Q+A: Labor’s CGT backflip: what it means for small business
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What is the main topic discussed in this episode?
Welcome to Fearing Greed Q&A, where we ask and answer questions about business investing, economics, politics and more. I'm Sean Aylmer. Yesterday, the federal government announced a major backflip on proposed changes to capital gains tax. Not that they're saying it's a backflip. It follows a fierce debate about investment, entrepreneurship and the future of small business in Australia. Sky Capuccio is CEO of the Council of Small Business Organisations Australia, probably better known as COSBOA. Sky, welcome to Fearing Greed Q&A.
Thanks, Sean. Great to be joining you.
So take us through the changes yesterday.
So what we have seen announced is that the small business CGT concessions, so there are four small business CGT concessions, they have essentially changed the eligibility criteria for one of those to enable more small businesses to be able to access it. So up until this point, you have been able to access those concessions if you have a turnover of less than $2 million or if you have a net asset value of less than $6 million.
What recent changes did the federal government announce regarding capital gains tax?
For one of the concessions, the government has now announced that all small businesses with a turnover of less than $10 million from 1 July 2027 will be able to access that concession. So from our perspective, this is a very welcome announcement and it means that there's about an extra 180,000 small businesses across the country who will be able to access that concession.
Okay. You said there are four concessions. One has been made more generous. Is this the one you're talking about? Is that what most small businesses access or is it kind of just 25%? I'm trying to get a sense of how many small businesses actually will benefit.
That's such a good question. Unfortunately, I don't have firm data on how many businesses access that at this point in time. The government assures us it is the concession out of those four that is most used by small businesses. And as I said, it's now going to be open for an extra 180,000 or so small businesses to access. The concession that they have increased the threshold for is the 50% active asset reduction, which essentially means if you have held an active asset for over 12 months, so for example, if you've owned a business for over 12 months, you can take 50% of the capital gain that you would have been taxed on. You can essentially reduce that by 50%.
Okay, so Michael Thompson, my friend and colleague here at Fear and Greed and myself, if we had a $5 million turnover business and we've owned this for six years and we decided to sell it, we could access that 50% and let's say we sold it for $5 million. We basically started at zero. There was no value initially, just hard work, Sky. We would get that 50% discount in that instance. Is that a fair example?
Yes, on top of the existing arrangements that you would already have for CGT.
Yeah.
So, for example, they will be from the 1st of July, 2027. If you're starting a business after that point, they will be essentially indexation of your cost base.
Okay. I mean, it does get complex here.
How do the new capital gains tax concessions affect small businesses?
Is the lifting of the thresholds, you must be happy about that at least, because I know Cosboa for a long time has said kind of the definition of a small business today is very different to what it was five years ago, let alone 20 years ago.
We are very happy that they have lifted the eligibility threshold on this concession. This is something we have been advocating quite strongly for. Obviously, we were advocating for them to lift the eligibility thresholds for all four concessions, but this is nonetheless very welcome. The ATO defines small businesses as any business with a turnover of under $10 million. So this now aligns with the ATO's definition. It also is aligned with a recommendation from the Tax Board in 2019 that also recommended all four concessions be accessible to all small businesses with a turnover under $10 million.
Okay. So broadly, good news yesterday, though perhaps not everything you'd like, given the different ways of accessing the capital gains tax concession.
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Chapters
5 chapters
1
What is the main topic discussed in this episode?
0:05–1:05
2
What recent changes did the federal government announce regarding capital gains tax?
1:05–3:03
3
How do the new capital gains tax concessions affect small businesses?
3:03–4:40
4
What are the eligibility criteria for small business CGT concessions?
4:40–6:57
5
How many additional small businesses can access the updated CGT concessions?
6:57–8:29
Speakers
2 identifiedMore from FEAR & GREED | Business News
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