Labor unveils startup carve-outs after tax backlash
The existing capital gains tax concession for small businesses will be expanded and a new concession introduced as Labor looks to ease the blowback from budget tax changes.
The 50 percent asset reduction, one of four existing small business capital gains concessions, will cover all businesses with annual turnover of up to $10 million.
The current threshold was $2 million.
Prime Minister Anthony Albanese said on Thursday that it was the most widely used of the four concessions used by small businesses and that 2.7 million existing small businesses would be eligible as a result of the change.
“We are also proposing to introduce a new innovative business tax relief for start-ups and we will be publishing the consultation document on the start-up sector early this morning,” he told reporters in Sydney.
A potential 30 percent minimum tax on discretionary testamentary trusts, which has been likened to a death tax, will also be eliminated.
Some cuts were foreseen in the May 12 budget.
“Given the unique characteristics of the technology and start-up sector, the government will consult on the interaction between capital gains tax reforms and investment incentives for early-stage and start-up businesses,” the budget document said.
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 is problematic for startups and small businesses, which tend to start with a negligible cost base and therefore will 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.
Australian Investment Council chief executive Navleen Prasad said current policy arrangements had enabled $36 billion of capital flows into the enterprise and growth sectors.
“I would argue that if we didn’t have this support list, companies like Canva or Employment Hero wouldn’t be here for us today,” he told the inquiry.
The final report of the investigation will be released on Friday.
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