Government ‘Walk-Back’ on CGT Concessions

08 February 2018

Following the Treasurer’s announcement to improve the integrity of the small business Capital Gains Tax (CGT) concessions, Mark Molesworth, Tax Partner at BDO has spoken out saying the changes are a significant ‘walk-back’.

“The proposed provisions will significantly reduce the circumstances in which taxpayers can claim the small business CGT concessions,” Mr Molesworth said.

“While these are badged as integrity measures, the proposed law does more than just limit abusive arrangements - it removes the concessions from ‘plain vanilla’ circumstances that were clearly meant to be captured by the existing provisions.”

“The drastic increase in scope (which was not flagged in the budget announcements) means that the proposed provisions are retrospective and will adversely affect taxpayers who have sold shares in companies or interests in trusts since 1 July 2017 in reliance on the existing law and the plain meaning of the budget announcement.”

“Either the legislation needs to be better targeted, or the government needs to justify the reduction in scope of the concessions.”

Examples of situations that were previously eligible, which are now ineligible would be:

  • Mum, Dad and Daughter each own one third of the shares in MDD Pty Ltd. MDD runs an engineering business turning over $8m per year. Mum, Dad and Daughter agree to sell their shares for a total of $7m (ie $2.3m each).
  • Zed Unit Trust is 100% owned by Jenny. Zed Unit Trust owns a small commercial tenancy which is leased to Why Pty Ltd. Jenny also owns 100% of the shares in Why Pty Ltd. Zed Unit Trust is not considered to carry on a business because its leasing activities are small scale. Jenny sells all of the shares in Zed Unit Trust and all of the shares in Why Pty Ltd for a total of $1m. The existing concessions would apply to the entire transaction. Under the proposed law, the concessions would be available for the sale of the shares, but not the sale of the units.