The Albanese government has unveiled a major change to its controversial capital gains tax reforms, expanding exemptions for small businesses, start-ups and inheritance trusts.

The changes, announced just hours before a Senate inquiry report is due to be handed down, mean millions of businesses and investors will be shielded from some of the budget reforms that sparked opposition.

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Financial commentator Rachel Cole told Sunrise on Friday the most significant concession was the decision to increase the turnover threshold for the existing small business capital gains tax discount from $2 million to $10 million.

“It means that more small businesses will be eligible for the 50 per cent capital gains tax discount when it does come time to sell,” Cole told Sunrise.

The change brings an additional 200,000 businesses into the scheme and lifts eligibility from 91 per cent of businesses to 98 per cent.

“If you think about a medical centre that has multiple practices, that would have a turnover of $2 million to $10 million,” Cole said.

The government said the change would ensure all 2.7 million active small businesses remain eligible for generous CGT concessions and better align the threshold with other business tax measures, including the instant asset write-off.

Start-ups have also emerged as major winners from the government’s latest revisions.

Under a proposed new Innovative Business CGT Concession, founders, early investors and employee share scheme participants in eligible start-ups will be able to choose between a 50 per cent CGT discount and the government’s new inflation-adjusted tax method.

Cole said the move was designed to stop Australia’s most promising companies from relocating overseas in search of better tax treatment.

“We do want to make sure that the Canvas of the world and the Atlassians of the world do stay in Australia because we have favourable tax treatment here, rather than taking those wonderful businesses offshore,” she said.

To qualify, companies will generally need to be less than 10 years old, have annual turnover below $50 million and meet innovation criteria set by the government. Eligible investors will also need to hold shares for at least five years.

The government has also backed away from proposed changes affecting testamentary trusts, which are commonly used to manage inherited assets.

About 10,000 Australians use these trusts, representing about 1 per cent of the nation’s trust structures.

Under the revised approach, income from testamentary trusts will be exempt from the proposed minimum tax arrangements, including rental income generated from inherited properties. The Albanese Government insisted the changes did not alter the core purpose of the broader tax reform package, which it says is aimed at improving housing affordability, cutting taxes for workers and creating a fairer tax system.

However, the concessions represent a significant softening of the original reforms following extensive consultation with business groups, investors and industry stakeholders.

On Sunrise on Friday, Health Minister Mark Butler defended the decision, saying tax reform was complex and the government had always intended to consult on how the measures would operate in practice.

“We said on budget night that we would be consulting particularly about treatment of small business and start-ups,” Butler told Sunrise.

“The changes that the treasurer and prime minister announced yesterday I think are sensible changes.”

Butler rejected suggestions the government had been forced into a backdown, arguing consultation and refinement were a normal part of major tax reform.

While further consultation will continue on some aspects of the package, particularly around trusts and start-up concessions, Cole said Australians hoping for additional changes to the property-related reforms are likely to be disappointed.