The government is set to unveil plans to allow loss-making companies to claim back tax paid on the prior year’s taxable income, but experts have warned that the proposals may not go far enough to benefit start-ups.
As part of next week’s Tax Forum it’s expected that the government will look to implement a recommendation by the Henry tax review to aid businesses suffering the downside of the two-speed economy.
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Under the plan a business that makes a profit in year one and a loss in year two can claim that loss back.
This compares with the current regime where businesses have to make a profit in the future before being able to “use” their losses to reduce their tax.
However although start-ups look set to benefit from the move, concern has been raised as to whether any changes that don’t involve GST amendments will have any significant impact.
Vince Tropiano, tax partner at BDO, says the company’s research shows that 74% of Australian businesses view a review of GST as essential to any tax reforms.
“We welcome the major tax breaks expected to be announced at next week’s Tax Forum,” he says.
“They will benefit many businesses through allowing companies that have made a loss to claim back taxes previously paid.
“But in the end it will count only as yet more tinkering with the tax system. The federal government can tweak corporate tax rates and tax breaks all it likes, but substantive structural reform is what businesses really require.
“We have few opportunities to look in detail at the kind of tax structure that will generate the revenues that governments need to service our society while also providing incentives for employment, investment, development and growth. Therefore, all key taxes should be up for review – no exceptions.
“Next week’s tax forum is almost pointless unless it includes the GST. Businesses tell us that the GST rate, composition and even compliance should all be under review.
“GST and other indirect taxes on consumption represent approximately 30% of the tax mix. Any review of the tax system which excludes meaningful discussion of these taxes simply cannot be effective.”
Shadow Small Business Minister Bruce Billson told SmartCompany that the Coalition was supportive of any measures that supported small business but it would need more detail before throwing its support behind the plan.
During the global financial crisis the Coalition called for a similar change but its proposal was capped at $100,000.