NO.059

SMALL BUSINESS AND PRIMARY PRODUCERS TO BENEFIT FROM THE NEW BUSINESS TAX

SYSTEM

The small business initiatives in the New Business Tax System that I am

announcing today will offer major benefits to over 95 per cent of Australian businesses

and about 99 per cent of Australian primary producers. These businesses will receive a

boost from a dramatic reduction in compliance costs, lower company and income tax rates,

enhanced incentives for investment and assistance in the funding of retirement.

The Government’s reforms to the business tax system will deliver substantial and

on-going impetus to growth and innovation in the small business sector and build on other

measures that the Government has already implemented.

The benefits to small business include:

• Substantial cuts in company tax rates (from 36 to 34 per cent for the 2000-01 income

  year and to 30 per cent thereafter) and reductions in personal income tax rates which

  the Government has already legislated.

   

• Reductions in capital gains tax (CGT) which will encourage investment and saving and

  ensure that small business continues to be a major contributor to economic and jobs

  growth. For individual operators of small businesses, 75 per cent of any capital gain on

  active assets will be exempt from CGT and the remainder subject to significantly expanded

  and simplified rollover provisions and retirement exemption provisions. In addition, for

  small businesses which sell an active asset that has been held for 15 years or more, and

  the taxpayer is at least 55 years of age and intends to retire or has become

  incapacitated, the whole gain will be exempt from CGT.

• Encouragement of venture capital industries through an exemption from CGT for gains made

  by non-resident tax exempt pension funds (from countries such as the US and UK) on venture

  capital investments. A similar exemption will apply to gains on investments made by

  Australian widely-held superannuation funds through a   Pooled Development Fund.

  Further impetus to venture capital will be provided by the Government’s decision to

  provide scrip-for-scrip rollover relief, regardless of whether or not entities are

  widely-held.  

• The introduction of a simplified tax system for small businesses (including primary

  producers) which will dramatically reduce paperwork and compliance burdens and effectively

  maintain access to existing concessions.

– Small businesses will be able to determine their income and expenditure on a cash

basis (rather than accruals) thereby substantially reducing their compliance costs.

– Over 75 per cent of small businesses will no longer have to do an annual stocktake.

– Depreciation provisions will also be dramatically simplified, so that assets costing

$1000 or less can be written off immediately.

– Other assets with effective lives of less than 25 years will be able to be included

in a pool and depreciated at a rate of 30 per cent.

• Prior to the introduction of the Simplified Tax System, small businesses will be able to

  continue to claim existing concessions such as accelerated depreciation.

Additional information on the measures benefiting small business is attached.

CANBERRA

21 September 1999

ATTACHMENT

Capital Gains Tax

• Indexation of the cost base for calculating CGT will be frozen at 30 September 1999.
• Averaging of capital gains will not apply to disposals after 11.45 am AEST

  21 September 1999.

• For assets acquired by an individual prior to 1 October 1999 and held for at least one

  year, half of the realised nominal gain or the whole of the difference between the

  disposal price and the frozen indexed cost base will be subject to capital gains tax.

• For assets acquired by an individual on or after 1 October 1999 and held for at least

  one year, half of the difference between the disposal price and the original cost will be

  subject to capital gains tax.

• Small business taxpayers will be eligible for a 50 per cent reduction in their

  tax liability on the capital gain from the disposal of active assets.

– For individual small business operators, this will have the effect of reducing the

capital gains tax liability on active assets by 75 per cent.

• Where a small business taxpayer is purchasing replacement active assets, the remaining

  liability can be deferred. Where such a taxpayer uses the proceeds to fund retirement, up

  to $500,000 of the remaining gain will be exempt from CGT.

• Taxpayers can also obtain a full capital gains tax exemption where they have held an

  active asset for at least 15 years, are at least 55 years of age or incapacitated and are

  disposing of the asset to fund retirement.

  – This will provide further incentives for investment in small business as well as being

  of particular benefit to those taxpayers who have held assets for long periods where the

  real rate of capital appreciation is very low.

Venture Capital and Scrip for Scrip Rollover Relief

• Incentives to encourage venture capital investment take effect from the date of Royal

  Assent of the legislation.

• Non-resident tax-exempt pensions funds will be exempt from CGT on gains from investments

  in venture capital projects.

– Pension funds from the US, UK, Japan, Germany, France and Canada will be eligible for

this measure, with the list to be expanded in due course.

– The exemption will apply where the asset is held at least 12 months and is not

guaranteed or protected in some way.

• The exemption will also apply to gains on venture capital investments made by Australian

  widely-held superannuation funds through a Pooled Development Fund .pdf).

– A superannuation fund is widely held if it has at least five members.

– The exemption will be delivered by the superannuation fund receiving a refundable credit

for tax paid by the.pdf.

• Scrip-for-scrip rollover relief will apply to both widely and non-widely held entities

  and to both companies and fixed trusts. Where one of the entities involved in a takeover

  is not widely held, the replacement holding must confer the same rights and obligations as

  the original holding.

• The cost base of an interest acquired in exchange for a pre-CGT asset is the market

  value at the time of acquisition. The cost base of one in exchange for a post CGT-asset is

  the cost base of the original interest.

Simplified Tax System

• The Simplified Tax System will apply from 1 July 2001.
• Key features of the Simplified Tax System include:

– a cash accounting regime as an alternative to an accruals system;

– a simplified depreciation regime, including access to a pooling arrangement for assets

with effective lives of less than 25 years and immediate write-off for assets costing less

than $1000;

– and a simplified trading stock regime, as an alternative to an annual requirement for

stocktaking and stock valuation.

• Small business taxpayers can choose to be part of the Simplified Tax System if average

  annual turnover for the current year (measured at the end of the current income year) and

  the two previous years is less than $1 million, excluding GST. The turnover test applies

  to the turnover of the taxpayer, as well as any connected entities.

• Small business assets that are used predominantly to gain income from long-term leasing

  activities will be excluded from the simplified depreciation regime of the simplified tax

  system, but will remain eligible for its other elements.

• This exclusion will also apply to start-up or expanding businesses which are expected to

  achieve on-going turnovers in excess of $1 million.

– This exclusion does not apply to small businesses who lease out on a temporary basis,

such as formal hire businesses and primary producers.

• Transitional arrangements apply from 21 September 1999 to 30 June 2001. During this

  time, accelerated depreciation, access to the balancing charge offset, the immediate

  deductibility of items costing $300 or less and the deductibility of items under the

  13-month rule will continue to apply.

http://www.rbt.treasury.gov.au