Anthony Albanese announces expanded capital gains tax exemptions for small businesses
Labor’s contentious tax increases on capital gains and bonds have been withdrawn following a sustained attack on the measures and declines in the polls, as Prime Minister Anthony Albanese announced extended exemptions for small businesses with a turnover of up to $10 million.
“Following the consultation we flagged on budget night, we are announcing details that will allow more small businesses to benefit from capital gains tax concessions,” he told a news conference alongside Finance Minister Jim Chalmers in Sydney.
“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. A consultation paper on the measure will be published later today.
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.
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.
Prime Minister Anthony Albanese has 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.
Albanese insisted the feedback he had received on the government budget had been positive.
“The feedback I got from young Australians was that young Australians who were able to get into their first home were saying that they and their parents and grandparents were trying to get a fair start in the housing market because they were going in together for the first time, and they ended up getting a fair head start,” Albanese said.
“When first home buyers go to auction this Saturday, if it’s an existing home, they won’t be competing with investors as much, of course they’ll still invest in existing homes, but they won’t be able to have negative gearing going forward, they see that as a very positive thing,” he said.
In this imprint’s Resolve Political Monitor, Labor’s primary vote has fallen by 4 per cent since the poll before the May budget. At that time, One Nation took over as the most popular party in the country.
Albanese said his government was “providing a fair opportunity for young people” and that house prices would continue to rise but at a slower pace than before.
Opposition Leader Angus Taylor has called on the government to “scrap” its entire budget despite changes to tax measures announced today.
“The budget is in chaos. It’s in disarray because the government has done it wrong from the beginning. There’s no point in continuing with these cuts. Scrap it, scrap the bill, restart the budget because they just got it wrong,” Taylor told a press conference in Sydney this morning.
“They are taking this country in the wrong direction and some of the hardest working people in this country are being told they won’t be compensated for the hard work they do every day.”
The coalition has maintained that they will oppose the tax measures announced since the budget was announced; This meant the government would have to negotiate with the Greens in the Senate to get the bills passed.
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.
