The Albanese government last week unveiled a series of CGT carve-outs and concessions to address criticism of its proposed tax reforms and secure the legislation’s passage through the Senate, including raising the turnover threshold for the active asset CGT reduction from $2 million to $10 million.
Robyn Jacobson, senior advocate from the National Tax & Accountants’ Association, said the increase in the turnover threshold to $10 million was welcome but noted that businesses will need to meet eligibility criteria in order to access the concession.
The threshold had remained predominantly unchanged for several years despite inflation and the growing scale of many Australian SMEs.
“We’ve always welcomed an increase in the threshold, so an increase from $2 million to $10 million is very welcome,” Jacobson noted.
The increase in the turnover threshold will only apply for the 50 per cent reduction and not the other three concessions such as the 15 year exemption, retirement exemption and the small business rollover, she explained.
“I think people across the profession are now beginning to realise that it only applies to that one concession and not the other three concessions,” said Jacobson.
In a company, it also gives rise to unfranked dividends when the sheltered gains are distributed to shareholders, she added.
“In a unit trust, it gives rise to capital gains under CGT event E4 when the sheltered gains are distributed to unit-holders,” she said.
Jacobson said the changes also address some of the concerns raised by industry bodies about the extensive use of ministerial determinations. However, some aspects of the new rules remain deferred to the minister, such as the particulars of the alternative apportionment method in allocating capital gains between pre- and post-1 July 2027.
The exemption for discretionary testamentary trusts was also welcome, she said, but should have been carved out from the start.
Jacobson said the government’s concessions represented only a partial response to concerns raised since the budget and left significant uncertainty surrounding the reforms.
Discussing the government’s start-up concession, Jacobson said the measure risked discouraging larger success stories despite being promoted as support for innovation.
“It’s a bit like saying, ‘Yeah, we’ll encourage you to be successful. But don’t be too successful’,” she said.
Jacobson pointed to the unfortunate nature of the reform for Australians wanting to start a new business, highlighting that the concession was structured around the eventual sale of a business rather than the process of building one.
“Given the way the concession is designed, it’s not providing an incentive to start a business. It’s providing a tax concession when you sell the business. So from that perspective, the focus is on the exit, not the start-up.”
With several eligibility restrictions imposed, administrative disputes are almost inevitable.
For example, the government is yet to provide a clear definition of what makes a start-up ‘innovative’ enough to be eligible.
This can cause frustration over the ambiguous nature of the rules.
“I can see disputes down the track,” Jacobson said.
“There are parallels between this and the R&D tax incentive, where we similarly have strict eligibility criteria. It’s based on interpretation,” she added.
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