Two thirds of SMEs could miss out on corporate tax cut

While small businesses may be happy to hear about a 2% cut in company tax in the Government’s response to the Henry Review, the Opposition and some experts claim millions of small businesses will still miss out on any potential benefits.

They also warn businesses hoping to enjoy a drop in company tax or a write-off in assets worth up to $5,000 will need to survive for a few years before they can enjoy any of the Government’s benefits.

The Coalition claims businesses will not only miss out on potential benefits, but could be billions worse off by the time the superannuation guarantee is lifted to 12% in 2019.

Opposition small business spokesman Bruce Billson says that not only will two-thirds of Australia’s 2.4 million SMEs miss out on the corporate tax cut, about 640,000 businesses will be hit with additional compulsory superannuation payments.

Billson claims by 2019-20, for every business saving $1 in tax they will need to pay about $25 more in compulsory superannuation, when the guarantee is eventually lifted to 12%.

Additionally, in the time to 2019-20, Billson says SMEs will save $2.4 billion in taxes but must pay an extra $29 billion in super – leaving them $26.6 billion worse off.

“What the government has given with a two percentage point reduction in corporate taxes it has more than taken back with a three percentage point increase in the superannuation guarantee,” he said in a statement.

“Instead of being better off under the government’s proposed tax cut, many small businesses will actually be far worse off.”

Pitcher Partners partner Ray Cummings says smaller businesses may be initially welcoming of the Government’s new benefits, but warns they should be critical when examining whether they will actually apply to them.

“The announcement is that they are phasing off the company tax rate in two stages, but the first doesn’t occur until 2013. So for businesses there is a bit of a wait before they get any benefit.”

However, Cummings says the worst announcement was that small businesses would only be defined as entities turning over less than $2 million per year, despite a Henry Review recommendation that the threshold be lifted to $5 million.

Cummings says this threshold is more fitting of a “micro” business, and suggests thousands of small businesses will miss out on the Government’s benefits as a result.

“Really, in tax office terms anything below $2 million is a micro business. That is the small end of town, and that $2 million figure is turnover, not profit, so the profit in these entities is even smaller.”

“What you are really talking about here are Mum and Dad companies, small businesses. Now, there’s nothing wrong with that at all but for businesses that are larger with more staff, they won’t be able to access these benefits.”

Additionally, he warns only businesses running as companies will be able to access the entitlements, with entities running as either trusts, partnerships or as a sole trade unable to access the corporate tax cut.

“I believe that is the case, with some to miss out. I don’t have any solid statistics for how many are being affected, but surely a lot of businesses are being locked out of these benefits. It’s fine to hit the resources, but really a lot more small businesses could have been assisted.”

Greg Hayes, director at Hayes Knight, says some smaller businesses will receive a benefit but for others attempting to take their business beyond a start up phase, it’ll be difficult to see any changes.

“I think it’s valid, there is no immediate benefit out of what was announced on Sunday, and across the small business population it is quite discriminatory.”

“If you an employer who has a middle-sized business, so you’re employing 10 or so people and you’re growing the business, that type of thing, you’re probably not going to get anything out of either the depreciative allowance. If you’re trying to move to the next level, you won’t get anything.”