Australian Business Breaks Condemned

by Mary Swire, Tax-News.com, Hong Kong

10 May 2010

Following Liberal Party leader, Tony Abbott's pledge to fight the Australian government's planned Resource Super Profits Tax, which would go towards financing tax breaks for the wider business community, the Council of Small Business Organisations of Australia (COSBOA) has spoken out.

As part of the government's long term tax reform plan, released alongside the long-awaited Henry Review on May 2, the Resource Super Profits tax (RSPT) would be imposed on the mining industry at a rate of 40% from July 1, 2012. The tax is expected to yield annual revenues of AUD3bn (USD2.8bn) in 2012-13 and AUD9bn in 2013-14.

RSPT revenue will be used to provide a phased cut in the company tax rate to 29% for the 2013/14 income year and to 28% from the 2014/15 income year, with further cuts possible after that, if revenue permits. Small businesses will get a “head start” on the company tax cut, with their 28% rate applying from 2012-13.

In addition, the government will introduce instant write-off for small business assets worth up to AUD5,000 from 2013-14, meaning that many small business investments will be able to be written off in the year of purchase. Small businesses will also be able to depreciate all other assets (other than buildings) in a single pool, at a rate of 30%.

However, opposition leader Mr Abbott has criticised the proposal, arguing that it will adversely impact the mining sector, and will not benefit small businesses if they are unincorporated, with the additional revenue merely serving to line the government's pockets.

COSBOA, however, has expressed concern that the proposals may not even get off the starting blocks.

In a statement released on May 7, CEO Jaye Radisich explained that:

“The tax cuts and depreciation bonus for small businesses announced by the government is a good step forward on tax reform. On balance, the initiatives announced this week will deliver a net benefit to small businesses."

“We need to remember that small businesses are responsible for the employment of 4.5 million people, and that small business activity accounts for one third of our GDP."

He continued:

“Small businesses play a critical role in our economy by providing jobs and keeping profits in Australia and deserve tax incentives to help promote innovation and entrepreneurial activity."

“Companies that make super profits are in the luxurious position of having significant economies of scale, access to foreign investment and an ability to manage input costs to a far greater extent than a small business could ever hope to achieve. In contrast, the tax burden on small businesses as a proportion of profit is disproportionately larger than their big business counterparts.

And concluded:

“A differential tax on company profits is likely to result in a more level playing field for small business companies in paying their fair share of tax.

“Denying the introduction of the AUD5,000 instant depreciation write-off will harm small businesses that operate as companies, as well as sole traders, partnerships and trusts."

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