Experts are calling for the Federal Government to increase its tax benefits reform in line with the Henry Tax Review’s recommendations. The comments come despite small businesses receiving solid benefits.
The proposed changes were released by the Government on May 2 in response to the Henry Tax Review, which was commissioned in May 2008 as a ‘root and branch’ investigation of Australian taxation. It produced 138 recommendations but the Government is only pursuing four core issues.
Under the plan, small businesses with annual revenue of $2 million and below can instantly write off assets up to $5000 as tax deductions. Anything over that amount can be placed into a single ‘pool’ of depreciation, with 30 per cent taken off as tax deductions each year. Company tax will also be dropped by 2 per cent to 28 per cent.
Charted Accountants Australia tax counsel, Yasser El-Ansary, said many of the Henry Tax review’s recommendations to the Government had been ignored and more needed to be accepted.
Recommendations included raising the deduction threshold to $10,000 and widening the definition of small businesses to those with turnovers of up to $5m.
“I think the [definition widening] is sensible and that it’s important we look to do that as soon as possible,” El-Ansary said. “The reality is $2m today is very different to $2m 10years ago. It’s important we calibrate our definition for today’s economy.
“Otherwise we’ll be finding small businesses redefined as medium businesses simply because their turnover goes from $2m to $3-4m a year.
The introduction of a loss carry back mechanism was recommended, El-Ansary said.
“This would help businesses flipping from profits to losses year-on-year to access and recoup some prior year tax payments if they suddenly found themselves in a loss position,” he said.
“It’s something many other countries already do. I think it’s an important initiative for small business because it would allow them to free up cash when they need it the most.”
El-Ansary said the changes are a clear win for small businesses.
“The small business measures were fairly uncomplicated and uncontroversial,” he said. “They are important initiatives but, ultimately, the biggest question is going to be around the resource tax.
“I think it’s important that the Government signal its intention very early on in the piece to make it clear they are committed to make managing tax compliance and reducing the tax burden on the small business sector a priority. The only way to do that is to decouple it and make sure those changes happen as quickly as possible.”
Data#3 managing director and Australian Information Industry Association (AIIA) chairman, John Grant, welcomed the proposed changes and said IT would be a major winner from the tax reforms but only because it was a business enabler.
“I don’t think anybody disagrees the tax system needs major reform,” he said. “The [Henry Tax Review] is a wide-ranging set of reforms and the Government has picked up on some of them. The question mark still stands as to whether or not it grasps the whole agenda.
“The IT industry is often couched as the beneficiary of these changes but it’s not. The point is that organisations will make the investment because they believe they’ll get a return out of it.”
HLB Mann Judd Sydney tax partner, Peter Bembrick, said the reduction in company tax was a small but positive move that would help businesses.
“Two per cent is probably not huge, but it all helps,” he said. “The less company tax they pay, the more they’ve got to use as working capital.
“I don’t think you’d knock back any tax breaks. Any reduction is a good thing.”