Business tax concessions in firing line for federal budget

The federal government will crack down on business concessions in the upcoming budget, with new reports saying thin capitalisation rules and resource companies will be targeted.

The changes come alongside the boost to the Medicare levy announced this week in order to fund the National Disability Insurance Scheme – a scheme for which Opposition Leader Tony Abbott has now pledged his support.

As reported by The Australian Financial Review this morning, the government is expected to adopt a Business Tax Working Group recommendation to change thin capitalisation ratio from 3:1 to 1.5:1.

A thinly capitalised company is one whose assets are funded by a high level of debt and relatively little equity, resulting in large tax deductions and small amounts of payable tax.

Council of Small Business of Australia executive director Peter Strong told SmartCompany even though this may not be designed to hurt small businesses, the government should be aware of unintended consequences.

“As always, we need to look at it and then think what the unintended impacts on small business might be. There are always accidental and unintended consequences,” he says.

“For example, big businesses might be forced to downsize and when this happens, it could hit the smaller suppliers – we don’t want a domino effect of closures.”

The Australian Chamber of Commerce and Industry economics director Greg Evans told SmartCompany when this change was proposed by the BTWG, it was done so with the expectation there would be a cut in the company tax rate, but this has since been scrapped.

“This reflects our concerns we’ve had in the lead up to the May budget. It appears to be an opportunity for the government to hit business to help fill significant budget revenue holes and you can’t do this without a cost.”

“There will be a significant impact on competitiveness of Australian businesses,” he says.

Other budget hits on business reported by AFR include a reversal of a 2001 budget decision impacting resources companies, which will see miners extend the write-off of the purchase cost of acquiring smaller miners to over five years again.

Evans says these propositions signal further concern, as the ACCI is worried there could be an increase in the capital gains tax.

“We think there needs to be a systemic review of government spending and the size of the government. There needs to be a comprehensive overview of government spending if we’re to be able to afford schemes like the NDIS,” he says.

SmartCompany contacted Treasury but received no response prior to publication.

Meanwhile, Opposition Leader Tony Abbott has pledged his support for the recently announced increase to the Medicare levy, but he also called on the Prime Minister to reveal the full details of who will be covered by the NDIS.

“We want the NDIS to be a success and we want it to belong to all Australians. It is too important to become a partisan football,” he said in a statement.

“The assessment tool the NDIS Launch Transition Agency will use to determine participant eligibility should be released prior to the levy legislation being introduced to provide maximum transparency about scheme eligibility for the Parliament, potential scheme participants and service providers.”


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