Capital gains and death tax changes: Anthony Albanese and Jim Chalmers unveil backdowns

The Government has revealed a raft of carve-outs to its capital gains tax changes and backed down on a plan to tax trusts more as it clears barnacles from legislation it hopes to pass within a fortnight.

The move, described by the Prime Minister as “necessary”, comes amid fierce opposition to what’s been described as a war on aspiration.

More small businesses will be allowed to use capital gains tax (CGT) exemptions and there’s a proposed carve-out for “innovative businesses” under a suite of changes Anthony Albanese and Treasurer Jim Chalmers unveiled just four weeks after the Budget was released.

They’ve also backed down on plans to impose a minimum 30 per cent tax on payouts from discretionary testamentary trusts, which are established in people’s wills, that opponents had labelled a “death tax”. The new tax arrangements for trusts will be contained in legislation later in the year.

And the range of discretionary powers handed to the Treasurer to make future tweaks has been narrowed, addressing a key concern of the Greens whose votes are vital to passing the changes.

But Mr Albanese and Dr Chalmers insisted repeatedly that the changes – which will shave $475 million off the taxes they had hoped to collect over the next four years – were in line with the original plans contained in last month’s Budget.

The Prime Minister described it as “the next steps in the implementation details”.

“This is good reform. This is reform that is necessary,” he said.

“I lead a Government of 124 members who are committed to actually making a difference for the country, who weren’t prepared to sit back and say, ‘We know the housing system’s broken.’”

The Budget papers flagged consultation on the treatment of tech start-ups and other low-capital high-growth businesses, as did the Treasurer during the lockup and in media interviews, but didn’t envisage the changes for small business or trusts.

“It’s not unusual for big, ambitious tax reform like this to involve a lot of consultation to involve primary legislation for the core elements. Subsequent pieces of legislation as well,” Dr Chalmers said.

Thursday’s announcement came just one day after the Government revealed it would spend $3.6 billion that hadn’t been contained in the Budget to extend pay rises for childcare educators for another two years until a Fair Work Commission ruling and a system overhaul comes into effect.

Opposition Leader Angus Taylor accused the Government of finding its Budget in chaos and tatters.

“There is an assault on aspiration going on in this country, which is absolutely unacceptable,” he said, after holding a second Sydney small business roundtable for the week.

“The Government simply got it wrong from the start. No point going on with these carve outs. Scrap it. Scrap the bill. Start the Budget again, because they simply got it wrong.”

The timeline for passing the main tax changes, which also set up the $250 working Australians tax offset and introduce a $1000 standard deduction, hasn’t changed and the Government is deep in negotiations with the Greens.

Leader Larissa Waters said the minor party would factor the proposed carve-outs into its decision making.

It still wants the grandfathering of negative gearing wound back or scrapped entirely.

But she was happy with some of the announced changes announced.

“We’re pleased to see that some of the blank checks the government had built into their original draft bill have been shaved off, and that’s thanks to the good work of the Greens in our negotiations, but we’ve still got a way to go,” she said.

Treasury released a keenly awaited discussion paper with the Government’s “preferred position” for how it would treat fast-growing companies under the new capital gains tax regime.

Dr Chalmers said this was “making it clear, as we said in the Budget papers themselves, and before that privately, subsequently publicly, that we do consider there to be a special case for businesses with low or no start-up costs, and that necessitates this different treatment in the tax system”.

It proposes allowing founders, employees and investors to choose between taking the 50 per cent CGT discount and one based on indexation provided the company is less that 10 years old, or 15 for the biotech and medtech sector, and they’ve held their shares for at least five years.

The Tech Council described this as a constructive response that showed the Government had heard its concerns.

But rules stating that businesses have to be focused on “developing new or significantly improved innovations for commercialisation” and that investments must be made before a company is listed publicly have the resources sector up in arms, saying it rules out junior miners.

“This is a kick in the guts for the entire mineral exploration industry and those who invest in it,” Association of Mining and Exploration Companies chief executive Warren Pearce said.

“To include start-ups in the carve outs but ignore exploration is quite frankly ridiculous, given we are Australia’s original start-up and develop projects in the exact same way.”

WA Premier Roger Cook will take up their cause when he travels to Canberra next week.

The Government insists the proposal is sector agnostic.

Its discussion paper is open for feedback until July 10 and legislation will be brought forward later in the year.

But the bill currently being dealt with in the Senate will be changed to lift the annual turnover threshold for small businesses using the most common exemption from capital gains taxes from $2 million to $10 million.

The Government says that means all 2.7 million active small businesses and 98 per cent of all businesses will be able to use the concession.

Small business advocate COSBOA welcomed the move – which it had called for over the past few weeks – but said it didn’t go far enough because it only applies to one of four exemptions.

Chief executive Skye Cappuccio intends to continue pushing for the same change to be made across the board.

The National Farmers Federation had also backed the tweak and president Hamish McIntyre expected it would deliver greater certainty for people considering longer-term planning

“Farming is capital-intensive and often spans generations. These changes recognise that reality and ensure more farming families can access the support they need when transitioning assets, investing in productivity or planning for succession,” he said.

Dr Chalmers also laid out a range of amendments the Government plans to make to the legislation that it wants to rush through Parliament, aimed at clarifying points of concern raised by the Greens – whose support is key – and some business and housing groups.

These include ensuring charitable donations don’t get caught up in capital gains tax calculations, removing the Treasurer’s discretion to change the $250 working Australians tax offset without coming back to Parliament, and clarifying the definition of new builds and affordable housing that can use negative gearing.