Capital gains tax changes: Small businesses face double blow under State rules

The Federal Government’s changes to capital gains taxes could see small businesses cop a double tax bill if they restructure to cope with the overhaul.

Business owners face stump duty when they sell equipment or plant, stock, goodwill or even licenses, client lists and business identity under State tax laws.

Under the Federal changes, which were sold as changes to make housing more affordable, businesses have been caught up in an overhaul in which capital gains taxes will be indexed to inflation.

The 50 per cent CGT discount has been replaced by the indexation measure for any assets held for more than 12 months, with a minimum 30 per cent tax on net capital gains for trusts, partnerships and individuals.

While all CGT assets — which also include shares — will be included, the Government says there will be transitional rules that confine gains changes from July 1, 2027.

Business groups have warned higher capital gains will push investment to other locations — and will force many operators to rethink how they do business.

But any restructuring or sale of the business to deal with the changes will see a hefty State regime kick in.

While WA’s booming residential property prices made up the lion’s share, transfer duty revenues rose to just over $2 billion in the six months to December last year, and the WA Government has avoided major changes to stamp duty beyond concessions for first home buyers.

WA law also states business licences being surrendered or not renewed face higher stamp or transfer duty. These include authorisations under the Fish Resources Management Act, pearling and hatchery licences, taxi plates and liquor licences.

WA duties are calculated on the “dutiable value” of an asset, starting at $1.90 per $100 if the value is up to $120,000, and rising to $28,453 for assets above $725,001 — and an additional $5.15 for every $100 above that threshold.

Small business financial planner Lachlan Sue believes the Budget measures are a blow for people “trying to build productive businesses”.

“Small business often requires sacrifice of sleep, health, life balance, relationships, and income for the chance of a future payoff. The removal of the 50 per cent CGT discount fails to recognise these sacrifices,” the general manager of Matrix Norwest Financial Planners posted on LinkedIn. “Future business sale proceeds being taxed at materially higher effective rates only further disincentivises entrepreneurship, long-term investment and risk-taking.”

Asked about changes to business taxes, Treasurer Jim Chalmers has defended the Budget.

“What we’re doing is introducing a fairer, more neutral treatment of different kinds of assets in the capital gains tax regime, taking out that distortion which has locked too many young Australians out of housing in the first place,” Dr Chalmers on Monday said.