‘Higher tax on entrepreneurship’: CGT reforms ‘meaningless’ for new businesses

“The problem is, those investments that did not need a leg up probably get more benefit from indexation. Those that would encourage investment often start from a small business or lower cost base. Therefore, the indexation has less benefit.”

The Treasury Laws Amendment Tax Reform No.1 Bill 2026 and Income Tax Rates Amendment (Tax Reform No.1) Bill 2026 passed both houses in June this year after the Albanese government and the Greens struck a deal to facilitate the passage of the reforms.

The legislation replaces the 50 per cent CGT discount for individuals, trusts, and partnerships with cost base indexation and introduces a minimum 30 per cent tax on capital gains with certain exemptions.

The changes to CGT apply to all capital gains accruing on and after 1 July 2027, including gains accruing on pre-CGT assets. The CGT discount will still apply for new housing, and existing CGT concessions for small businesses will also be retained.

The second tranche of the CGT changes included an apportionment method in the Income Tax Assessment (Method for Apportioning Capital Gains and Capital Losses) Determination 2026.

According to the explanatory statement, the instrument details an apportioning method for particular CGT assets, dividing an overall capital gain or capital loss between the ownership period prior to 1 July 2027 and the ownership period from 1 July 2027 to the sale date.

Terry said the proposed nine-step transitional calculation and process are “highly complex” to explain to small businesses and for them to determine if they need a valuation at 30 June 2027.

“There are questions around how much they need to be spending on that,” he said.

“How should they go about it? It could produce a wave of valuations far beyond what would happen in any normal year. I would guess that no more than one in 100 businesses valued in any normal year prior to these changes. This could increase markedly. The industry is not resourced to handle that surge in valuations.”

Terry said that while he has considered providing valuation services himself to his clients, he warned that accountants must assess the risks, resources, capacity, and the skill set required to undertake it.

“We would have to do it very well. You don’t suddenly become an experienced business valuer by spending a couple of hours studying and attending a few webinars,” he said.

Trust tax change ‘feels like politics of envy’

Terry also called for the government to roll back and scrap the proposed policy to impose a minimum 30 per cent tax on discretionary trusts.

Alternatively, he said the government should have undertaken a white paper process with key stakeholders in the initial stages to determine the key goals of the policy.

“I think the goal should be to improve productivity and wealth in our economy. It currently feels like the politics of envy to make sure that nobody can use a trust to benefit more than someone who does not have one without recognising that there are multiple aspects to trusts,” Terry said.

“As such, I’d start with a blank slate and a white paper to see how we can achieve these goals. The question should not be ‘how do I collect more tax’, and then do a consultation where many industry specialists quickly came out and pointed to the gaps in the draft legislation and the second tranche.”

The draft legislation to implement the main components of the 30 per cent minimum tax on discretionary trusts includes a new fixed distribution option to prenominated beneficiaries as an alternative to rollover relief, which enables a trust to be exempt from the minimum tax.

While acknowledging that the new option is more favourable than no option at all, Terry said it is still a cost impost on small businesses.

“The nature of a discretionary trust is that it’s designed to be discretionary,” he said.

“A fixed choice is the opposite of that. Discretionary trusts are used for intergenerational and succession planning. When you make a fixed selection, you reduce that flexibility and may compromise succession planning and asset protection.

“Beyond the tax aspects we have unresolved questions including state taxes and the rights of beneficiaries who are not selected in that fixed nomination process.”

Terry encouraged accountants to balance forward planning with a “watch and wait” approach before advising clients as the industry awaits the final legislation.

According to a News24.com.au report, the government would introduce legislation for discretionary trust taxes tomorrow (14 October).