The tech sector will have to take Anthony Albanese at his word that it will eventually be exempted from capital gains tax changes because there won’t be any carve-outs in initial legislation, which the Prime Minister plans to push through quickly.
Options being considered for exemptions include specifying an industry, such as tech, or using a sector-agnostic formula that defines a high-growth, low-capital base business.
Mr Albanese and Treasurer Jim Chalmers will bundle their controversial changes to the capital gains tax discount with the new tax cut for wage earners, $1000 standard tax deduction, and negative gearing into an omnibus bill that will be put to Parliament on Thursday.
A second tranche of legislation down the track will deal with the “implementation details” like how businesses such as start-ups are treated, Mr Albanese said.
“The core elements will be in the legislation this Thursday … and then what we will have is legislation with the implementation and details. I mean, that is the normal process that occurs with tax policy,” he said.
A similar two-stage process was used to legislate the GST when it was first introduced, with subsequent changes over the years including the 2018 deal to protect WA’s fair share, and for mining taxes. However, those weren’t combined with other changes.
Under the proposed changes, the 50 per cent discount on how much of a capital gain is taxable will be replaced with a discount linked to inflation.
This cuts across all asset classes, not just housing, prompting concerns that people selling businesses that have grown rapidly will be hit with big bills depending on their marginal tax rate.
Shadow treasurer Tim Wilson seized on comments from Assistant Minister for the Digital Economy Andrew Charlton that start-ups worried about the CGT changes did have a valid point.
“Andrew from Parramatta founded a start-up. He started his business in 2015 and sold it in 2020 for $35.8 million. Andrew, like so many Australians, said that the new capital gains tax regime quote doesn’t interact well with small businesses,” he said, before asking if the Treasurer endorsed this view.
Dr Chalmers and his department are now consulting stakeholder groups including the Tech Council, the Council of Small Business Organisations Australia (COSBOA), the Australian Chamber of Commerce and Industry and the National Farmers Federation on the changes.
Mr Albanese defended not consulting before the Budget announcement, saying releasing details ahead of time was “called insider knowledge”.
“I know that you’d be concerned about any concerns being raised by people, but that’s why we have a consultation process,” he said.
“What we’re doing here is putting forward tax reform with clear objectives. The main objective is not to lock out this and future generations of Australians from ever getting a roof over their head.”
Mr Albanese would not confirm if his preference was to confine any exemptions tightly to the tech sector.
Independent MPs Allegra Spender and Zali Steggall said any move to offer such a narrow exemption wouldn’t deal with the problems.
Ms Spender, who has examined the tax system in detail, said as the Australian economy became more services oriented, there were many types of low-capital, high-growth businesses who would be poorly served by the new indexation discount model.
“That can be a tourism operator, that can be an education operator. It’s anything that’s not got a significant capital investment up front, where it’s much more about the people,” she said.
Ms Steggall believed confining exemptions to tech start-ups wold be “a real mis-read of the room” from ministers.
The Australian Chamber of Commerce and Industry’s chief of policy and advocacy David Alexander said it was clear the damage from the changes went “beyond tech and it’s beyond startups”.
“This is going to go into all industries, small, medium, and large businesses. So, ameliorating the damage in one sub-sector is really not going to cut it,” he said.
A sector-agnostic formula for exemptions would be a better way of doing things than a blunt carve-out for specific sectors, such as tech, another business sector source said.
But a third said there would be no good way to do carve-outs and the whole thing should be sent back to the drawing board.
COSBOA, which is in talks with both Treasury and Dr Chalmers’ office, wants to see more consultation before the government pushes on with legislation.
“We would be very concerned by any industry-specific focus (for exemptions),” chief executive Skye Carppuccio said, pointing out there was innovation across the board, not just in the tech sector.
The group wants to see at least the existing CGT exemptions for small businesses updated in line with ATO definitions, because the turnover thresholds used haven’t been changed since 2007.
The Business Council of Australia’s Bran Black urged Parliament to take the time to examine the changes fully.
Opposition Leader Angus Taylor continues to oppose the whole tax package.
The Coalition is threatening to hold up legislation underpinning the $35 billion in NDIS cuts in the Senate unless the Government agrees to a lengthy Senate inquiry into the CGT changes that Mr Wilson could use to beat them up under a spotlight, following his 2019 game plan on franking credits.
“This government is now talking about carve-outs for tech start-ups, but not for small businesses, not for plumbers, not for hairdressers, not for other tradies, not for any other small business,” Mr Taylor said.
“Australians don’t want carve-outs, they want these taxes axed.”
Get the latest news from thewest.com.au in your inbox.
Sign up for our emails