Australian Treasurer Announces Cash-Flow Relief Plan

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

31 March 2009

Australian Treasurer Wayne Swan and Craig Emerson, Minister for small business, independent contractors and the service economy, have announced an additional cash-flow relief plan for small businesses worth AUD720m (USD488m).

In a joint statement released on March 30, Mr Swan and Mr Emerson explained:

"Today we announce that the Rudd Government will provide a further AUD720m (USD488m) of cash-flow relief for small businesses, self-funded retirees and small superannuation funds doing it tough in the face of the global recession."

"Today's announcement will mean pay-as-you go (PAYG) instalments will be cut for around 1.5 million taxpayers for 2009-10, providing further cash-flow relief for small businesses at a difficult time."

"Small businesses across the country are the backbone of our economy, providing jobs for millions of Australian families. That's why the Rudd Government is determined to do everything we can to help small businesses in the face of the global recession which is hitting the Australian economy. This announcement will also provide a further economic stimulus to support Australian jobs, because taxpayers will have the use of what would otherwise be overpaid tax collections of around AUD720m in 2009-10," they added.

Quarterly PAYG instalments will be cut for the 2009‑10 income year for taxpayers whose quarterly tax instalments are adjusted for previous years' Gross Domestic Product (GDP) growth.

The expected increase in the Consumer Price Index for 2009-10 – rather than previous years' GDP growth - will be used to calculate tax instalments.

Swan and Emerson explained that this will better align the tax treatment of small businesses, self-funded retirees and small superannuation funds with changing economic conditions and help prevent businesses paying too much tax.

For the 2009-10 income year, the government has reduced the GDP adjustment from 9% to 2%, aligning it with the expected Consumer Price Index (CPI) growth of 2% for 2009-10, as forecast in the Updated Economic and Fiscal Outlook.

The reduction will provide cash flow benefits to around 1.5 million taxpayers, cutting their PAYG instalments by around 6%. This will ensure that their PAYG installments more closely approximate their actual income tax liability for the year.

While taxpayers can vary instalments down of their own accord, many taxpayers are reluctant to do so, especially those with unpredictable income streams.

Those business owners who pay their GST quarterly are also expected to benefit. The Commissioner of Taxation has advised that he will use the 2% adjustment factor when he calculates GST instalments.

Concluding the announcement, Swan and Emerson said:

"Today's announcement - along with the 20% reduction in the PAYG instalment for the December 2008 quarter and the Small Business and General Business Tax Break – shows the government's commitment to support small business and bolster confidence in the face of the global recession."

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