Chartered Accountants call for small business investment allowance to help flood recovery

The Institute of Chartered Accountants says the Government should consider introducing a new small business investment allowance, similar to that brought in during the GFC, to help flood-affected SMEs back on their feet.

The GFC investment allowance, introduced in early 2009, allowed businesses with less than $2 million in revenue to claim an additional tax deduction of 50% of the value of plant and equipment purchased in 2009.

It was seen as one of the Government’s most successful SME support measures, as it allowed businesses to invest and created sales.

The Insitute’s tax counsel, Yasser El-Ansary, says the Government should consider introducing a new investment allowance to help flood-affected businesses back on their feet.

While he says the allowance could be targeted specifically at SMEs in flood-hit regions, the Government should not forget that SMEs outside these areas could suffer indirectly as the Australian economy takes a hit.

“If you view it that way, perhaps there is an argument that it should be nation-wide initiative.”

“It’s an opportune time to do it and it worked really well when it was rolled out in the GFC. We are fast approaching a similar situation where the Government should consider this.”

El-Ansary says an investment allowance would work particularly well in specific communities, allowing businesses to re-establish their operations while at the same time creating demand for local suppliers.

“For some businesses, refitting their operations will be a significant investment, offset partly by insurance. But insurance won’t cover all those costs.

“With this type of measure you get both sides of the [buy/sell] equation working in harmony with each other.”

The Institute has also used its Federal Budget submission to push for the Government’s flood levy to be dumped. El-Ansary say it is bad policy and unnecessary given Australia’s strong financial position.

“We shouldn’t have to resort to the introduction of new levies and new taxes the moment there is a modest but important pressure on the budget bottom line. We really should be asking some hard questions about how a tax system is structured and out tax expenditures.”

El-Ansary is also calling for a review of the controversial area of Division 7A trust rules. In 2010, the Tax Office caused widespread angst amongst tax professionals and trust owners after it announced it would tax money distributed between a trust and its corporate beneficiaries and then loaned back to the trust for working capital at the highest marginal tax rate.

The Institute says Division 7A rules changed in 1998, 2002, 2004, 2005, 2007 and 2010, creating a level of complexity that must be addressed.

“It’s a very complex part of the law and it’s complex because of the significant changes to the law. The time has come for the Government to look closely at Division 7A.”

The Institute also wants the Government to bring in its new R&D tax break law well before July 2011, or delay the introduction of the laws for another year.

It also wants to see the Government cut penalties on excess superannuation contributions, which can be as high as 93% for people who breach the limits on superannuation contributions over and above employer contributions.

“The Government doesn’t want any of the concessions that exist in the superannuation system to be abused. We understand that and we agree with that,” El-Ansary says.

“But when you are imposing tax at a potential rate of 93%, then you’ve got to say that the policy is a complete disincentive to do what the Government would like people to do, and that’s save for their retirement.”