February 2026 Round Up | Small Business CGT concessions and running a business from home

This month the ATO has published details of its current small business focus areas, including things like poor compliance, cash income and payments, the property and construction industry, and private use of business assets.

This month the ATO has published details of its current small business focus areas, including things like poor compliance, cash income and payments, the property and construction industry, and private use of business assets.

Bills have been introduced to implement the new Division 296 tax, which reduces the tax concessions available to individuals with total superannuation balances (TSBs) exceeding $3 million and $10 million, and increases the threshold of the low income superannuation tax offset (LISTO).

The Government has also published the Regulations to support the implementation of the Payday Super reforms, which are due to commence on 1 July 2026.

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Inside this month, Ann Dai (Tax Adviser), Michael Carruthers (Tax Director), and Amy Yan (Associate Tax Director) bring you:

ATO small business focus areas

The ATO has published on its website its small business focus areas and risks. A summary of key focus areas is below:

Further guidance on each of the risk areas above is available on the ATO website.

•  Small business focus areas 

Home-based businesses and CGT implications

The ATO is reminding taxpayers who have home-based businesses of the impact this can have when it comes to accessing the main residence exemption and the small business CGT concessions.

Eligibility for the main residence exemption may be impacted if an individual’s home (or part of it) represents a place of business and they are able to claim a deduction for some of their home occupancy expenses (eg, interest expenses).

Taxpayers may be eligible for a partial main residence exemption if:

• An area of the home is set aside and used exclusively as a place of business (i.e. running a home-based business)
• They are able to claim occupancy expenses
• Aside from running a home-based business, they satisfy the main residence exemption eligibility conditions.

The main residence exemption does not apply to any capital gain or loss that relates to the portion of the home that is used in the home-based business. The amount of the capital gain or loss that the exemption does not apply to is the same as the percentage for which they would have been able to claim a deduction for mortgage interest, which is generally apportioned based on the floor area of your home set aside for business.

However, even if the taxpayer isn’t able to claim a full exemption under the main residence rules on disposal of the property, the ATO indicates that this doesn’t necessarily mean that the property will be treated as an active asset for the purpose of applying the clarifies that in most cases, merely running a home-based business will not be sufficient to meet the eligibility criteria to apply the small business CGT concessions if they are selling the home.

The active asset test is applied to the property as a whole, and not only the portion that is used in the business. The ATO’s latest guidance in this area indicates that even if part of a property is used for business purposes, this won’t be an active asset if the business use is merely incidental to the overall private use of the property.

•  Home-based business and CGT implications 

Poor compliance for small businesses

The ATO is warning small businesses that it is focusing on poor compliance behaviours.

Small businesses are sole traders, companies, trusts or partnerships that operate a business for all or part of the financial year, and have an aggregated annual turnover of less than $10 million.

The ATO looks closely at small businesses that:

• Knowingly operate outside of the system, like not declaring all income and over-claiming expenses
• Deliberately don't report or register correctly, and don't lodge and pay in full and on time
• Don't know their tax and super obligations, including employer responsibilities
• Pay employees in cash and don't declare income to avoid their tax and super obligations
• Use business funds and assets to support their personal lifestyle, tax-free
• Have poor record keeping and/or cash flow management.
• Staying on top of ATO debts
• Keeping separate bank accounts for separate obligations
• Ensuring good records are kept – the ATO continues to see instances where income is omitted from tax returns, particularly from businesses that accept cash payments or have inconsistent record keeping practices.
• Preparing for Payday Super.

The ATO is also encouraging small businesses to take simple steps of avoid compliance actions, such as:

• Staying on top of ATO debts
• Keeping separate bank accounts for separate obligations
• Ensuring good records are kept – the ATO continues to see instances where income is omitted from tax returns, particularly from businesses that accept cash payments or have inconsistent record keeping practices.
• Preparing for Payday Super.

• What attracts our attention in small business

• ATO urges small businesses to take simple steps to avoid compliance action