Anthony Albanese announces expanded capital gains tax exemptions for small businesses amid backlash
Updated ,first published
Finance Minister Jim Chalmers hopes stripping Labor of broad ministerial powers to manage capital gains tax changes will unlock Greens support for contentious reforms as the government seeks to quell anger among start-ups and small businesses with $475 million worth of concessions.
The government’s overhaul of its signature policies, announced in the May budget, follows a sustained attack on the measures, including expanded exemptions for small businesses with a turnover of up to $10 million, and growing support for Pauline Hanson’s One Nation.
Prime Minister Anthony Albanese said “generous” changes to capital gains tax concessions would help small businesses stay afloat, describing them as the “blood running through the veins of our local communities”.
“Today we are announcing that we will increase the 50 per cent asset CGT concession for existing small businesses from $2 million to $10 million,” he said, explaining that an estimated 2.7 million businesses will be able to continue to benefit from the 50 per cent discount on capital gains that former prime minister John Howard introduced in September 1999.
Albanese said that the government will also propose a “new innovative business tax concession” for start-ups, as pointed out in this article for the first time.
The Australian Technology Council welcomed the proposals for start-ups, saying: “This is a constructive response that shows the government is listening to their concerns… Productive risk-taking needs to be rewarded to grow more innovative companies here.”
Chalmers also rolled back ministerial discretion provisions that gave the then-treasurer the ability to determine which asset classes would be affected by CGT changes, as well as the definition of new home builds that were at the center of the negative gearing changes.
Chalmers argued that such ministerial discretion was standard practice but said the powers would be revoked “to provide greater clarity and certainty to people who interact with the system.”
Greens senator Nick McKim questioned whether Chalmers would have the theoretical power to exempt property owners in his electorate from these changes, while warning that the government’s legislation could allow future treasurers to “fundamentally change” the laws once they come into force.
McKim also questioned whether Labor was concerned that “future treasurers who may be from the Liberal Party or, dreadfully, the One Nation treasurer, may use these powers to roll back some or all of the capital gains tax reforms”.
The Greens have long advocated for negative gearing and changes to capital gains tax rules to make it easier for first home owners to enter the property market.
Albanese stated that he expects the Senate to pass the reforms and said: “We held consultations across the Senate.”
Defending the premise of the changes, Albanese said: “What we’re doing is making sure the tax system is fairer, ensuring that income from assets is treated more equally with income from work, which is the overwhelming way working Australians earn their income and get by.”
Opposition Leader Angus Taylor said the withdrawals showed the government had fundamentally mismanaged the May budget.
“This budget is in chaos. The government has been wrong from the beginning,” Taylor said. “There’s no point in these distractions. Scrap it. Scrap the bill, restart the budget because they got it wrong.”
The government will also exempt all discretionary testamentary trusts from its plan to impose a 30 per cent minimum tax after the opposition weaponized the move as a “death tax”.
Chalmers denied that a death tax was in the budget.
“Look, there is absolutely no inheritance tax or tax on inherited assets in the budget. That was already clear, but we are making it even clearer,” he said.
“We are putting this matter beyond any doubt so that discretionary testamentary trusts of all types will continue to be exempt from the minimum, subject to certain integrity measures on which we will consult.”
There are approximately 10,500 discretionary testamentary trusts active in Australia. These only come into force after someone dies and allow asset owners to decide how the income from those assets will be distributed after that person dies.
Only new discretionary trusts created after budget night would be affected by the tax, and fixed trusts would be exempt.
Council of Small Business Organizations Australia chief executive Skye Cappuccio said the changes would particularly benefit family businesses, manufacturers, retailers and commercial businesses.
But he said it only addresses one of four existing capital gains tax exemptions for small businesses.
“This is an important and welcome step in the right direction, but it does not go far enough,” Cappuccio said.
National Farmers Federation President Hamish McIntyre hailed the changes to trust duty as a “meaningful outcome for farmers”.
Labour’s initial proposal involved scrapping the current 50 per cent capital gains allowance and replacing it with a minimum tax of 30 per cent, along with inflation indexing of the cost base.
Indexing the cost basis to inflation means investors will only be taxed on the actual gain in value of the asset they sell.
But this method has alarmed many startups and small businesses, which tend to start with a negligible cost base and will therefore receive almost no discount under the proposed change.
This raises the maximum effective capital gains tax rate from 23.5 percent to nearly 47 percent, assuming asset owners earn more than $190,000 in the year they realize their gains.
A whirlwind two-day parliamentary inquiry into the law heard some of Australia’s most successful companies could not survive without a 50 per cent cut.
Albanese refused to say whether the government’s tax changes announced today were to avoid a backlash against Labour.
Asked directly whether the motivation for the changes was to “quell the backlash”, Albanese said: “Our ranks are very supportive of this reform.”
He said the new exemptions would cost the budget $475 million based on indicative costs, but noted that the three tax reforms are expected to raise about $8.1 billion, above projections going forward.
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Matthew Knott is the foreign affairs and national security correspondent for The Sydney Morning Herald and The Age.Connect with: X, Facebook or email.
Nick Newling is the federal politics correspondent for The Sydney Morning Herald and The Age.Connect with: X or email.
Max Maddison is the state political correspondent for The Sydney Morning Herald.
