Startups and testamentary trusts to receive carve outs after criticism of Labor’s CGT changes
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All of Australia’s 2.7m small businesses will receive “generous” exemptions from capital gains tax, as Anthony Albanese flagged startups and testamentary trusts would be carved out of the government’s contentious tax reforms.
The concessions failed to appease business groups and the opposition, who demanded that Labor scrap the reforms altogether, while the Greens warned there was “still a way to go” before they agreed to back the legislation, which is before the Senate.
The prime minister’s announcement on Thursday follows weeks of sustained criticism from industry groups and the opposition, who have labelled the move from a flat 50% CGT discount model to an inflation-linked approach as a “tax on growth”.
The proposed changes are:
Small businesses with annual turnover of up to $10m will be eligible for existing CGT exemptions – which include an extra 50% discount – up from the current threshold of $2m.
The founders of “genuinely innovative” startups with very low or zero cost bases, alongside their early investors and employees paid with shares in the business, will be able to stick with the existing 50% flat CGT discount.
Testamentary trusts used to manage the income paid to beneficiaries from a deceased estate will be exempted from the proposed 30% minimum tax rate on discretionary trusts.
Treasury has released a consultation paper on its innovative business CGT concession inviting feedback over the coming three weeks, while the government also flagged it would consult further on the proposed carve-out for the roughly 10,000 testamentary trusts.
Jim Chalmers said the planned changes in their entirety would cost the budget an estimated $475m over the forward estimates.
“To put that into context, the negative gearing, capital gains and trust changes are expected to raise about $8.1bn over the course of the forward estimates,” the treasurer said.
The increase in the annual turnover eligibility threshold to $10m was in line with how small businesses were defined elsewhere in the system, Chalmers said.
“There are four existing concessions for businesses in the CGT system. We’re leaving all four in place, but we’re making one of them substantially broader and significantly more generous at the same time.”
The announcement of the concessions comes on the eve of a Senate inquiry report into the reforms, with the government eager to pass the initial bill before parliament rises for the winter break on 2 July.
Despite Thursday’s announcements, the Australian Chamber of Commerce and Industry’s chief executive officer, Andrew McKellar, branded the concessions a “rushed patch-up job”.
“The federal government is trying to ameliorate the damage of these CGT changes, but that is all it does,” he said.
Skye Cappuccio, the CEO of the Council of Small Business Organisations Australia, said the announcement of the new threshold was welcome news for the 180,000 small businesses with turnover of between $2m and $10m.
But she said the business group remained concerned about the consequences of the wider reforms on investment, entrepreneurship and productivity.
The treasurer also confirmed he would wind back some discretionary powers to make changes via regulation, addressing one of the Greens’ major concerns.
The Coalition remained opposed despite the new concessions, meaning the fate of the legislation hangs on a deal with the Greens.
The Greens leader, Larissa Waters, was pleased the government would relent on some of the “blank cheque” powers that were written into the draft bill.
But she said the party was not yet prepared to support the legislation, setting the stage for a tense fortnight of negotiations with Labor when parliament returns on Monday.
“We’ve still got a way to go, and really the government could have been so much braver and actually tackled the housing crisis, and instead we’ve seen them tinkering around the edges and now making even more carve outs,” Waters said.
The opposition leader, Angus Taylor, dismissed the new concessions and urged the government to abandon the reforms entirely.
“Scrap it, scrap the bill, start the budget again, because they simply got it wrong,” Taylor said, arguing that the new $10m income threshold was still a disincentive for businesses to grow.
Source: Guardian - World News
