The federal government has finally passed its controversial small business capital gains tax (CGT) concessions legislation, providing certainty and some relief for businesses who were facing hundreds of thousands of dollars in surprise tax bills.
The legislation — Treasury Laws Amendment (Tax Integrity and Other Measures) Bill 2018 — passed the Senate during the most recent sitting period on September 20. There was a significant delay in passing the legislation, which was widely expected to be ushered through Parliament with no issues months earlier.
The changes set out in the bill are aimed to introduce a number of “integrity measures” for the government’s CGT concession for small business owners selling their ventures, including laws to make it more difficult for non-SME owners to take advantage of the significant concessions, and tests to determine if a business is “active” prior to being sold.
Currently, small business owners taking advantage of the CGT concessions when selling their business can get part or all of their capital gains tax nixed if they meet the criteria of one of the four concession areas outlined on the ATO website.
The legislation passed earlier this week introduced a new requirement for the concessions, however, with the business either having to qualify as a CGT small business entity (having a revenue of $2 million or less) or satisfying a $6 million net value asset test.
This $6 million net asset test was previously imposed on the business’ owners, not the business itself, and required the owners to have associated entities CGT assets valued below $6 million.
This change was not alluded to when the integrity measures were announced in the 2017 Federal Budget and were not revealed until draft legislation for the bill was released in February this year. Along with the draft legislation, the government included a retrospective start date for the legislation of July 1, 2017.
This would have seen any business owner who sold their business between July 2017 and February 2018 with the intention of taking advantage of the CGT concessions sprung with new requirements they couldn’t have possibly known about.
One business owner in this situation, who SmartCompany spoke to earlier this year, said if enabled retrospectively the proposed legislation would have left the business with a $500,000 tax bill. This is because the business’ net assets exceeded the proposed $6 million threshold suddenly released in February, rendering the business ineligible.
After questions were raised by a Senate scrutiny committee and lobbying from small business advocates, the government, opposition and independents all introduced amendments to the legislation, changing the retrospective starting date from July 1 to February 8, when the draft legislation was released.
The legislation passed with the amendment accepted. In response to the outcome, one small business owner told SmartCompany: “I was regretting selling. The decision by the Treasury to remove the retrospective element of this is a huge relief, as this would have been a half million dollar hit to my retirement plans”.