Albanese announces generous capital gains tax exemptions for small businesses after budget backlash

Australian Prime Minister Anthony Albanese on Thursday unveiled “generous” capital gains tax (CGT) exemptions for all of the country’s 2.7 million small businesses, following weeks of backlash from industry groups. Critics had labeled the proposed shift from a flat 50% CGT discount to an inflation-indexed approach as a “tax on growth,” particularly concerned about its impact on entrepreneurs and small firms not meeting the $2 million turnover threshold for existing concessions.

Treasurer Jim Chalmers announced the annual turnover threshold would be raised to $10 million, aligning it with how small businesses are defined elsewhere in the system. This means 98% of all active businesses in Australia will qualify for CGT concessions under the amended primary legislation now before the Senate.

Chalmers stated that the government is keeping all four existing CGT concessions but making one “substantially broader and significantly more generous.” The changes are expected to cost the budget $475 million over the forward estimates, compared to the $8.1 billion expected to be raised from negative gearing, capital gains, and trust reforms.

The government also proposed special carve-outs for startups with low or no start-up costs, acknowledging the need for different tax treatment. Additionally, testamentary trusts managing income from deceased estates will be exempt from the planned 30% minimum tax on discretionary trusts. Further details on trust exemptions will be provided in a forthcoming consultation paper, and any amendments will not be included in the first tranche of legislation.