The 2026 Small Business Tax Revolution: Capital Gains and Beyond

The 2026 South African Budget Speech, delivered by Finance Minister Enoch Godongwana, has been hailed as a “small business budget.” After years of stagnant thresholds that left many entrepreneurs struggling with “bracket creep,” the National Treasury finally adjusted several critical levers to account for inflation and encourage economic growth. For small business owners, the most significant updates lie within the Eighth Schedule of the Income Tax Act, specifically the rules governing Capital Gains Tax (CGT).

These changes are not merely technical; they represent a significant shift in the financial feasibility of selling a business or planning for retirement. By raising the “disregard” amounts and asset thresholds, the government has effectively widened the safety net for those looking to exit their enterprises or transition into new ventures.

1. The Small Business Disposal Exclusion: A R2.7 Million Milestone

The “Small Business Disposal Exclusion” is perhaps the most vital tool in an entrepreneur’s tax-planning arsenal. Under Paragraph 57 of the Eighth Schedule, individuals who dispose of a small business (or an interest in one) can disregard a significant portion of the resulting capital gain.

For the first time since 2012, this lifetime exclusion has been increased from R1.8 million to R2.7 million. This is a massive win for business owners who are 55 years or older, or those who are forced to sell due to ill-health or death.

To qualify for this exclusion in 2026, the criteria have also been relaxed. Previously, the total market value of all the business’s assets could not exceed R10 million. The 2026 budget has increased this asset threshold to R15 million. This adjustment ensures that businesses that have grown in nominal value due to inflation over the last decade still qualify for relief.

It is important to remember that this is a lifetime limit. If you utilized R1 million of your exclusion in a previous tax year, you now have R1.7 million remaining under the new 2026 cap.

2. Universal CGT Adjustments: Annual and Primary Residence Relief

While the small business exclusion is industry-specific, the broader CGT environment has also seen its first major update in nearly a decade. These changes affect every individual taxpayer, including those operating as sole proprietors.

The Annual Exclusion

The annual exclusion—the “free pass” on the first portion of your capital gains each year—has been increased from R40,000 to R50,000. This applies to the sum of all capital gains and losses within a tax year. For small business owners selling minor assets or trading shares on the side, this R10,000 boost provides a helpful buffer.

Primary Residence Exclusion

Many entrepreneurs use their home equity to fund their business ventures. If you are selling your home to inject capital into your company, take note: the primary residence exclusion has increased from R2 million to R3 million. This means the first R3 million of profit made on the sale of your home is now entirely exempt from CGT, provided the property is used primarily for domestic purposes and is held in your personal name.

3. Understanding Inclusion Rates and Effective Tax

Despite the threshold increases, the “inclusion rates” for CGT remain unchanged in 2026. It is a common misconception that the tax rate itself is 18% or 21.6%. In reality, CGT is simply a portion of your profit added to your taxable income.

• For Individuals and Special Trusts: The inclusion rate is 40%. This means that after applying your exclusions (like the R50,000 annual or R2.7 million small business exclusion), only 40% of the remaining gain is taxed at your marginal income tax rate (which caps at 45%). This results in a maximum effective tax rate of 18%.

• For Companies and Ordinary Trusts: The inclusion rate is 80%. With the corporate tax rate sitting at 27%, the effective CGT rate for companies is 21.6%.

For a small business owner, this reinforces the importance of the Paragraph 57 exclusion. If you sell a business for a R3 million profit as an individual and qualify for the R2.7 million exclusion, you only have R300,000 left. After the R50,000 annual exclusion, only R250,000 is “taxable.” At a 40% inclusion rate, only R100,000 is added to your income—a massive saving compared to selling without the exclusion.

4. The Ripple Effect: VAT and Turnover Tax Thresholds

Beyond CGT, the 2026 budget introduced a monumental change to the VAT registration threshold. Since 2009, businesses were forced to register for VAT once their turnover hit R1 million. This threshold has finally been increased to R2.3 million.

This change significantly reduces the administrative burden on micro-enterprises. If your business earns between R1 million and R2.3 million, you may now have the option to de-register for VAT (if you don’t find it beneficial for input claims), freeing you from the complexity of bi-monthly VAT returns.

Simultaneously, the Turnover Tax system—a simplified “all-in-one” tax for micro-businesses—has also seen its upper limit raised to R2.3 million. The tax-free bracket for this system has nearly doubled, increasing from R335,000 to R600,000.

5. Small Business Corporation (SBC) Tax Brackets

If your business is registered as a company and meets the requirements of a Small Business Corporation (SBC), you benefit from progressive tax rates rather than the flat 27% corporate rate. For the 2026/27 tax year, these brackets have been adjusted for inflation:

• R0 to R99,000: 0% Tax

• R99,001 to R365,000: 7% of the amount above R99,000

• R365,001 to R550,000: R18,620 + 21% of the amount above R365,000

• R550,001 and above: R57,470 + 27% of the amount above R550,000

These adjustments ensure that small, profitable companies keep more of their cash flow to reinvest in staff and equipment.

Preparing for the 2026/27 Tax Year

The 2026 tax changes represent a “catch-up” with reality. For the small business owner, the strategy is now clear: maximize the new thresholds. Whether it is ensuring your business assets stay under the R15 million limit to qualify for the R2.7 million disposal exclusion, or re-evaluating your VAT status, the current fiscal year offers more flexibility than we have seen in over a decade.

Always consult with a tax professional to ensure that your “active business assets” meet the SARS requirements before a sale. With the right planning, the 2026 updates could save your business hundreds of thousands of Rands in potential tax liability.