Capital Gains Tax Concessions in Succession and Estate Planning

Careful planning may now be required to avoid an undesirable
Capital Gains Tax liability.

The recent increase in rural land values and commodity prices has meant that where historically a typical family farming enterprise has been considered a small business, careful planning may now be required to avoid an undesirable capital gains tax liability.

There are capital gains tax (CGT) concessions for small business entities which can eliminate all or part of the CGT on an asset sale or transfer. To be eligible for the small business entity status, the entity needs to amalgamate the assets and income turnover for all its connected and affiliated entities before applying the tests.

Under the current legislation your business must meet 'basic conditions' for the entity to be eligible for these small business concessions. To be eligible you must satisfy one of the following tests.

1) Your business entity's aggregated turnover (income from ordinary business such as produce sales) is less than $2 million for the current or previous financial year; or

2) The maximum net assets value test - the total net value of CGT assets owned by you and certain entities does not exceed $6 million just before the CGT event. That is, the market value of the CGT assets less any liabilities which are related to those assets.

There is a strategy to take advantage of the small business entity CGT concessions in the financial year following that which you do not satisfy at least one of the tests for the first time. In this subsequent year, the CGT concessions will still apply. For example, the entities assets were above the $6 million threshold and the income turnover is above the current $2 million threshold for the first time in the 2021/22 tax year, there is an opportunity to transfer suitable assets either directly to the next generation or into a discretionary trust as part of your succession and estate plan. This could uplift the cost base of the asset in the 2022/23 tax year whilst taking advantage of the CGT concessions. If this asset was transferred or sold in the future, the CGT will be reduced as the previously low-cost base has been uplifted to market value in the 2022/23 tax year.

Succession and estate planning

A discretionary trust structure can provide some asset protection and will enable you to pass control of the trust to your successor(s) and to split any future CGT between the beneficiaries of the trust.

While transferring land to a discretionary trust may save CGT in the future, this structure may not be suitable for all situations. Before starting this process, it would be worthwhile to review your current plans and ensure they are adequate.

Act now

If you believe that your entity's business may be impacted by not satisfying one of the conditions of the small business entity test in the future, please contact us to discuss your situation and we will develop a tailored plan to meet your needs.

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CoggerGurry Sponsorships

By CoggerGurry • 16 May, 2024

Proud sponsors of Branxholme Wallacedale Football Netball Club in 2024.

2024 Budget - Personal Tax Rates

By CoggerGurry • 16 May, 2024

In the 2024–2025 Federal Budget, the Government did not announce any further changes to the personal tax rates. The Government’s revised Stage 3 tax changes (as announced on 25 January 2024 and enacted into law by the Treasury Laws Amendment (Cost of Living Tax Cuts) Act 2024 ) commence from 1 July 2024. The Treasurer said all 13.6 million taxpayers will receive a tax cut from 1 July 2024. The average annual tax cut is $1,888 (or $36 a week). The tax rates and income thresholds from the 2024-25 for residents (as already legislated) are: • taxable income up to $18,200 – nil; • taxable income of $18,201 to $45,000 – nil plus 16% of excess over $18,200; • taxable income of $45,001 to $135,000 – $4,288 plus 30% of excess over $45,000; • taxable income of $135,001 to $190,000 – $31,288 plus 37% of excess over $135,000; and • taxable income of more than $190,001 – $51,638 plus 45% of excess over $190,000. This means, when compared to 2023–2024, that for 2024–2025 the 19% tax rate has been reduced to 16%; the 32.5% tax rate has been reduced to 30%; the 37% tax rate threshold has been increased from $120,000 to $135,000; and the 45% tax rate threshold has been increased from $180,000 to $190,000.

2024 Budget - HECS/HELP debt

By CoggerGurry • 16 May, 2024

The Government recently proposed changes to HECS/HELP debt contained in the budget papers. A student who receives a HELP loan under any of the student loan schemes has an “accumulated HELP debt” with the ATO. The loan is subject to yearly indexation but is otherwise interest-free. Loans that are covered by the system include the following: • HECS-HELP; • FEE-HELP; • OS-HELP; • SA-HELP; • Student Start-up Loan (SSL) Scheme; • ABSTUDY Start-up Loan (ABSTUDY SSL) Scheme; and • Australian apprenticeship support loan (AASL) scheme (renamed from the Trade Support Loan (TSL) Scheme). HELP debts are repaid through the tax system (voluntary repayments can be made at any time). The amount to be repaid each year is a percentage of the taxpayer’s HELP repayment income (and is notified on the income tax assessment for the year). The percentage increases as the HELP repayment income increases. Indexation is applied to any HECS/HELP debt that’s older than 11 months, once a year on 1 June. The CPI number is currently used to index debts and it was recently announced that debts will increase by 4.7% on 1 June 2024. In addition, inflation pushed the indexation rate for 2022–2023 debts to 7.1%, the highest since 1990. This generated much negativity and the Prime Minister subsequently announced that “there’d be help on HECS” as part of the Budget. Indexation changes The Government has flagged two proposed changes (which require legislative amendments to the Higher Education Support Act 2003 ). First, the indexation factor will be the lower of the CPI or the Wages Price Index (WPI). The quarterly WPI measures change in the price of wages and salaries in the Australian labour market over time. In a similar way to the CPI, it follows changes in the hourly rate paid to a fixed group (or “basket”) of jobs. More can be found about it on the ABS website. Second, the change will be backdated to 2022–2023, meaning the new system will apply to the 2022–2023, 2023–2024 and following years (noting again that the factor is applied to debts on 1 June, not 1 July). As the WPI was lower than the CPI in 2022–2023, the indexation that was applied on 1 June 2023 will be retrospectively cut from 7.1% to 3.2%. This means that students with an outstanding debt will have it reduced with effect from 1 June 2023. Those students who have subsequently paid off their debt based on the 7.1% rate presumably will be eligible for some sort of refund. If you would like to know more or want to make a voluntary repayment please contact us at CoggerGurry.