Treasury Laws Amendment (Tax Reform No. 1) Bill 2026

Milton Dick

In accordance with the resolution agreed to earlier, the question now is that amendments (1) and (2) as circulated by the honourable member for Kooyong be agreed to.

Member for Kooyong's circulated amendments—

(1) Clause 2, page 2 (table item 4), omit "Parts 3 and 4", substitute "Parts 2A, 3 and 4".

(2) Schedule 1, page 43 (after line 26), after Part 2, insert:

Part 2A — Relief for small businesses

Income Tax Assessment Act 1997

60A After section 152-12

Insert:

152-13 Indexation of thresholds

(1) The regulations may provide for or in relation to the annual indexation, in line with the consumer price index, of the following amounts:

(a) the amount of $2 million mentioned in paragraph 152-10(1AA)(b) (meaning of CGT small business entity);

(b) the amount of $6,000,000 mentioned in section 152-15 (maximum net asset value test).

(2) Regulations made for the purposes of subsection (1) may directly amend the text of this Act.

Monique Ryan

While we're making generational changes to Australia's capital gains tax system, we need to ensure that wholesale reforms don't come at the expense of clear modernisations. The thresholds for small businesses claiming capital gains tax exemptions is such an area of clear modernisation. The existing CGT small-business concession regime, the SBC regime, provides a sliding scale of concessional tax treatment to business owners when they sell their businesses. That regime is preserved by this budget. Under the current Income Tax Act 1997, in order to qualify for the regime, small businesses must have either an aggregated turnover of less than $2 million or combined net assets of less than $6 million.

Those thresholds have been unchanged for almost 20 years. The maximum net asset value test was first introduced in 1999, with the Howard government's discount. At that time, the threshold was $5 million for small businesses. That was lifted to $6 million in 2007. The $2 million annual turnover level has also been static since 2007. Were the government to adjust these thresholds to take into account consumer price index changes since 2007, today a small business would be one with a net asset value of about $10 million or an annual turnover of about $3.3 million.

There's a clear need to increase these thresholds to account for inflation and for a different business environment to the one we see today rather than 20 years ago. The existing tax thresholds no longer reflect the realities or the operating scale of many modern small businesses. I spoke to this when I moved my second reading amendment to this legislation last night. For CGT purposes, a small business is currently considered to have a turnover of up to $2 million and net assets of $6 million, while in other tax matters the thresholds are $10 million and $12 million, respectively. I previously suggested that that definition should be made uniform and consistent across tax matters. This suggestion is supported by the Council of Small Business Organisations of Australia, the Victorian Farmers Federation and the Australian Small Business and Family Enterprise Ombudsman.

Concessional tax regimes usually have indexed thresholds. That was acknowledged and respected most recently in the changes to taxation of superannuation. So, what I'm proposing here with these amendments in the consideration in detail of the legislation is that the net asset value test for this concessional tax regime be indexed in line with the consumer price index, as was suggested in Treasury's 2005 tax review, in order to modernise and optimise the treatment of small businesses under our capital gains tax regime.

Jim Chalmers

Thank you to the honourable member for these amendments. I also want to thank COSBOA, particularly Skye Cappuccio, for the engagement the government has been doing, the consultation we have been doing, with the small business sector. I acknowledge as well the wonderful work of the Minister for Small Business, who's been doing some of this engagement and consultation as well.

As the honourable member I think rightly acknowledged, or has on other occasions, there are four CGT concessions for small businesses, and we're keeping all of them. That means that eligible small-business owners pay reduced or no capital gains tax when the time comes to sell. The vast majority of small-business owners are eligible for these concessions on top of the indexation or the current discount. Our changes will mean that some people will actually pay less tax, depending on their circumstances, because the current arrangements undercompensate some investors for inflation while overcompensating others. Also, in the trusts changes that we have proposed there is generous rollover relief for small business.

In the budget more broadly, Mr Speaker, you can see that we are big supporters of small business. The budget was all about helping small businesses to invest and grow $3½ billion in tax cuts for business, particularly small business—whether it's making the instant asset write-off permanent, whether it's the two-year loss carryback, whether it's the loss refundability or whether it's expanding tax incentive for venture capital. There are a range of things we're doing, in addition to the 1½ million sole traders who will benefit from another tax cut from this government.

As the honourable member knows, we will do further consultation on the implementation details of parts of this legislation. That's entirely consistent with what we said in the budget papers and entirely consistent with how tax reform is undertaken by governments of both political persuasions. In the course of doing that consultation, in good faith, we look forward to talking more with the small-business community and its leaders.

Milton Dick

The question is that the amendments moved by the honourable member for Kooyong be agreed to.