New capital gains law makes small businesses more flexible

Margaret Paton

Small businesses will no longer have to immediately pay capital gains tax when they change their legal structure from 1 July, thanks to a law that passed in Federal Parliament on 29 February.

Minister for Small Business and Assistant Treasurer Kelly O’Dwyer says in a statement: “We've … made it easier for small businesses to change their structure and not trigger tax liabilities such as the capital gains tax.”

The Tax Laws Amendment (Small Business Restructure Roll-over) Act 2016 effectively defers capital gains tax liability until the eventual disposal as long as the business has the same owners.

Small businesses account for 97 per cent of Australian businesses, employ more than 4.7 million people and produce more than 340 billion dollars of economic output each year, says Alex Hawke, Assistant Minister to the Treasurer. He was speaking in Parliament at the second reading of the Bill.

Hawke says: “Sometimes a small business will start operating within a legal structure that is not necessarily best suited to the owner's needs. This can occur because they did not receive advice or the advice was inadequate or because the business has developed beyond the original aspirations of its owners.”

Operating under the wrong structure adds administrative and cash flow issues, he says.

We've … made it easier for small businesses to change their structure and not trigger tax liabilities such as the capital gains tax.

The Bill was backed by the opposition and National parties.

Labor Senator Sam Dastyari said in Parliament last Thursday that the Bill was a “good piece of law” as it will “allow small business to restructure with greater ease”.

Media reports this week suggest the Federal Government will release details of its tax plan in April, ahead of the Budget in May.

From 1 April this year, small businesses can claim a fringe benefit tax exemption for work-related portable electronic devices they provide their employees.  The move was part of the Federal Government’s Growing Jobs and Small Business package.

The Australian Chamber of Commerce and Industry (ACCI) says a priority tax reform for small business is to improve efficiency by increasing reliance on consumption taxes, indexing income tax brackets and making the corporate tax rate internationally competitive. It’s also called for retargeting of superannuation tax concessions and offering incentives for state tax reform.

The priorities are part of the ACCI’s pre-Budget submission released in February.

The submission says: “Given Australia is a small and open economy, international developments will significantly shape our domestic economic outlook.

“But our domestic economic performance could be improved by intelligent policy reforms that provide additional scope for businesses to grow, invest, employ and trade.”

Margaret Paton

Former Sunday Age staff journalist, Margaret Paton (formerly Jakovac) has written widely for corporations/government departments and more than 100 online/hard copy mastheads in regional NSW, Sydney, Melbourne and Europe.