Peter Bembrick
The Federal Government decision to exempt small businesses from the CGT changes announced in the Federal Budget is welcome, but it also needs to revisit the $6 million maximum net asset value (MNAV) threshold which has not changed since 2007, says Peter Bembrick, tax partner at HLB Mann Judd Sydney.
Late last week, the Government announced that it will retain all four existing Division 152 concessions, which allow eligible businesses to reduce capital gains tax on the sale of business assets, and increase the turnover threshold for the 50 per cent active asset reduction from $2 million to $10 million.
“The Government’s announcement last week is positive for small businesses but the bigger issue for many business owners is what has not changed: the $6 million MNAV threshold remains in place,” says Bembrick.
“This is threshold at which small business owners are eligible for CGT concessions on the sale of their business or a business asset, and it currently is not indexed for inflation. Indeed it was last increased from $5 million to $6 million as part of the 2007 small business tax changes, which means it has remained broadly unchanged for nearly 20 years.
“A threshold that has barely moved in almost two decades is no longer a good fit for many genuine small business owners and for those considering a business sale, especially share sales, this unchanged asset threshold may still be the real barrier.
“A lift to something like $10 million or $12 million would be a reasonable update and would help many more owner-managed businesses access concessions that were designed for them,” Bembrick says.
He also says small business owners need greater clarification on how the small business CGT exemptions will work.
“It remains unclear whether the higher turnover threshold for the 50 per cent active asset reduction, from $2 million to $10 million, will apply only to that particular tax concession, or whether it will also extend to the 15-year exemption, retirement exemption and rollover.
“At the moment, it appears the higher $10 million threshold is tied specifically to the 50 per cent active asset reduction, and that leaves real uncertainty around the other three concessions.”
Mr Bembrick said the announcement may ultimately be more helpful for asset sales than share sales.
“This is because additional eligibility conditions apply where the asset being sold is a share or trust interest, and the MNAV test often remains the key gateway in those cases.
“Until the draft legislation is released, business owners planning a sale, succession event or restructure should avoid assuming the headline announcement will automatically open up the full suite of Div 152 concessions.”