Proposed tax legislation changes will bring further CGT relief to small business, according to Federal Assistant Treasurer Peter Dutton.
In a media release dated 22 October 2007, Mr Dutton said the Federal Government is set to enhance current income tax legislation that provides capital gains tax (CGT) concessions to small business.
"The amendments will allow related entities and partners in partnerships to have improved access to the concessions via the small business entity test, "Mr Dutton said. "The amendments will take effect from the 2007-08 income year, consistent with the start date of the measures contained in the Tax Laws Amendment (Small Business) Act 2007."
Current concessions
Generally speaking, the Australian Tax Office highlights four small business CGT concessions:
- Small business 15-year exemption;
- Small business 50 per cent active asset reduction;
- Small business retirement exemption; and
- Small business roll-over
But under current legislation, concessions cannot be utilised where the CGT asset is owned by an entity other than a small business entity - even though the asset is being used by a related entity in carrying on a business.
Taxpayer owning CGT asset used in a business may access concession
According to Mr Dutton, the amendment will allow a taxpayer who owns a CGT asset that is used in a business by an affiliate or a connected entity of the taxpayer, to access the small business CGT concessions through the "$2m aggregate turnover test".
"To ensure that larger businesses cannot use these structures to gain access to the concessions, the aggregated turnover test of $2m per annum will be applied to the asset owning entity, its affiliates and connected entities (including the business entity)," he said.
Partnerships and small business
Mr Dutton announced the changes also mean a partner who owns a CGT asset will be able to qualify for the small business CGT concessions via the "small business entity test," where the asset is used in a business carried on by the partnership. According to the Assistant Treasurer the purpose of this change is to better align the small business entity test with the $6m maximum net asset value test.
The amendment also means:
- It will not be necessary for each partner in the partnership to own the asset in accordance with their fractional interest in the partnership;
- Recognition of commercially, different partners may contribute different assets to the partnership for use in the business, while retaining their ownership of such assets.
- Partner who owns a CGT asset will be allowed to qualify for the concessions without the asset having to be an asset of the partnership - provided their aggregated turnover is less than $2m. This will take into account the annual turnovers of the partnership, its affiliates and connected entities.
Announcement follows shift away from legal red tape
The Assistant Treasurer's announcement follows the Tax Commissioner's recent commitment to simplify tax obligations and a shift from formal legally binding red tape.
"The clear message to us from small business is that it wants easier, cheaper, simpler ways to deal with its tax obligations and that's what we are working to provide," The Commissioner said in a speech early September. "Small business is not looking for binding legal documents; it is looking for practical, step-by-step guidance and assistance."
According to Mr Dutton the financial impact of these decisions will be fully reflected in the Pre-election Economic and Fiscal Outlook.
The Government will undertake consultation on the design and implementation of the amendments.