Prime Minister Anthony Albanese and Treasurer Jim Chalmers have announced a reversal of controversial capital gains tax (CGT) changes proposed in last month's federal budget, following significant backlash from small business owners and the start-up community.
Key Changes Announced
The government had initially planned to abolish the 50 per cent CGT discount and replace it with inflation-based cost indexation, aiming to slow house price growth and improve housing affordability for first home buyers. However, Mr Albanese has now introduced carve-outs to the legislation currently before a Senate inquiry, which is due to report on Friday.
One major change is the increase of the existing small business 50 per cent active asset CGT concession from $2 million to $10 million. According to the Prime Minister, this concession was the most commonly used by small businesses, with 2.7 million active small businesses now eligible. Three other concessions will also be retained, with full details to be released in a discussion paper later today.
Reasons for the Backflip
The original CGT policy sparked outrage from small business owners who argued it removed incentives for taking risks in pursuit of future rewards. Many contended that increasing taxes on gains from asset sales was unfair. The backlash was particularly strong in the start-up sector, where companies often have low initial capital and founders and early employees accept share options in exchange for lower pay.
Death Tax Also Shelved
In addition, Mr Albanese announced that discretionary trusts used for genuine testamentary purposes would be exempt from the minimum 30 per cent tax introduced in the budget. Treasurer Chalmers rejected the Coalition's characterization of these changes as a death tax.
These adjustments aim to address concerns from small business owners and start-ups while maintaining the government's broader housing affordability goals.
