‘Clearly bad’ tax policy being revised on a ‘piecemeal basis’

Yesterday (Thursday 18 June), Prime Minister Anthony Albanese and Treasurer Jim Chalmers unveiled a suite of changes to the tax reforms announced in the federal budget, following weeks of backlash from voters, key stakeholder groups, and accounting professionals.

The key new measures include: expanding the small business 50 per cent CGT concession, by lifting the turnover threshold from $2 million to $10 million, which will cover 2.7 million businesses; a proposed new Innovative Business CGT Concession, which will offer a 50 per cent CGT discount to eligible startup investors from 1 July 2027; and all testamentary trusts will be exempt from the minimum tax, including future discretionary testamentary trusts.

The reforms, the PM and Treasurer claimed, will deliver over $3.8 billion in business tax relief, alongside measures to encourage innovation, investment, home ownership and tax certainty.

In a press conference announcing the changed measures, Albanese said: “This is good reform. This is reform that is necessary. It’s not easy. The easy thing to do is to sit back, pretend that everything’s all okay. What we are doing here is delivering real change, and it’s real change in the interest of the nation.”

However, and while some of the changes were welcomed, tax lawyers – those advising major corporations and multinationals, HNW individuals and family groups, and SMEs – also criticised the handling of the changes.

‘Proposed without thinking’

Cartland Law principal Adrian Cartland (who recently spoke to Accounting Times’ sister brand, Accountants Daily, about how the recent Bendel decision is a blueprint for a “devastating attack” by the ATO) reflected that the usual course of doing tax reform is to engage in public consultation before the legislation is announced and put to parliament. Under such a process, he said, experts can provide feedback and identify technical defects, while technical tax experts (as opposed to economists or academics without practice experience) can explain nuances and issues that will arise on implementation.

“This important feedback assists the legislature in its drafting, the tax administration in its ongoing conduct, and the tax profession in representing taxpayers,” he said.

With these proposed changes, Cartland said, the usual consultation has not occurred, “and so changes are being announced on a piecemeal basis in response to overwhelmingly negative feedback from the tax profession”.

“This is terrible administration and implementation of tax policy, regardless of what the legislation actually says. I expect that there will be further rushed announcements,” he said.

Cardena Legal managing director Harrison Dell was similarly scathing; speaking about the CGT changes, he said that “Labor is backing down without thinking, just like the first batch of changes were proposed without thinking”.

“It is clearly bad tax policy to rush big sweeping changes,” he said.

Small business concessions

Elsewhere, lawyers were more positive about the announced changes, albeit with the caveat that the devil will be in the details.

Bartier Perry partner Lisa To welcomed the lift in the small business CGT concession threshold for turnover test from $2 million to $10 million, saying it materially expands access to concessions that have been in place for many years. The further consultation on start-up concessions is also positive, she added, noting that eligibility for new equity in companies under 10 to 15 years old and under $50 million turnover, with a choice between a 50 per cent discount or indexation.

Cartland similarly welcomed the increase in the turnover threshold, but repeated that it is something that should’ve been done with consultation.

“The turnover threshold has wildly different effects across different businesses, and it gives access to a set of concessions that are far more generous than the 50 per cent CGT discount the Government is abolishing,” he said.

“I have seen clients sell farms for over $50 million while turning over less than $2 million and walk away entirely tax-free. By lifting the threshold by a factor of five, the Government will bring a huge number of businesses inside the concessions and open up a great many planning opportunities.”

Had the government opted to raise the threshold to $5 million, or lift the maximum net asset value test to $10 million, it would have been “far more measured” in focusing access on the intended recipients of the concession, Cartland said.

Small business CGT concessions are “notoriously fiddly”, Dell said, arguing that the turnover test increasing from $2m to $10m may give the impression that almost all small businesses will be eligible, “but in reality, most businesses don't use this test”.

“The turnover test only helps on asset sales, not share sales. Share sales require meeting a net asset value test of $6m. The turnover threshold increase doesn't do much for a lot of business sales,” he said.

“If the turnover gateway is going to $10m, the $6m net asset value test should move with it, if it was indexed it would be circa $8-9m at least.”

Dentons partner Sue Williamson stressed the criticality of the fine print, as “much will depend on how the legislation is ultimately drafted and operates in practice”.

“It remains to be seen whether the concession meaningfully addresses the inequities the broader reforms have created,” she said.

Discretionary testamentary trusts

Williamson said the exclusion of testamentary trusts from the proposed 30 per cent minimum tax is a sensible and pragmatic adjustment, and To said it “gives real certainty to taxpayers and advisers”.

“The exemption is limited to income from assets of the deceased estate. For testamentary trusts established on or after 1 July 2028, it will only apply where the trust can benefit individuals or income-tax-exempt entities such as charities. Where the beneficiaries include others, a private company, for instance. The carve-out won't be available, so structuring will need care,” To said.

Cartland pointed out that the important aspects are in the detail, “and this is not a simple matter to define”.

“As can be seen in the ATO’s recent draft ruling TD 2026/D1 Income tax: deceased estates - meaning of 'right to occupy the dwelling under the deceased's will', the ATO formed the view that a right that arises under a testamentary trust is not a right that arises ‘under the deceased's will’ – treating the will and the trust it creates as separate and distinct things.”

But, he said, “a testamentary trust has no source other than the will; its terms are a gift in the will, and the trustee's powers are powers the will confers”.

The legislation will therefore have to define what a testamentary trust is, and distinguish it from the will, the estate, and the powers and rights flowing from each, Cartland said.

In the meantime, To said, taxpayers “can take some comfort” that testamentary trusts established since Budget night sit under the current rules, with the new beneficiary restriction only biting from 1 July 2028.

‘Innovative’ Business CGT Concession

According to Corrs Chambers Westgarth partner Simon Mifsud, the key issue is that indexation does not work neatly for shareholders in many start-up companies (not just those considered “innovative”, like tech companies) where shares, options or carried interests may have little or no cost base to index.

The government’s proposed Innovative Business CGT Concession recognises the problem, he said, “but it is not a complete answer”.

“The proposal is more restrictive than the existing Div 83A start-up employee share scheme rules, where the tax law currently ensures that the 50 per cent CGT discount is available to employees of a broad range of start-ups irrespective of the type of business activity undertaken by the company,” he said.

“Specifically, it is proposed that shareholders in start-up companies (including employee shareholders) would now only benefit from the discount if the company satisfies an ‘innovation’ test, and this would leave a range of shareholders exposed to tax at top marginal rates. It means corporates should be reviewing employee equity, founder arrangements and exit modelling now.”

For To, the further consultation on start-up concessions is a positive: “Owners and employees of innovative businesses that meet strict criteria would be able to use a 50 per cent CGT discount, up to an indicative lifetime cap of $2.4 million, with a choice between that discount or indexation,” she said.

Next steps

Looking ahead, lawyers noted there remains much work to be done in providing certainty about what is to come, if and when the proposals are legislated. For example, Wiliamson said, there is still a broader concern that taxpayers outside the startup and carve‑out categories may feel disproportionately impacted by the overall package of measures.

From a practical standpoint, To said, the next step is making sure the legislation is clear on how these rules work in real scenarios. “Clarity on transitional rules and restructuring relief will be just as important, because many taxpayers are already reviewing structures ahead of the start dates,” she said.

“The recurring theme is complexity. Every proposed tax concession carries its own tests and carve-outs, then integrity rules sit on top of those carve-outs. The intent is sound, but the sheer number of special rules makes this hard for advisers to navigate, let alone the taxpayers trying to comply.”