SMEs in the budget limelight, but is it enough?
05 May 2016: Small and medium sized businesses came out on top in the Federal Government’s 2016/17 budget with a cut in the company tax rate and an extension of spending incentives in the form of immediate asset write-offs. Yet there is still a real need to get moving on tax reform to define a vision for Australia, says Deloitte Tax Partner, Spyros Kotsopoulos.
The measures announced by Treasurer Scott Morrison benefiting small and medium sized businesses were expected and welcomed, but the Federal Government may have missed a few opportunities.
“The 1% company tax rate, down to 27.5% will undoubtedly benefit small businesses, as will the small business entity threshold being increased from $2 million to $10 million.
“But 10 years is a long-term commitment to reducing the company tax rate for all businesses to 25% and it is questionable as to whether this will be maintained through political changes and evolving states of the economy over a 10 year period,” said Kotsopoulos.
Incentivising more businesses to spend is a positive step to stimulate economic growth, but Deloitte believes that the extension to the immediate deduction for assets costing less than $20,000 to all businesses with an annual turnover of less than $10 million (up from $2 million), could have been applied immediately.
“Deferring the adoption of this measure to 1 July may have the opposite effect intended. We may actually see growth stymied in the next two months if small businesses with turnover between $2 million and $10 million hold off until 1 July on making purchases. Irrespective of when the tax rate change comes into effect, we would have seen more of an impact had this measure been effective from Budget night.”
“We must also remember that most small businesses will only realise the benefit to the changes in tax rates when they lodge their 2017 tax return. For most businesses this means no likely positive impact on cash flow until their return is lodged – which may be the end of the 2017 calendar year or later in 2018.”
In line with the extension of the business entity threshold, the Government could also have gone further in extending the eligibility for the small business Capital Gains Tax concessions.
“Disappointingly, this concession remains available only to businesses with an annual turnover of less than $2 million or to taxpayers that satisfy the $6 million maximum net asset value test. Given the $6 million net asset value test was introduced in 1999 it is probably appropriate that this threshold be revisited.
“The Government should be commended for continuing and extending tried and tested measures that have benefited small and medium sized businesses and in turn stimulated economic growth. However, the 2016/17 Federal Budget is not to be mistaken for tax reform. It is therefore unreasonable to expect anything radical. We hope to see serious debate and consultation to move towards genuine tax reform with a view to defining a vision for Australia,” said Kotsopoulos.
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