Earlier this week, I wrote on how the Coalition was cutting two of the tax deductions given to small businesses over the past few years – the instant tax write-off and the loss carry-back measure – to help fund some of its election promises.
I hadn’t written on them recently, so I had to spend a while reading through our archives to remember what exactly these tax incentives were.
For a non-accountant like me, they’re not simple or intuitive.
The instant tax write-off means you can automatically deduct the whole cost of business assets worth less than $6500 (instead of deducting their cost over three years) while the loss carry-back measure allowed business turning over less than $2 million to reclaim tax paid on past profits if they had a loss the following year.
I’ve no doubt both were useful measures to small business, and it’s totally understandable that groups like the Council of Small Business of Australia are concerned about their loss.
But the fact that despite writing about them in the past, I couldn’t remember what exactly they related to, tells me that these were, in essence, bureaucratic and form-heavy ways of giving money back to small businesses.
I’m not the first one to be confused by them. Research by MYOB we reported on in May found that most Australian small businesses hadn’t even heard of the instant tax write-off, or if they had, hadn’t used it. Nearly four in ten (38%) of start-ups hadn’t ever heard of the tax perk, and the figure decreased only slightly for more established businesses.
The Coalition cut these policies to save money. But the effect of cutting them is to reduce the red tape small businesses have to jump through for a little financial gain. After all, it was tricky and complex to access these deductions, so many small businesses didn’t do so.
I believe small businesses are doing it tough, and given the amount they contribute to the economy, it makes sense to leave a little more money in their pocket.
But let’s not make up more bureaucratic tax incentives to reach this goal.
If government really wants to make things easier for small businesses, it should just cut their tax rate.
It wouldn’t be revolutionary. After all, there are different corporate tax rates for different sized businesses in the United Kingdom, the United States, France, Japan, South Korea and Spain.
Small businesses don’t have the resources or the expertise to spend a lot of time minimising their tax. If government wants to leave more money in the balance sheets of Australia’s small businesses, it should do that directly, instead of making SMEs jump through hoops for the privilege.