Start-ups carve out confirms tax reforms are 'flawed': WAM

Wilson Asset Management (WAM) believes the recent capital gains tax (CGT) reform carve out for small businesses and start-ups confirmed the change is not correctly executed for its initial intention.

In its submission to a Treasury consultation, WAM argued the proposed concession is welcomed with intent but cannot repair the damage caused by replacing the 50% CGT discount with indexation and a 30% minimum tax.

Under the proposed concession, eligible investors would retain access to the 50% CGT discount under strict conditions, but Wilson Asset Management chair and chief investment officer Goeff Wilson said it remains too narrow, complex and uncertain to provide investor confidence.

"The government is trying to create a narrow carve-out for start-ups because it knows its broader capital gains tax changes will hurt start-up investment," Wilson said.

"That is not tax reform. That is an admission that the reform is flawed.

"You cannot fix a structural problem with a narrow, conditional and capped concession.

"Australia needs a tax system that directs capital towards productive Australian businesses, not one that discourages investment and innovation."

The firm recommended the government should retain the 50% CGT discount for productive Australian assets, and should the proposed concession proceed, the government should, at the very least, extend eligibility to all registered Australian companies, including those that raise growth capital on the ASX.

The government's intention to support innovative Australian businesses is not allowing everyday investors to participate in local opportunities, Wilson said.

Wilson said he is not objecting the tax reform of unproductive assets such as housing, rather, he is against the taxing of productive capital in a way that "discourages investment, entrepreneurship and economic growth."

"A carve-out built on multiple eligibility gates, a five-year holding lock, a discretionary innovation test and a $10 million lifetime cap will not give investors the certainty they need to commit long-term productive capital," Wilson said.

"Capital has no patience for complexity. It moves to where the conditions are stable and attractive.

"A policy designed to support start-ups should not make life harder for founders, employees and early -stage investors.

"If Australia wants more successful Australian companies, it should not design a tax system that penalises the people who fund them."