Though not without one almighty scare!
Most out there didn’t even know, but until very recently a completely crazy legislative change was on the verge of becoming a reality which, had it stayed as proposed, would have cost small business owners all over the country, including some of our Clients, literally thousands and thousands, even millions, of dollars, just at a time they thought they had finally achieved their financial goals!
Background to the Small Business CGT Concession Changes
In the 2017 Federal Budget, the Government announced they would be making some ‘integrity’ changes to the way the Small Business Capital Gains Tax (“CGT”) Concessions operated.
The concessions are a huge part of the financial and retirement planning of most small business owners. They are arguably the single most valuable concession available that, if qualified for, can mean the difference between a very comfortable life after business, versus a life of just getting by.
The announcement as part of the 2017 Federal Budget was extremely light on detail, and gave little indication of what was to come. Most business advisers let it pass through to the keeper, resolving to address the matter once more details were released. Few thought much of the announcement and had little concern it would or could become a major concern.
Then came the Shocking Announcement
Some nine months later, the Government released draft legislation it said brought that announcement to fruition.
Over following weeks and months Australia’s business advisers studied and absorbed the proposed changes, and slowly but surely, the stress levels elevated as the true impact of the proposed legislation became clear.
The first thing to know, is that the number of people that would qualify for the concessions was dramatically reduced. This even includes myself! A business interest I hold which I structured and fully planned to qualify for the concessions when I eventually sold, will now no longer qualify. My expectation is that this means a reduction in my return on investment (when I do sell) by at least 25%, it may well be more! Frustrating to say the very least.
But this actually isn’t the most scary part.
The really scary part was …
That the rule change, while only announced in detail in February 2018 (with no warning of the extent of the change prior), would become effective by back dating to 1 July 2017!!!
So small business owners all over the country, including our Clients, who had sold their businesses between 1 July 2017 and February 2018 and believing the profit they made would be taxed concessionally under these rules (meaning their big pay day which they had worked towards for so long would finally put them in the financial position they always aimed for) was now all of a sudden going to be taxed in full! Nightmare!
Retirement plans were thrown into disarray. Deals done at a certain price based on an expected tax outcome that would never have been agreed to had this new tax outcome been known, now were deeply regretted and unable to be reversed. New investments, funded from the sale of previous businesses, were now in dire straits as some of the funds used would need to be withdrawn in order to cover the substantial new, completely unexpected tax bill.
All horror situations to be in and frankly it was incomprehensible that the Government were going to steal such large amounts of money from so many hard working small business owners in such a manner.
So, the good news …
The revised rule changes have now been passed by the House (so the Senate now get their chance to consider it) and assuming it goes through as drafted less people will qualify for the concessions (that is actually the bad news), BUT …
The effective date will no longer be back dated!!! It is now planned to start from February 2018 only.
Now I’m not religious but nevertheless … Praise the Lord!
Common sense has prevailed in the halls of Parliament despite all the signs to the contrary.
I guess we should say … Well Done to our (elected, arguably) leaders. Now over to the Senate so Stay tuned!
P.S. Apologies for the excessive exclamation points!!! Even more than usual 🙂