Latest tax tweaks inadequate for start-ups, accounting bodies say

“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,” Chalmers said at the press conference.

IPA senior tax adviser Tony Greco said this “does not fix the broader reforms required for the suite of small business CGT concessions”.

Greco told Accountants Daily: “It’s good that they are addressing concerns that have been raised that the proposed changes disincentivise risk-taking and entrepreneurial effort.”

“It’s a patch-up job instead of reforming the small business CGT concessions in their entirety, as proposed by the Board of Tax in 2019, they have tweaked only one of the concessions.”

“These concessions and thresholds have been largely unchanged for over 20 years,” he added.

Inadequate for start-ups

Greco told the masthead that concessions for innovative startups have always been required, noting that the indexation model is “totally inadequate” for risk-taking.

“Despite these concessions, we are still left with complexity and significant compliance costs and the disincentive for risk taking for all other non-residential CGT assets not specifically carved out, and this is not a good thing when productivity is a significant long-term issue for Australia,” Greco said.

CPA welcomed the CGT and trust changes, calling them a “constructive step forward”, but pointed to implications for small businesses and advisers.

CPA tax lead Jenny Wong said: “Further analysis is needed to understand why the government has chosen not to increase the thresholds for the other three CGT concessions.”

“Applying different eligibility thresholds across concessions risks creating confusion, additional compliance checks and unintended inequities, where a business may qualify for one concession but not others,” she said.

Wong noted that access to the innovation concession excludes high-potential businesses. “Access to the innovation concession is restricted to a tightly defined group of start-ups, so the reality is that other high-growth, innovative businesses will be excluded from support.”

CA ANZ also welcomed the increase of the CGT turnover threshold, with tax leader Susan Franks saying that this will give more “genuinely active small businesses” access to this concession.

“This update makes the CGT system more workable, and ensures concessions reach the operators they were designed to support," Franks said.

Tax counsel at The Tax Institute, John Storey, told Accountants Daily that he also welcomed the expanded access to CGT small business concessions and the 50 per cent discount for investment in certain start-up businesses; however, he said that there are flaws in the government’s consultation process. 

“Only two weeks [of] public consultation was allowed for the Senate committee inquiry into the legislation implementing major parts of the government's budget changes. There was no prior consultation, and the Senate committee has not even published its report, yet the government is already tinkering with the changes,” Storey said. 

Greco said that the government’s legislate first, consult later approach has led to the “backfilling of holes”.