2027 growth | Significantly worse than before |
| Discretionary trust | Distributed to beneficiaries, but new minimum tax on trust distributions from 2028 | Suitability narrowed by multiple rule changes |
| Company | Taxed at company rate, dividend imputation on distribution | Often better long-term for businesses with retained earnings |
| Fixed unit trust | Distributed to unit holders, generally without discretionary trust complications | May suit some businesses with multiple owners |
For many sole traders and businesses operating through discretionary trusts, the answer that worked under the old rules may no longer be the answer that works under the new ones.
The Time-Limited Rollover Window
Key dates
- 1 July 2027 — Three-year rollover window opens for restructures out of discretionary trusts
- 30 June 2030 — Window closes – any restructure after this date attracts full CGT consequences
- 1 July 2028 — 30% minimum tax on trust distributions begins
The Budget confirms expanded rollover relief for three years from 1 July 2027, specifically to support businesses wishing to restructure out of discretionary trusts into a company or fixed trust. The restructure can occur without triggering a capital gains tax liability at the time of transfer.
Watch out
Rollover relief removes the immediate CGT consequences of restructuring, but it does not eliminate stamp duty. Stamp duty on the transfer of business assets is state-based and varies. Given the potential long-term tax saving from being in the right structure, this is often a necessary upfront cost, but the arithmetic should be done case by case.
What to Do Before 1 July 2027
If you operate a business through a discretionary trust or as a sole trader, the question of whether your current structure still makes sense is now more pressing than it has been in 25 years.
- Get a current valuation. You cannot model the tax consequences without an honest figure for what the business is worth today
- Model the long-term tax outcome under different structures. Compare what tax would be payable on sale under the existing structure versus a restructured entity
- Decide whether the rollover window is right for you. If a restructure makes sense, the 1 July 2027 to 30 June 2030 window is the time to act
Please contact us to arrange a structure review via our business advisory service. We can assess what your business is worth today, model the tax outcomes under different structures, and help you understand whether the rollover window is an opportunity worth taking.
This article is part of our 2026-27 Federal Budget guide. Read the full overview for a summary of every measure announced on Budget night.
