New tax reforms write off small businesses

New tax reforms write off small businesses

Alen Delic

Eddie Thompson owns one of Australia’s 2.8 million small businesses.

He employs three full time staff but still finds himself working seven days a week.

He normally works on-site labouring for ten-hours a day during the week, before spending his weekends in his Sydney showroom, showing around customers.

Mr Thompson followed the Federal Budget announcements closely from his home to see what kind of bonuses and schemes he could have received.

“There just isn’t enough support for the small businessmen in Australia,” Mr Thompson said.

“Forget company tax cuts and loss carry-backs; I want something that will help me now, or reduce some of the workload on me.”

 Budget night saw the announcement of several impractical, but impressive-sounding schemes, known as loss carry-back and instant asset write-off. The schemes ultimately allow greater tax deductions but will be unavailable to a large majority of Australia’s 2.8 million small businesses.

Institute of Chartered Accountants tax counsel, Yasser El-Ansary, told the SmartCompany website that while loss carry-back was a good theory, its implementation would be limited.

“The principle of loss carry-back for business, especially small business is quite sound,” Mr El-Ansary said.

“This reform would only be available to businesses structured as companies. Of the 2.8 million small businesses, only 20 per cent are structured through corporate vehicles.”

The large majority of Australia’s small businesses are automatically ineligible for the scheme.

Mr Thompson’s parquetry flooring company was initially eligible, but upon closer inspection he was ruled out because his company only ran on a loss in its first year. Since then, he has made a slim margin of profit.

In order to qualify for the loss carry-back reform, businesses have to have made a profit for two years, and suffered a loss in the last financial year.

Only 110,000 small businesses out of Australia’s 2.8 million, or just over three per cent, are eligible for the new scheme.

“Currently, it will deliver none of the policy benefits they are looking for, and will only benefit 110,000 businesses in a four year period,” Mr El-Ansary said. “That is a drop in the ocean in the number of small businesses struggling.”

The other major announcement in the budget was one that Mr Thompson did seem excited about, as his business is heavily reliant on assets.

When treasurer Wayne Swan delivered the Gillard government’s budget, he announced that small businesses would see the benefit of a $6500 instant asset write-off scheme.

This was an increase of an extra $1500 from the previous year, in order to lessen the impact of carbon tax, and its subsequent increase in utilities, on small businesses.

“It’s a good idea,” Mr Thompson said. “It’s one that I can actually use and make the most out of.”

Mr Thompson said he planned on upgrading his sanding machines in order to both reduce the stress of working with dated machines, and to also expand his business’ arsenal.

Executive director at Small Business Australia, Bill Lang, criticised the scheme for leaving out a lot of potential businesses.

“Sure, it’s great for the businesses that do acquire assets,” Mr Lang said. “But many do not. It is of little or no value to personal service providing businesses.”

As with all construction companies, Mr Thompson’s is heavily reliant on assets such as machinery and equipment.

The Australian Bureau of Statistics’ ‘Count of Australian Businesses’ revealed that construction was the most frequent, with 17 per cent of all small business.

The three next biggest small business categories were ‘professional, scientific and technical services’, ‘rental, hiring and real estate services’, and the ‘agriculture, forestry and fishing’ industries.

These industries hold a total of 49.5 per cent of all small businesses combined, and would all be heavily reliant on assets, and therefore welcome the instant asset write-off.

Researcher and external manager at the Australian Centre for Entrepreneurship Research at Queensland Univeristy of Technology (QUT), Neil James, said that while this was in theory a good idea, it did not address the issue many small business owners had.

“Funding is not always the problem,” Mr James said. “Whilst things like changing tax regulations around asset deductibility and the like may all help, they in themselves are not considered a means to an end.”

QUT research has found, through the Global Entrepreneurship Monitor project, that Australia’s entrepreneurial activity is well ahead of others in the developed world.

“Clearly something must be happening in the Australian context that is working,” Mr James said.

“The establishment of things like the Small Business Commissioner, whilst being positive and providing additional support to this area, needs to be translated in to activities that continue to encourage and support would-be, and existing entrepreneurs.”

However, support does not always equal financial gains and bonuses, according to Mr James.

“The broader challenges associated with new venture establishment and development are not resolved by simply making more funding available to these ventures,” he said.

Mr James added that more attention was needed to be paid to issues that small business owners wanted to discuss, and not blind carry-loss schemes.

Mr Thompson echoed the academic’s thoughts.

“Money is only the biggest issue when small businesses are starting out, and expanding,” Mr Thompson said.

“Most businesses hit the biggest trouble as their client base grows, and they need to grow their business to deal with the increased demand.”

The biggest issue Mr Thompson found with his business’ survival and growth was sustaining quality employees.

Australian employers already have an incentive based apprentice scheme where an employer can receive up to $4000 for bringing an apprentice to an advanced diploma level.

“It makes sense on paper,” Mr Thompson said. “But apprentices aren’t always reliable, and there’s no guarantee that they’ll be with you when their four years are up.”

The completion rate of apprentices currently stands at roughly 50 per cent, according to Minister for Tertiary Education and Skills, Chris Evans.

Mr Thompson said that such schemes were not a guarantee for existing small businessmen, and money could be better spent elsewhere.

QUT pointed to schemes tried and tested in overseas markets, for potential policies that could be implemented in Australia.

“In the US, some programs aiming at the very high end, bringing in new, breakthrough technologies to commercialisation could be worth looking at,” Mr Thompson said. 

“Elsewhere, the UK ‘Enterprise Allowance Scheme’ and similar policies are worth looking at as employment policy, not industrial policy.”

Mr Lang had some other suggestions to improve the wellbeing of small businesses.

“Get rid of BAS [Business Activity Statements], increase government contracts going to small business, reduce regulation across the board, allow small business owners to pay lower tax rates while in start-up mode, and create a culture of enterprise,” he said.

Meanwhile opposition leader Tony Abbott heard the pleas of the small businessman and promised to cut $1 billion worth of red tape.

“We will respond carefully, but decisively to the problems that the community has identified in the Fair Work Act,” Mr Abbott said in his reply to the Federal Budget.

“So that small businesses and their staff can get a fair go, and our productivity can increase.”

 Mr Abbott previously announced schemes to shift responsibility for superannuation to the Australian Tax Office and away from business owners.

 This was a move welcomed by Small Business Australia’s Mr Lang.

 “Increased superannuation comes straight out of small business owners’ pockets,” he said. “Also, any policy that reduces red tape, government bureaucracy and regulation is good.”

 However, the QUT’s research department was skeptical about Mr Abbott’s promises.

“There seems to be a lot of ‘noise’ coming from the opposition. But, at this state, very little evidence and certainly none that we are aware of,” Mr James said.

 Mr Thompson was also wary of Mr Abbott’s pledges.

 “At the end of the day, to be a small business owner we have to jump through hoops,” he said. “We have to pay superannuation to set up a future for our workers.

 “If we want to keep our workers, we have to set up a good environment for them to work, and not save a penny wherever possible.”

 Mr James was positive about the future of Australian entrepreneurs, despite what seemed to be a scant dedication to them in the budget.

 “What we need to remember is that entrepreneurs, by their very nature, are innovative, resilient and tend to have a ‘can do’ attitude,” he said. “This behaviour generally rises above the vagaries of government policy.”

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