Repeal of some tranche 1 provisions induces head-scratching

Uncertainty and some clarity are among the results of the latest tranche 2 CGT and negative gearing explanatory materials, one tax expert says, with small businesses looking to restructure told to hold their horses.

Head of education at Accurium and Tax Banter, Lee-Ann Hayes, said: “We don't have all the answers to what rollovers will look like, we don't know how the deferred gains will work, and how some of those provisions that we've always known work and [how they] carry the tax treatment through.”

The consultation process is creating uncertainty for small businesses on the restructuring starting line, leaving them wondering what to do, she said.

“We know that many clients will have to move from a trust structure to something else, to get around the 30 per cent tax. So we're seeing people wanting to think about what they can tell their clients with respect to restructuring.”

Repealing provisions from tranche 1

Although tranche 2 is “in line with what they’ve been doing”, Hayes said, the fact that Treasury repealed provisions from the first tranche was interesting.

“[There are] a couple of provisions which they're now removing or repealing.”

“Why isn't it all just one comprehensive change to the CGT provisions that all comes out at once, so we can kind of see how it all fits together?”

“I think it would be a better consultation process if we could kind of see the whole picture, and then say, these are the bits that we think are problematic, rather than going, ‘this looks problematic now, but it might be fixed in the next tranche; we don't know’.”

For Hayes, this lack of clarity and a consultation process that leaves more to be desired signal to small businesses that they should play the waiting game.

“I am a very strong advocate of not doing a single thing until you see the stamp on that bill from the Governor-General.”

“I wouldn't be restructuring to get out of my trust or doing anything like that until I actually see what the legislation is, see what the rollover relief looks like, and then so I can make an informed decision.”

“Until you know the whole picture, it's really hard to sort of make those decisions.”

Despite this, Hayes said practitioners can consider clients who are eligible for small business CGT concessions when they begin their work for the 2026 financial year.

Still waiting for the full picture

Hayes said that Tranche 2 did, however, provide clarity around foreign residents receiving a CGT discount until 1 July 2027 and indexation from that point in time.

“At least this has now provided some clarity with respect to that”

Hayes said that she had quite a few concerns with the definition of “new residential” within her accounting groups.

“I did a group yesterday, and there was a lot of interest in what were ‘new residential properties’.”

She also noted that more is coming regarding changes in residency status and when this taxpayer receives a capital gain indirectly through a trust.

“The rules get incredibly complicated when you've got gains coming through a trust, and you're trying to work out whether they're eligible for the discount. I guess they're going to have to have a similar formula there with the indexation.

“The explanatory material just says ‘watch this space’, so we're still waiting for the full picture for our foreign residents.”