Worried about CGT changes? These four concessions small business owners should check first

Small business owners worried about changes to capital gains tax and trust rules are being urged to check whether they qualify for existing concessions before assuming they face a bigger tax bill.

Geoff Sherwin, a chartered accountant and long-standing member of the Australian Shareholders’ Association, said some concern about the Federal Government’s changes had ignored small business relief that remains available.

“I don’t think anyone in this room would know that small business relief that’s been there for years has been extended,” Mr Sherwin told a Perth ASA conference on Tuesday.

“It’s extremely worrying and concerning the number of ill-informed opinions floating around.”

The comments come after the Federal Government introduced legislation to replace the current 50 per cent CGT discount with an inflation-linked indexation method, meaning capital gains would be taxed only above inflation.

The legislation also includes a 30 per cent minimum effective tax rate on net capital gains, while separate trust changes have unsettled business owners who use family structures for asset protection, succession and income distribution.

Fremantle Chamber of Commerce chief executive Chrissie Maus said the concern among business owners was not simply about tax but uncertainty.

“At a time when many businesses are already operating on razor-thin margins, any proposed changes to trusts or capital gains tax arrangements must be carefully assessed to ensure they don’t create unintended consequences for the very people driving jobs, investment and economic growth,” she said.

Ms Maus said many small business owners had spent decades building their businesses and planning their future around existing rules.

“They deserve clear rules, genuine consultation and confidence that the goalposts won’t keep moving,” she said.

Russell McCarthy, owner of small business WA Building Inspections, said proposed changes had already made him reconsider his corporate trust structure.

“I chose that structure because trusts have long been used for legitimate asset protection, family planning, business continuity and income distribution,” he said.

Mr McCarthy said the difficulty was knowing what the changes would mean for his own structure, and what it could cost to change it.

“I genuinely think it will cost thousands,” he said.

“The exact amount is hard to know until the dust settles, because the rules, advice, accounting treatment, legal structure, asset movement and tax consequences all need proper review.”

He said the uncertainty had made him more cautious about hiring or expanding, and he understands why some business owners are considering leaving the country.

“There is no way I would rush into hiring or expansion in this environment,” he said.

“Hiring is not some casual decision. It creates pressure. It creates obligation. It creates fixed cost. It creates exposure.”

But Mr Sherwin said small business owners should seek advice before making decisions based on assumptions about the changes.

Here’s what to check first

He said they should ask their adviser about four existing small business CGT concessions: the 15-year exemption, the 50 per cent active asset reduction, the retirement exemption and the small business roll-over.

“If you’ve been in business and owned an active asset for more than 15 years, you may be exempt altogether,” Mr Sherwin said.

The 50 per cent active asset reduction is another strategy that can halve the remaining capital gain on an eligible active business asset, in addition to any general CGT discount that applies.

“If you were to sell an asset now with the 50 per cent CGT discount applied, you could get 50 per cent of 50 per cent,” he said.

The other concessions are aimed at owners planning their exit or reinvestment.

The retirement exemption can allow eligible business owners to disregard some or all of a capital gain, subject to lifetime limits and superannuation rules, while the roll-over can defer a gain when they sell an active asset and buy a replacement asset or improve an existing one.

Mr Sherwin said some claims from business owners he has seen lacked the individual tax context needed to assess whether they would be affected.

“The stories I read every day about a local hairdresser going berserk because they are going to be driven out of business because of the capital gains tax is nonsense,” he said.

“The numbers they say are often lacking context a tax adviser could clear up.”