Dinner in Restaurant

Small Business CGT Concessions

Submission - NSW Farmers


Introduction - This submission aims to raise with NSW Farmers the need to submit to the Federal Government and other relevant authorities to review the qualifying thresholds contained within Division 152 of the Income Tax Assessment Act (ITAA), commonly known as the Small Business CGT Concessions.


Those concession thresholds respect Total Maximum Turnover and Maximum Net Asset Value.


These thresholds are currently set at:

  • Maximum Aggregated Total Turnover - not to exceed $2 million pa Aggregated turnover is generally the business' annual turnover plus the annual turnover of any associated business

  • Maximum Net Asset Value - not to exceed $6 million To access the small business CGT concessions, the total net value of CGT assets owned by the business owner and associated entities must not exceed $6 million just before the CGT event for which the concessions are sought.

These thresholds were set at the current levels some 16 years ago and have not been changed or indexed.

As a result, the effectiveness of the concessions has been eroded over time by inflation and significant movement in the price of cattle and farming land.

The result is that most primary producers are now effectively excluded from access to the concessions. This makes transfer among family members to retain Farmland extremely difficult. Exiting partners or family members are now exposed to potential CGT liabilities, which is an unintended consequence of increased land values and commodity prices.

Submission - It is our submission that to restore equity and fairness to the application of the Small Business Concessions to farmers, the thresholds within Division 152 should be increased as follows:

  • Maximum Aggregated Total Turnover - to be increased from $2 million pa to $5 million pa

  • Maximum Net Assets Value - to be increased from $6 million to $10 million

Background - Division 152 of the ITAA (commonly known as the Small Business Concessions) allows the owners of a small business that qualifies by being under the relevant thresholds to access favourable Capital Gains Tax treatment upon sale.

The rationale behind the legislation was that small business owners could not build adequate superannuation balances due to the need to invest in their businesses continually.

When the legislation has introduced, the thresholds which a business needed to be under to be able to access the provisions were:

  • Maximum aggregated turnover - $2 million pa

  • Maximum net assets - $5 million

Subsequently, in 2006/7, the Maximum Net Asset threshold was increased to $6 million. As noted above, the effectiveness of these thresholds has been eroded by inflation and significant increases in cattle prices and agricultural land values.


At the time of the most recent amendments to the legislation:

  • the Consumer Price Index was 86.6

  • the price of cattle (as measured by the Average Saleyard Price) was 410 cents per kilogram according to ABARE

  • at the same time, the national median price of Farmland was $2900 per hectare

At the end of 2021:

  • the Consumer Price Index was 121.3, a movement of 40%

  • the Average Saleyard Price of cattle was 790 cents per kilogram, an increase of 93%

  • the median price of Farmland is now over $6800 per hectare, an increase of 134%

In 2021 alone, Farmland's national year-on-year median price growth was 20%. The effect has been that farmers, who in 2007 were classed as small businesses as they were under the respective thresholds, have now been effectively excluded from access to the concessions by the increase in cattle prices and the consequent increase in the value of grazing land even if there has been no change in their level of activity or operations.


Sources

  1. Consumer Price Index data – Australian Bureau of Statistics

  2. Average saleyard price of cattle – Australian Bureau of Agricultural and Resource Economics

  3. The national median price of Farmland – Rural Bank 2022 Farm Values Report

WLW Group - WLW Group had its' origins as an accounting firm located in Longreach in Central Western Queensland in the 1930s. Today it has offices in Armidale, Tamworth, and Burleigh Heads with over 1,000 clients, many of whom are graziers. WLW Group regularly visits Longreach, servicing new and existing farming and business clients. Our clients are in an area ranging from Central Western Queensland to the Victorian border south and west of the Newell Highway.

As a result of our involvement with these clients, the firm has extensive knowledge of the grazing industry and the issues confronting farmers.

Our firm has been providing specialist business advice to our grazier clients in the areas of

  • Farm succession planning

  • Farm business planning

We also provide services to several cattle breed societies and associations. For further information, contact Ian Watson by email at iwatson@wlw.com.au.

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