Your firm is about to get a permanent number. Do you know what it is?
From 1 July 2027, every SME law firm in Australia has a number attached to it.
Not a KPI. Not an internal benchmark. A legislated figure that sits inside every future capital gains tax calculation on your business, for as long as you own it, whether you sell in two years or twenty.
Most principals do not know what that number is. Most have never had their firm formally valued. And most do not realise it is not fixed. It can still move, significantly, between now and 30 June 2027.
Two firms, same sale, very different tax bills
Picture two firms selling for the same price, at the same time, to the same kind of buyer.
One pays around $810,000 in capital gains tax. The other pays around $388,000.
The only difference between them is what each business was recorded as worth on 1 July 2027.
That is not a rounding error. That is the entire argument for paying attention to this now, while there is still time to do something about it.
This example is not hypothetical. It reflects the kind of gap we see repeatedly in FWO’s own work, we act exclusively for SME law firms, and the difference between a firm that has been properly valued and one relying on a default formula shows up again and again, at a similar scale.
What actually changed
The 2026 Federal Budget delivered three separate reforms, and it pays to be precise about what is law and what isn’t, because the two get conflated constantly.
- The 50% CGT discount is being replaced with cost base indexation plus a 30% minimum tax, for CGT events from 1 July 2027. This is law, royal assent 26 June 2026.
- Small business CGT concessions are retained, and the turnover threshold for the 50% active asset reduction lifts from $2 million to $10 million from FY2027-28. Good news for most SME law firms.
- A 30% trustee level minimum tax on discretionary trusts has been announced and consulted on. It is not yet law. Plan for it. Do not restructure for it yet.
A transitional rule treats every CGT asset you hold on 30 June 2027 as sold and immediately reacquired at market value. No tax is payable at that moment, but the value recorded on that date becomes the permanent evidence used in every future sale.
Skip the valuation and you do not avoid having a number. You simply inherit the ATO’s default formula instead of one based on your firm’s actual performance, and for most improving law firms, that formula gets it wrong.
The number isn’t fixed. That’s the opportunity.
A law firm is valued on what it earns and how reliably it earns it. Strip away the jargon and only two things move that number.
Average rate, what you are collecting per hour of paid labour. Lift it and profit goes up.
Revenue lock-up, how much revenue is still sitting in WIP and debtors instead of the bank. Bring it down and risk goes down, so buyers pay more per dollar of profit.
Both levers move in the same direction, and they compound. A firm that lifts productivity and tightens billing and collection can turn genuinely modest operational change into a dramatically different valuation, not through accounting tricks, but because profit and risk are improving at the same time.
None of this means working harder. It means replacing fee-earner discretion over billing decisions with a structured process. That is a culture shift, not a capacity problem.
What none of this settles is how much weight a strong or weak recent year should carry. A firm that has just had an unusually good FY27, or an unusually bad one, needs a different approach to a firm that has grown steadily. There is no single formula for that. It is a judgement call, and it is exactly where a generic calculator or an ATO default gets it wrong.
You cannot manage a number you have never measured. This is a number every law firm principal is about to have, whether they choose it or the ATO chooses it for them.
You cannot get that number back once 30 June 2027 has passed. You can only decide, right now, whether it is a genuine reflection of your firm or a formula’s best guess.
This article contains general information only and does not take into account the objectives, financial situation or needs of any particular firm. The capital gains tax measures described received royal assent on 26 June 2026 and apply from 1 July 2027. The trust taxation measures referred to were announced in the 2026-27 Federal Budget and are not yet law. You should obtain advice specific to your firm’s circumstances before acting on anything in this article.
