Tax breaks needed for small businesses

Small businesses will be watching Treasurer Wayne Swan very closely next week, when the Federal Budget is released on 8 May. Mr Swan, who is already under pressure to ensure that the budget returns to surplus in 2012-13, is facing additional calls from the business community and parliamentary members to give small businesses a break in the upcoming Budget.

According to Independent MP Rob Oakeshott, the government should make provisions in the Budget for small business tax breaks, worth up to $300 million, through the implementation of the 'loss carry back' reform. This reform allows businesses to offset their losses in the current financial year against previously paid taxes. Businesses would have had to post a loss after previously earning a profit that was taxable.

Mr Oakeshott's push for this reform comes just after his motion calling for comprehensive tax reform in Australia was passed in February. This provides the basis for a ten-year roadmap to tax reform concurrent with the Budget, as well as outline how the government would fully respond to the issues raised by the Henry Tax Review 2009 and the October Tax Forum 2011.

"This is an opportunity to get rid of inefficient taxes as recommended by the Henry Report. With 115 taxes raising just 10 per cent of the tax revenue, the federal and state governments have plenty of room to move and sunset many of these old, inefficient taxes."

The government's business tax working group supports the 'loss carry back' reform, stating that it would support business investment and acts as an automatic stabiliser of business operations during downturns without the need for government intervention.

By qualifying for a tax refund after a period of loss, small businesses can use the increased cash flow for new investments, upgrading of product lines and paying off of debts. According to the business tax working group, sole traders and partnerships could potentially qualify for the 'loss carry back', although sole traders would need to allocate income and expenses between the business and other investments (such as a share portfolio or property).

However, the business tax working group's final report will not be released until the end of the year and there is uncertainty as to when the tax relief would come into play. Furthermore, small businesses will no longer receive the entrepreneurs tax offset, as part of the 2011-12 Budget under a recommendation by the Henry Review. This prevents small businesses from offsetting 25 per cent of their income tax.

"There are sectors of the economy [such as retail, manufacturing and tourism] that are still paying off a lot of debt and have losses right now. Public policy has an obligation right now to look at solutions," Mr Oakeshott told The Australian.

Read more about the 2012-13 Budget here >>

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