Prime Minister Anthony Albanese has announced 'generous' capital gains tax exemptions for small businesses, following weeks of criticism from industry groups over Labor's proposed changes to the capital gains tax (CGT) system. The announcement aims to address concerns that the reforms would penalize entrepreneurs and small firms.
Details of the Exemptions
All of Australia's 2.7 million small businesses will receive exemptions from CGT, with startups and testamentary trusts also set to receive carve-outs from the government's contentious tax reforms. Treasurer Jim Chalmers confirmed that the annual turnover threshold for existing CGT concessions would be increased from $2 million to $10 million, aligning with how small businesses are defined elsewhere in the tax system. This change means 98% of all active businesses in the country will qualify for CGT concessions.
The four existing CGT concessions for businesses will remain in place, but one of them will be broadened and made more generous. The planned amendments are expected to cost the budget $475 million over the forward estimates. In context, the negative gearing, capital gains, and trust changes are projected to raise approximately $8.1 billion over the same period.
Startups and Testamentary Trusts
A Treasury paper released on Thursday outlines the government's preferred position on CGT carve-outs for startups, with feedback invited over the coming weeks. Chalmers stated that there is a special case for businesses with low or no start-up costs, necessitating different tax treatment.
Additionally, testamentary trusts used to manage income distribution from deceased estates will be exempted from the planned 30% minimum tax on discretionary trusts. Further details on the trust carve-out will be provided in a forthcoming consultation paper, and any amendments will not be part of the first tranche of legislation before the Senate.
The announcement follows sustained criticism from industry groups, who had labeled the shift from a flat 50% CGT discount to an inflation-linked approach as a 'tax on growth'. Concerns were particularly high for entrepreneurs and small firms that did not meet the $2 million turnover threshold for existing concessions.
