In the wake of a much anticipated election result and minority Labour government coming into power, small business is left wondering where are the promised tax reforms?
The Henry Review, delivered earlier this year, presented many opportunities for cost savings and reduced administrative burdens by recommending measures to simplify Australia’s tax system.
Previously accepted recommendations of the review that would have benefited small business including a reduction in the company tax rate from 30% to 28% commencing in 2012-13 for eligible small business entities and the expansion of the capital allowance concessions to enable immediate write-off of assets valued under $5,000 and for other assets to be depreciated at a rate of 30%, are now up for discussion again.
Also delayed, but due to be reintroduced into Parliament when sitting resumes on September 28, is the legislation to replace the R&D tax concession with the R&D tax credit.
The new scheme consists of a 45% refundable R&D tax credit for companies with grouped turnover of less than $20 million per annum (the equivalent of a 150% tax deduction); a non-refundable 40% standard R&D tax credit for companies with grouped turnover of more than $20 million per annum (equivalent to a 133% tax deduction); and the removal of a cap on R&D spending that can be claimed as a 45% refundable tax credit.
The legislation was introduced into Parliament in June but failed to pass the Senate before the election was called. Given the proposed start date for this legislation was to be July 1, 2010, any new commencement date should allow small business to gain the benefits of the changes without any further delay.
Following the Federal Election result, all of the Henry Review recommendations, including those already accepted or rejected by Government, are back on the table to be discussed at a Tax Summit to be held before June 30, 2011.
The much debated exception to this is consideration of mining taxes, which the government is determined to progress through the Policy Transition Group, led by BHP Billiton Chairman Don Argus and resources minister Martin Ferguson.
The summit forms part of the agreement struck between the minority Labour government and rural independents Tony Windsor and Rob Oakeshott, to convene a public forum of experts on taxation that will discuss the Henry Review. However, a date is yet to be set for the summit or a process for seeking views from small business put in place.
Other recommendations of the Henry Review up for discussion at the summit that may impact small business include:
- Revision of small business capital allowance rules.
- The ability for companies to carry back revenue losses to offset against prior year’s income.
- An update and rewrite of trust rules.
- Rationalising and streamlining small business capital gains tax concessions.
- Revising the personal services income regime.
- Replacing payroll tax with revenue from more efficient broad-based taxes.
- Common information standards leveraging off Standard Business Reporting (SBR) and business ready support for start-ups which may include preparing for SBR.
The government’s initial response to the Henry Review acknowledged small business is burdened with high costs associated with meeting tax obligations and is more likely to suffer greater cashflow difficulties that impede their growth and expansion.
With an estimated 2.4 million small businesses in Australia, employing approximately 30% of the workforce, addressing this burden should be a priority.
However, the focus now seems to have returned to big political issues such as the mining resource rent tax, carbon tax, National Broadband Network and regional infrastructure issues. The government has also warned pre-election promises may not be kept, including those relating to tax reform to be funded by a now smaller revenue pool derived from the resource rent taxes.
Let’s hope that small business have a strong voice at the tax summit and the call for much needed small business tax reforms is not drowned out by the noise surrounding the big ticket political issues.
Marc Peskett is a partner of MPR Group a Melbourne based firm that provides tax, as well as outsourced accounting, business advisory, grants support and financial services to fast growing small to medium enterprises.