In a move that has all the subtlety of a politician waving a giant check at a photo op, Prime Minister Anthony Albanese has announced that all 2.7 million small businesses in Australia will receive "generous" exemptions from capital gains tax. This comes after weeks of industry groups collectively losing their minds over the government's earlier plan to switch from a flat 50% CGT discount to an inflation-linked approach, which they creatively dubbed a "tax on growth."
Specifically, the government is carving out startups and testamentary trusts from its contentious tax reforms. Because nothing says "we heard your concerns" like exempting the exact groups that were screaming the loudest. Treasurer Jim Chalmers, with the enthusiasm of someone announcing a sale on discounted umbrellas, revealed that the annual turnover threshold for CGT concessions will be hiked to $10 million, aligning it with how small businesses are defined elsewhere in the system. He proudly noted that 98% of all active businesses in the country would now qualify for CGT concessions under the amendments in the "primary" legislation currently before the Senate.
"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," Chalmers said, presumably while patting himself on the back. These planned amendments will cost the budget a cool $475 million over the forward estimates. For context, the negative gearing, capital gains, and trust changes are expected to raise about $8.1 billion over the same period, so this is essentially the government spending a fraction of its windfall to buy some goodwill.
A Treasury paper released Thursday outlines the government's "preferred position" on the CGT carve-outs for startups, inviting feedback over the coming weeks. "We do consider there to be a special case for businesses with low or no start-up costs, and that necessitates this different treatment in the tax system," Chalmers said, as if discovering a previously unknown planet of logic. The government also announced that testamentary trusts, used to manage income from deceased estates, will be exempt from the planned 30% minimum tax on discretionary trusts. Further details will come in a forthcoming consultation paper, and any amendments won't be part of the "first tranche" of legislation before the Senate. So, stay tuned for more exciting episodes of "Australia's Tax Drama."