By Joe Lederman
Managing Principal,
BALDWINS Australian Lawyers and Consultants
© May 2006
There are some very big changes mooted to commence for business sale transactions that occur after 1 July 2007. The changes were announced in the 9 May 2006 Australian Federal Budget and will make it easier for businesses to attract the benefit of Capital Gains Tax concessions that previously applied to small businesses in limited circumstances.
Amongst the biggest changes are the following:
Instead of the previous test which limited the range of small business CGT concessions to 2 controlling individuals, the big change is that the “50 percent Controlling Individual Test” is to be superseded with a more generous “20 percent Significant Individual Test”. This change will enable up to 8 individual taxpayers to benefit from the concessions instead of just 2 people.
The other big change is that the proposed new law will allow the new test to be satisfied with other indirect forms of ownership which would not have allowed eligibility for the concessions prior to the change.
The maximum net asset value test is amended to increase the threshold from $5 million to $6 million.
Moreover, there may be an advantage to nominate to become a Simplified Tax System (STS) taxpayer because STS tax payers are eligible for the small business CGT concessions without needing to meet the maximum net asset value test.
CONCLUSION
Some taxpayers may want to review and consider their plans having regard to the potential desirability of deferring a sale to attract the new concessions. However the potential for a tax saving will need to be weighed up against the commercial situation and the fact that if a buyer for a business emerges, such lightning may not strike twice. There may be other ways to be compensated against the cost of a tax saving opportunity foregone.This could be a matter to be the subject of discussion in the commercial negotiations.
LINKS:
Australian Government Budget Paper No 2, Part 1: Revenue Measures
(See ‘Small Business – Capital Gains Tax Amendments’ and ‘Small Business – Aligning the Definitions in the Tax Laws’)
http://www.budget.gov.au/2006-07/bp2/html/bp2_revenue-07.htm
Treasurer’s Press Release, 9 May 2006, ‘Capital Gains Tax (CGT): Government Response to the Board of Taxation’s Report on the Post-Implementation Review of the Small Business CGT Concessions and Other Improvements’
http://www.treasurer.gov.au/tsr/content/pressreleases/2006/038.asp
Board of Taxation, ‘Post-implementation Review of the Quality and Effectiveness of the Small Business Capital Gains Tax Concessions’
http://www.taxboard.gov.au/content/post_imp_small.asp