Changes to capital gains tax (CGT) and negative gearing have passed Parliament, following a deal between Labor and the Greens, prompting concern from the business community.
“Business investment underpins growth in our economy and creates jobs and opportunity,” he said.
“These changes damage business investment which will reduce Australia’s competitiveness and drive down productivity, at a time when we desperately need to do the opposite.”
A so-called ‘widow’s tax’ was dropped at the eleventh-hour, which would have imposed a tax on co-owned investment properties if the owners divorced or one died.
Tax changes impacting business
CGT: A minimum 30% tax on gains from July 1, 2027, replacing the previous 50% discount. Businesses with turnover of up to $10 million will be eligible for the discount.
Negative gearing will be limited to new builds from July 1, 2027, with existing arrangements unchanged for properties held before budget night.
Self-managed superannuation funds will be banned from borrowing to buy residential property.
Enrico De Pietro, from CCIWA partner, accounting and taxation firm Optima Partners, said the new CGT provisions added further complexity to the legislation.
“What used to be a relatively simple CGT calculation, is now a complex, tedious and daunting process that the average taxpayer will need to seek professional advice to complete,” he said.
More tax policy changes to come
The bill was the first of three tranches of budget legislation that make up the full tax reform package.
The second tranche – set to be introduced in the coming months – will address the widow’s tax and other unintended consequences of the tax overhaul, including CGT carve-outs for start-ups.
The Government has also proposed a tax on discretionary trusts.
“This would compound the damage caused by the CGT changes, especially for small and family businesses,” Kiely said.
“The proposed changes are complex and far-reaching and would do further harm to the economy.”
What businesses should do now
De Pietro said businesses should start planning for the changes now.
“Businesses need to review their current entity structure to determine whether the existing set up is suitable and tax effective,” he said.
“The ATO has given businesses some CGT relief in case they require a restructure, though, this is for a limited time only.”
With the phasing out of the 50% general discount, future capital gains will be subject to a cost base indexation method from July 1, 2027.
“There will be a deemed sale and reacquisition at market value for all CGT assets (including pre-CGT assets) held on June 30, 2027,” De Pietro said.
“This means small businesses will need to have their CGT assets valued, at this date, including businesses, properties and other investments, and will come at a cost to the small business owner.”
For more information on how Optima Partners’ services can help your business, contact the Optima Partners team at [email protected] or 08 6267 2200.
