The Federal Opposition says small businesses have been shortchanged by the Federal budget, arguing start-ups and the self-employed will lose out over the scrapping of the Entrepreneurs’ Tax Offset.
Earlier this week, the Federal Government announced its plan to scrap the ETO and replace it with an across-the-board deduction of $5,000 for purchasing new cars.
The ETO had provided small businesses, with turnover under $50,000, a tax offset equal to 25% of the income tax payable on business income, but stopped once the business income hit $70,000.
By scrapping the ETO, the Government is expected to save $365 million over four years, while $350 million of that will be pumped into the new $5,000 vehicle deduction.
Other small business benefits announced by the Government include an instant write-off for all assets costing less than $5,000 from 2012-13.
But Bruce Billson, shadow minister for small business, has likened the budget to “smoke and mirrors”, arguing small businesses will lose more than they gain.
“The claimed cashflow benefit, resulting from the instant write-off of the first $5,000 of a new work vehicle, requires a small business to spend nearly $34,000 to receive an extra tax benefit of $1,275 in the year of purchase,” Billson said in a statement.
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“This ‘spend a lot to benefit a little’ measure comes at the expense of over 400,000 of Australia’s smallest businesses and self-employed, set to lose up to $2,500 by the scrapping of the Entrepreneurs’ Tax Offset.”
“When the Prime Minister talks about encouraging people’s participation in the workforce, it’s as if the only people worthy of being tagged as workers are employees – it’s a narrow-minded, unionist view.”
Home-based businesses are thought to be among the hardest hit with the scrapping of the ETO as they are less inclined to require a car for their business operations, particularly those that operate solely online.
According to Billson, the Gillard Government has “given with one hand and taken with the other”, arguing the carbon tax will only add to the woes of small business.
Meanwhile, the Government has flagged a crackdown on tax avoidance in this year’s budget.
New measures include harsher penalties for company directors caught breaching tax laws, and businesses forced to report payments to contractors.
The budget will also provide more than $146 million in funding for the ATO to address fraudulent tax refund claims and monitor inaccurate grant payments.
The Government believes some recipients of grants and other payments may not be aware of their tax obligations. Therefore, $43.3 million is being handed to the ATO in order to clamp down on accurate reporting of grant payments.
While many government grants provide full assistance to recipients, many are in the form of loans and need to be repaid over a certain period of time, depending on how much the original funding was.
Assistant Treasurer Bill Shorten has said the ATO will continue with its data-matching practices to examine compliance activity.
“It is important that the recipients of government grants and payments properly account for these payments,” Shorten said.
Billson says many grant programs are considered too complicated to access, and businesses often need to engage a consultant to understand grants for things like export market development assistance.