For many Chinese and Asian families in Australia, the business is the family’s life work: a restaurant group, an import company or a property portfolio built over decades. As the founders get older, the question is how to pass it on, and at what tax and duty cost.
It is seldom only about tax: one child may run the business while another lives in Hong Kong. This article explains, in general terms, the tax and duty rules when a family business passes to the next generation during the founders’ lifetime, and how the 2026 reforms affect timing.
First, what is actually being transferred?
The tax result depends on whether the business is held personally, through a company, a unit trust or a discretionary trust. Passing on a discretionary trust is usually about handing over control, by changing the appointor and the directors of the trustee company, rather than transferring assets. That may not trigger CGT or duty, but it raises governance questions. Transferring shares, units or business assets usually does trigger tax.
Selling versus gifting shares or units
Parents often assume that giving the business to their children, rather than selling it, avoids tax. For capital gains tax it generally does not. Where an asset is given away, or sold for less than its value to a family member who is not dealing at arm’s length, the market value substitution rule generally treats the parent as having received market value. The parent may make a capital gain even though they received little or no money.
Selling at market value has the same CGT result but gives the parents cash for retirement. If the parents lend the price to the children, the loan should be documented, and the family should agree what happens to it on the parents’ death, especially where other children are not in the business.
Leaving the business by Will is different, and is covered in our separate article on tax on death.
Small business CGT concessions
The small business CGT concessions can reduce or eliminate the capital gain when an active business asset, or shares or units in a business entity, are transferred. All four continue after the 2026 reforms.
Basic conditions
In general terms, the basic conditions require that:
- the taxpayer is a small business entity with aggregated turnover under the relevant threshold, or satisfies the maximum net asset value test (net assets, including those of connected entities and affiliates, not exceeding $6 million, as at October 2026); and
- the asset is an active asset, used in carrying on a business, for the required period.
Further conditions apply to shares and trust interests. Connected entities are counted together, so a family group with several companies may not qualify even if each business is small.
The four concessions
- 15-year exemption: the gain may be fully exempt if the asset has been held continuously for at least 15 years and the owner is 55 or over and retiring, or permanently incapacitated.
- 50% active asset reduction: the gain is reduced by 50%.
- Retirement exemption: gains up to a lifetime limit of $500,000 per individual (as at October 2026) may be exempt. If the person is under 55, the exempt amount must be paid into a complying super fund or retirement savings account.
- Rollover: the gain may be deferred if a replacement active asset is acquired, or capital improvements are made, within the required period.
The change to the 50% active asset reduction
Before the reforms, the turnover limit for all four concessions was $2 million aggregated turnover (unless the net asset test was met). The Government announced in June 2026 that the turnover threshold for the 50% active asset reduction would rise to $10 million. That change was included in Senate amendments to the Treasury Laws Amendment (Tax Reform No. 1) Act 2026, which passed Parliament and received assent on 26 June 2026. It applies from 1 July 2027. The other three concessions keep the existing $2 million turnover test and $6 million net asset test.
How the 2027 CGT reform affects a business transfer
Under the Tax Reform No. 1 Act, from 1 July 2027 the 50% CGT discount for individuals and trusts is replaced by indexation of the cost base plus a 30% minimum tax for gains accruing after that date. Gains that accrued before 1 July 2027 keep the old treatment. Assets acquired before 20 September 1985, which were previously exempt, are taxed on growth after 1 July 2027.
For a business that has grown over many years, this means:
- a market valuation at 1 July 2027 will be important evidence for dividing the gain between the old and new rules;
- the Government has said the 50% active asset reduction applies on top of the new inflation adjustment where eligible, but the interaction with the 30% minimum tax needs modelling; and
- founders with pre-CGT assets should plan valuations, as growth after 1 July 2027 is taxable.
Stamp duty on business and land transfers
Stamp duty is a state tax and the rules differ significantly between states. In general terms:
- transferring land to a child usually attracts duty on market value, even as a gift;
- some states charge duty on transfers of business assets such as goodwill, while others have abolished it;
- transferring shares in a private company or units in a unit trust may attract landholder duty if the entity holds land above the state’s threshold and the transfer is a large enough interest;
- a child who is a foreign person may face surcharge duty and land tax surcharges.
Duty can be the largest cost, so check it early.
Timing and governance
A good transfer plan usually unfolds over several years. Equal ownership does not have to mean equal management. Before any shares change hands, the family should agree:
- who will control the board, and who will be the appointor of any family trust;
- how a sibling can exit, who has first right to buy, and how the price is set;
- how the parents’ retirement is funded; and
- what happens if a child separates, dies or moves overseas.
These decisions belong in a shareholders’ or unitholders’ agreement, the company constitution and the parents’ Wills, not just in a family understanding.
Checklist for transferring a family business to children
- Map who owns and controls each entity.
- Obtain a market valuation, and plan for a 1 July 2027 valuation.
- Ask your accountant to test eligibility for each small business concession.
- Review loan accounts and Division 7A issues.
- Prepare a shareholders’ agreement with exit terms.
- Update the parents’ Wills, powers of attorney and super death benefit nominations.
Frequently asked questions
Can I transfer my family business to my children without paying tax?
Not automatically. Gifting is generally treated as a sale at market value for CGT, and duty may apply. The small business CGT concessions may reduce or remove the gain if the conditions are met, so ask your accountant to check eligibility before deciding.
What are the small business CGT concessions?
There are four: the 15-year exemption, the 50% active asset reduction, the retirement exemption and the rollover. Each has its own conditions on top of the basic tests.
Is the $10 million threshold for the 50% active asset reduction law?
Yes. It was included in the tax reform legislation that passed Parliament in June 2026 and applies from 1 July 2027. It applies only to the 50% active asset reduction; the other three concessions keep the $2 million turnover and $6 million net asset tests.
Should I transfer the business before 1 July 2027?
It depends on the gain, the concessions available and the family’s plans. Gains accrued before 1 July 2027 keep the old treatment even if the asset is sold later, so rushing is not always necessary.
How Chua Tan Associates can help
Passing on a family business is a tax, legal and family question at once. Chua Tan Associates prepares sale and transfer documents, shareholders’ and unitholders’ agreements, changes of appointor and trustee, and the parents’ Wills, and helps families agree on control, exit and fairness, with mediation where views differ. Justin Chua trained in accounting, is an Accredited Family Business Advisor and a Nationally Accredited Mediator, and we work alongside the family’s accountant, in English, Mandarin and Cantonese, including with children overseas. We recommend that every transfer be planned with advice from a qualified tax adviser working together with your lawyer.
Related reading
Chua Tan Associates acts for families, executors, trustees and their professional advisers in estate planning, estate administration and estate disputes in Australia and across borders. To arrange a confidential consultation, please contact our Melbourne office on +61 3 9602 3988 or submit an enquiry. Advice is available in English, Mandarin and Cantonese.
Justin Chua (蔡智勋), lawyer and mediator, Chua Tan Associates, Melbourne. General information only, not legal or tax advice.
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