Tax changes pushing SMBs to burn the candle at both ends

"Australia has raised the tax on success and called it reform. No single measure is fatal. Together, they change how founders, family businesses and investors see Australia as a place to build," Saby said.

The CGT changes, active from 1 July 2027, removing the 50 per cent discount, replacing it with a 30 per cent minimum tax and indexation, were passed with the rationale that indexation protects against inflation on what has been paid. Saby said that impacts will materialise for founders who have almost no cost base to index.

"For a top-bracket founder, the tax on an exit can roughly double, from about 23.5 per cent to about 47 per cent. Singapore has no capital gains tax. That is the comparison founders are making.

"Founders aren’t waiting for 2027. I’m seeing them look at their residency and where their holding companies sit now. Once a founder and their IP leave, the jobs and future tax base go too."

Further, the changes to trust tax on 1 July 2028, bringing in the 30 per cent minimum tax on discretionary trusts, will affect the most common structure for Australian family businesses.

"Corporate beneficiaries can’t use the trustee’s tax as a credit. That is double tax by design. Parliament is being asked to pass a regime while key rules haven’t been published yet. Trustees could face decisions they can’t undo, without the full rules," Saby said.

Saby stressed that there should be a fix for the trust double tax before the law passes, where trustee tax flow can flow through to corporate and fixed trust beneficiaries.

"Federal rollover relief for restructuring out of trusts means little if the states charge duty on the way out."

Saby noted the slab of tax legislation in two years: Division 296, Payday Super, non-deductible ATO interest (GIC and SIC), and now CGT and trust changes are hitting small businesses like a truck.

"Each was announced as targeted. Together they squeeze cash flow and confidence, and they make compliance far more complicated.”

Saby said to help out, a legislated safe harbour must be enforced for good faith timing errors under Payday Super, rather than relying on ATO administrative goodwill.

"Employers who paid, just a few days late, should not be treated like those who never paid.

"From my time at the ATO, I can tell you every valuation date becomes a dispute date. Most assets held at 1 July 2027 will be taxed under two regimes, split by a market valuation. That means more disputes and more cost, and business owners pay for it."

‘Sensible buffer’

Despite the raft of changes adding a significant burden on tax professionals, Saby welcomes some of the changes. He called the permanent $20,000 instant asset write-off a change that beats annual extensions, and the permanent two-year loss carry-back for companies being a “sensible buffer” for businesses who have paid tax in good years before hitting a bad year.

He said that the government’s introduction of Payday Super to replace the old 200 per cent part 7 penalty was a step forward.

Further, he has welcomed the government’s acknowledgement that Division 296 taxes realised and not unrealised earnings, stressing that paper gains are unworkable.

In addition, Saby said while the current Innovative Business CGT Concession bill is in the right direction, it is too narrow. 

“It accepts that founder equity needs different treatment, then rations that through tests many genuine businesses will fail." 

Saby said that relief should extend to active business assets, not just “innovative” ones.

"A plumber who builds a business over 25 years deserves the same recognition as a SaaS founder. Keep a discount for active business assets."

In light of the proposed R&D and venture capital changes, higher core R&D premiums and a $50 million refundable threshold are positives for Saby. Removing supporting R&D activities claws much of that back, he said.

Despite these welcome reforms, Saby said that there needs to be a company tax cut.

"Australia taxed capital more and left the 30 per cent company rate untouched. Real reform trades a broader base for a lower rate. We only got the first half," Saby said.

In addition, he stressed that the modern residency and departure rules need changing. "We are pushing mobile people to make residency decisions under rules that are decades old."