The challenge:
Maria Bekiaris
THE GOOD NEWS
Small business owners have already scored in what is expected to be hard-fought campaign. After the usual argy-bargy, both major parties committed to accelerating small business tax cuts in October. This means both have now committed to reducing the company tax rate for businesses with a turnover of up to $50 million to 25% from July 2021.
The coalition had previously legislated a drop from 30% to 27.5% this year, followed by a cut to 26% in 2025 and 25% in 2026. The 26% rate will now come in from July 2020.
Labor had planned to keep the rate at 27.5% but announced in October it would support the plan to ensure businesses got the same tax cuts regardless of who won.
Non-incorporated businesses such as sole traders and partnerships will also benefit from an increase in the tax discount they receive (known as the small business income tax offset), which is set to rise from the current level of 8% to 13% in 2020-21 and 16% in 2021-22. It was previously scheduled to rise more slowly, with the full 16% discount not coming in until 2026. This discount applies to individuals with income from an unincorporated business with a total turnover of less than $5 million and is capped at $1000 a year per individual.
ASSET WRITE-OFFS
In January, prime minister Scott Morrison announced that the current $20,000 instant asset write-off for small businesses with a turnover of less than $10 million would be increased from $20,000 to $25,000 until June 30, 2020. This allows eligible businesses to claim the cost of business assets such as vehicles and equipment in the year they are purchased rather than being depreciated over the life of the asset. It was scheduled to drop back to its original level of $1000 from July 1 this year.
Labor has announced its own asset write-off pitch, promising to introduce an Australian investment guarantee, allowing all businesses to immediately deduct 20% of any new eligible asset costing more than $20,000. This is planned to be a permanent deduction, although its introduction has been delayed a year to 2021-22 to fund the accelerated small business tax cuts.
OTHER MEASURES
The coalition’s pre-election rhetoric also contrasts its own successes so far (such as reducing compliance costs through things such as simplified business activity statements and paying 97% of its own bills within 30 days), with claims of “anti-business” Labor policies such as reversing the abolition of Sunday penalty rates and its links with the unions. The coalition has also announced a securitisation fund to lower the costs of borrowing for small businesses.
For its part, Labor is offering a mix of small business measures including requiring government purchasers to support local businesses, keeping a small business minister in cabinet and establishing a second commissioner within the tax office to handle small business disputes.
However, it is already attracting criticism for its plan to introduce a minimum 30% tax rate on distributions from discretionary trusts. While this measure is intended to crack down on tax minimisation measures such as income splitting (where income is diverted to lower-taxed family members), many small businesses are held through such structures. Treasurer Josh Frydenberg recently claimed this could affect around 300,000 small businesses with turnover of up to $10 million.
As the election campaign heats up, small business policy will be a key area of debate and further differences are likely to emerge.