All companies should be carved out of Labor’s changes to capital gains tax as the shift risks destroying the “lifeblood of Australia”, leading funds manager Geoff Wilson declared.
Labor’s plans to remove the 50 per cent CGT discount and replace it with an inflation-adjusted model has incensed the business community.
Leading entrepreneurs warned it will send start-up founders overseas and slow the rate of business formation in Australia.
Mr Wilson said Australian companies need to be exempt or the economy could suffer.
“The unintended consequences are enormous – how to destroy the lifeblood of Australia. That’s young aspirational Australians (gone) in one foul blow,” Mr Wilson told Business Weekend.
“What they need to do is they need to carve out all Australian companies.”
He said Australians should have the option to either use the old CGT method or the new one – an option given to builders of new investment properties.
“They need to do what they’re doing with new builds where anyone who invests in Australian company, shares listed on the stock market … or want to create their own company can decide,” Mr Wilson said.
“They can have the old system, the 50 per cent discount, or the new system.
“That is sanity. To me, effectively what they’re proposing is insanity.”
Further outcry about the tax change came from Steve Baxter, the executive chairman of tech start-up platform TEN13 and one of the hosts on TV series Shark Tank.
He said shifting operations to the United States for an Australian entrepreneur would greatly benefit them as they avoid high tax rates.
“In essence there’s a very easy escape route through a US flip,” Mr Baxter said.
“It’s a reorganisation of your company back into the US.
“Those options exist (and if) you’re looking at the cost to do that as opposed to the benefit – it vastly outweighs, it is very much in the benefit to do it.
“It will lead to more formation offshore. There’s no doubt about that at all.”
Some companies may be exempt as the budget papers acknowledge the “unique features of the tech and start-up sector” and noted that stakeholders would be consulted.
Meanwhile, Mr Chalmers admitted during Question Time on Wednesday there is more work to be done to get the policy right.
The change to CGT will kick in from July 1 next year, giving asset holders just over one year to use the previous 50 per cent discount.
Suggestions to set up shop overseas comes as the CGT rate in Singapore is zero per cent while those in the US pay 15 per cent if they earn between US$48,000 and US$600,000.
Entrepreneurs in the United Kingdom pay either 18 or 24 per cent based on their income and China has a flat 20 per cent CGT rate.
Treasurer Jim Chalmers during his budget speech said the changes to CGT, alongside those with negative gearing, will help a variety of investors and home buyers.
“These changes will level the playing field for workers and first home buyers, and support investment in productive assets, including new housing supply,” he said.
Changes to negative gearing means builders of new investment properties can use the tax rebate, while it is banned for purchases of existing homes after the budget was handed down.
Those already doing negative gearing on a property can continue, regardless of whether they built the home.