In a response to some of the criticisms levelled at this May’s Federal Budget, the Labor Government has announced changes to their Budget announcements.

Whilst the announced changes are important, they only address a couple of the many issues being raised with the Budget proposals. In particular, concessions will be made for beneficiaries of testamentary trusts and business owners making capital gains.

We have summarised these changes below, however we suspect that further changes will be made before the announcements make their way into law, given the apparent lack of consultation surrounding the Budget measures. One thing is certain though – the Budget keeps producing headlines!

Death tax? What death tax?

On Budget night, the Government announced sweeping reforms to the way discretionary trusts will be taxed in Australia. The Government intends to apply a 30% tax on, effectively, all distributions from discretionary trusts.

This policy would have caught discretionary testamentary trusts that had not yet been established on Budget night. This caused outcry in the broader community – as testamentary trusts are commonly used as an estate planning strategy. As soon as the press ran “death tax” headlines, the odds of a back down began to shorten.

The Treasurer and Prime Minister have now relented, announcing in a recent joint press conference that discretionary testamentary trusts would not be slapped with a 30% tax after all.

We are yet to see any legislation for the 30% trust tax measures, and we understand it will be some time before we do.

CGT concessions

The Budget also implemented significant changes to the tax treatment of capital gains, with the 50% CGT discount being retired in favour of cost base indexation, together with a minimum 30% tax on capital gains, both to be effective from 1 July 2027. This has brought a lot of concern of less favourable outcomes for investors, particularly for business owners.

The Government has announced measures that will, in effect, keep the 50% discount in play for some categories of taxpayers.

Active Asset concession

Another of the announced walk-backs is an increased CGT concession for small business owners.

Under this measure, small businesses whose turnover does not exceed $10 million will be eligible for the active asset CGT reduction (50%) of crystallised gains. This is in addition to the cost base indexation permitted for assets owned for more than 12 months from 1 Jul 2027 onwards.

This change is expected to provide some level of relief for small businesses who have lost access to the CGT discount.

Start-ups get some attention

The other announced change is to allow owners, investors and employees of “innovative businesses” access to the 50% CGT discount from 1 July 2027 onwards.

To be eligible, the start-up must have less than $50 million in turnover, and the shares must generally be equity issued by a company that is less than 10 years old, and be held for at least 5 years. There will be a lifetime cap of $10 million of capital gains under this concession.

Donations to charities

Responding to concerns raised by the charitable sector, the Government has announced that the minimum 30% tax rate on capital gains from 1 July 2027 will be able to be reduced by donations to registered deductible gift recipients. This was not a feature of the original proposal.

Contact Pilot

If you would like to discuss the impact of the Budget for you and your group, please contact Murray Howlett, Tom Howard or your Pilot advisor on (07) 3023 1300.