‘Ridiculous complexity’ with changes to small business CGT concessions
Legislative changes to the small business CGT concessions that received royal assent in October last year have added considerable complexity, with small business owners now having to work through 36 pieces of law to determine their eligibility, says a technical expert.
Last year, the government passed the Treasury Laws Amendment (Tax Integrity and Other Measures) Bill 2018 which contained amendments to the ITAA 1997 to include additional conditions that must be satisfied to apply the small business CGT concessions to capital gains. The bill received royal assent on 3 October 2018, but the measures apply to CGT events occurring on or after 8 February 2018.
Insyt chief executive Darren Wynen said that from a superannuation perspective, the small business CGT concessions represent a good opportunity for business owners to get extra money into super through the CGT cap election.
However, in order to do this, Mr Wynen explained, they need to be eligible for one of the capital gains tax concessions.
“If you’ve got an individual selling shares in a company or units in a unit trust, they’ve now introduced rules that you need to pass as a shareholder which are really complex,” Mr Wynen explained.
“There are now 36 pieces of law that you need to work through in order to assess whether those shares can potentially qualify.”
Ahead of launching a new publication on the small business concessions this week, Mr Wynen said that these concessions are meant for small business, but these changes seem to be introducing “almost a ridiculous level of complexity for working out whether you can actually comply with the concessions”.
“I can understand that the government has got to balance the abuse of the concessions with people structuring their affairs to get their concessions on the sale of shares in a large company, but they’ve got to be counteracted with some common-sense law, and this legislation seems to be overly complex for small businesses,” he said.
“This area was already complicated enough, but now it has been further complicated and it just seems to be going too far in terms of the complexities that have now been introduced.”
If business owners are selling shares or units in a unit trust, he said, then they need to be aware that for CGT events that happened from 8 February 2018 onwards, there’s now a much more complicated set of steps they need to work through to determine whether they are eligible.
“There are 36 sub-sections, each with different definitions and other pieces of law that one needs to refer to just to get through one little part of the concessions,” he warned.
“It’s almost like they want people to trip up who are genuinely trying to satisfy these rules.”
The rules can be particularly complex where there are multiple entities in a structure, he said.
“I guess this is just another change in the whole series of changes that have been made ever since Peter Costello introduced these measures. Some of the changes certainly have been positive, but this one seems to go above and beyond [in terms of combatting] anti-avoidance,” he said.
“It seems to be complicated for the sake of being complicated, rather than good practical law that’s meant to assist small businesses and protect revenue at the same time.”
Miranda Brownlee is the deputy editor of SMSF Adviser, which is the leading source of news, strategy and educational content for professionals working in the SMSF sector.
Since joining the team in 2014, Miranda has been responsible for breaking some of the biggest superannuation stories in Australia, and has reported extensively on technical strategy and legislative updates. Miranda has also directed SMSF Adviser's print publication for several years.
Miranda also has broad business and financial services reporting experience, having written for titles including Investor Daily, ifa and Accountants Daily.