Rudd Government gives small business special Christmas tax break

Prime Minister Kevin Rudd will today announce a surprise Christmas tax break for around two million businesses in a bid to ease the cashflow squeeze set to hit business in February and March next year.

Prime Minister Kevin Rudd will today announce a surprise Christmas tax break for around two million businesses in a bid to ease the cashflow squeeze set to hit business in February and March next year.

Under the $440 million package, businesses with less than $2 million in turnover will be able to defer 20% of their pay-as-you-go income tax installment for the December quarter, the payment of which is due in January and February.

The tax office sends businesses a pre-filled-in Business Activity Statement form with the amount of PAYG. This is calculated by adding 8% to last year’s amount, but this method – which assumes growth – has become outdated very quickly.

Federal Small Business Minister Craig Emerson says the move is designed to help businesses keep the cash flowing after Christmas.

“We’re anticipating there could be some cashflow difficulties for small businesses around February, March,” he told ABC television.

“If we can boost the cashflow of all businesses then that boosts their viability, but also importantly improves the prospects of being able to retain the more than 3.5 million staff involved in these businesses.”

Sue Prestney, Institute of Chartered Accountants in Australia SME chairwoman, says the tax break is welcome. “Everything helps – we don’t knock back anything.”

But she argues that small businesses that are unhappy with the PAYG amount they are being sent do have the option to ask the tax office to vary this amount.

“Don’t just accept the figure that’s coming through on the pre-filled Business Activity Statement. Small businesses should be varying their installments if they are feeling uneasy.”

Prestney also wants the Government to take more action to assist medium-sized businesses, arguing these are the major employers in the country.

“To me it just doesn’t go far enough. Really it’s medium businesses that need some support out there. They are the ones that are dealing with cashflow issues and redundancy issues. I just know that a lot of them are feeling the credit squeeze very tightly.”

She also says it is somewhat ironic that the tax break is coming at a time when she is seeing the highest level of tax office activity in 25 years.

“I am seeing unprecedented ATO activity and pressure being put on small businesses to do with these audits. That costs money.”

Related stories:

• Opposition calls for tax relief to help SMEs with cashflow
• SmartCompany’s Cashflow Guide