Capital gains tax a risk to entrepreneurs
Australia risks losing entrepreneurs to New Zealand and countries with lower capital gains tax regimes as changing technologies combine with lesser government imposts to offer a more attractive financial environment, according to UHY Haines Norton Managing Partner in Adelaide, Dario Nazzari.
“Australia needs to re-think how much it taxes capital gains or risk losing ground to our rivals. Economies with lower taxes for entrepreneurs and additional incentives for business growth will be more successful in attracting start-ups and incentivising growth in the future,” Nazzari said.
A UHY Haines Norton analysis of 25 capital gains tax regimes found that Australia lagged the global average tax rate of 18.2 per cent with Australian businesses paying 20.3 per cent on the sale of a $10 million business.
However, the gap widened with the so-called BRIC economies of Brazil, Russia, India and China enjoying an average 16.7 per cent. While G7 nations like Germany had rates as high as 43 per cent, New Zealand was at the other extreme with no capital gains tax on business disposals.
Nazzari said there was a risk that people could choose to go to New Zealand rather than establish a business in Australia.
“If you look at New Zealand, as an example, you could have the same business set up here in South Australia, or anywhere in Australia, as compared with New Zealand and when you disposed of the business you would end up with a lot more money in your pocket if you are running that business in New Zealand,” Nazzari told InDaily.
“There is always a risk (of people choosing New Zealand). As we move to a more digital-based environment where things can happen in different places and you can establish yourself in New Zealand, operate out of New Zealand and potentially have that much better tax regime.”
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Nazzari said that although Australia’s capital gains rates were now substantially lower than in previous years, UHY Haines Norton believed that the wide discrepancy in the tax treatment of the sale of a more substantial business “acts as a brake on entrepreneurs’ ambition to maximise the potential of their businesses”.
“We need to remember that low taxes on capital gains, especially those made by entrepreneurs, helps compensate for the financial risk involved in expanding a business in the first place,” Nazzari said.
“At the moment you are taxed at a higher rate for a sale of a $50 million business compared to, for example, a $6 million business. An adjusted tax structure could encourage Australian businesses to aim higher and build bigger businesses that create new jobs, with a view to attracting a substantial buyer.”
Nazzari said people thinking of selling their business in the next few years should plan well in advance to maximise the best tax outcomes.
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