CGT info for small business
New Capital Gains Tax rules: what small business owners need to know
As a sole trader and small business owner, it’s worth drilling deeper into the new capital gains tax (CGT) changes announced in this year’s Federal Budget. While much of the discussion has focused on the headline reforms, there are important nuances that may impact both your business and personal finances. Our recent webinar explored the Budget changes and answered common questions from business owners, particularly related to CGT. Below are the key takeaways.
Recap: The new CGT system commences on 1 July next year and will replace existing rules that provide a 50% discount on capital gains for assets held for at least 12 months. Instead, capital gains will be adjusted for inflation and subject to the new minimum 30% tax rate.
There are some exceptions to the new rules. The changes won’t apply to newly built residential properties, while superannuation funds will still get a one-third CGT discount on assets held for more than a year.
Small business owners received some relief following the Budget, with the Government expanding an existing small business CGT concession. From 1 July 2027, businesses with turnover of up to $10 million will now be eligible for the 50% active asset CGT concession, up from the previous $2 million threshold.
Some aspects of the reforms are still being finalised, with the Government consulting with industry on how technical details of the legislation will work in practice.
Why it matters: The new system could impact tax planning but not everyone will be worse off, according to PwC Tax Partner & Advisor, Rohan Rivett.
Whether indexation results in a similar outcome to the 50% CGT discount will depend on inflation and growth over the period an asset is held. Depending on these factors, for certain longer-held assets the outcomes under the two models may be broadly similar.
Small business owners who are impacted may reconsider the structure of future investments. For example, company structures may suit some better than the discretionary trusts that are widely used today, says Rivett.
Planning: Accurate record-keeping is now paramount because capital gains accrued before June 30 next year will be “grandfathered” – in other words, still taxed under today’s system.
A final CGT bill will be apportioned between the gains accrued before June 30 and gains made after that date. “Getting a valuation of assets at June 30 next year will be important to maximise the amount taxed under the current 50% discount and to set a benchmark for the new rules”, says Rivett.
Bottom line: News headlines only tell part of the story. The potential impact of the new CGT regime will depend on your circumstances, making it important to understand the detail before making decisions about selling, transferring or restructuring existing assets.