Concerns flagged as government’s loss carry-back measures go missing

The Tax Institute has raised concerns the loss carry-back measures for small business, promised by the federal government in last year’s budget, will never become law.

Loss carry-back was supposed to enable businesses to claim losses of up to $1 million against tax they have paid in the previous two years.

The measures were introduced as some form of compensation for the abandoned company tax cut and would enable a business claiming the full amount to get a refund cheque of $300,000 — representing the company tax rate of 30c in the dollar.

But Robert Jeremenko, senior tax counsel at The Tax Institute, told SmartCompany loss carry-back measures have still not been legislated.

“It is at a bill stage but not law and there are only 19 parliamentary sitting days left before the election,” Jeremenko says.

“There is very little time for the government to get legislation through.”

Justin Koek, a spokesperson for Treasury, told SmartCompany the government still intended to debate and pass the bill in the upcoming sittings.

“It should be noted that the Opposition oppose it entirely and have signalled they will try and vote it down,” he says.

The Tax Institute today released the results of a survey of its 13,000 members, which identifies the tax issue in most need of urgent reform as reducing the weighty compliance burden on small business.

Of those surveyed, 45% cited a simplification of tax laws to alleviate the compliance burden on small business as the most urgent issue.

Just over a third pointed to the reform of state taxes supported by increased funding from the GST.

The survey also found 23% of respondents called for greater certainty in the application of tax laws by legislating measures sooner after their announcement.

Jeremenko says the findings illustrate the long-held concern of tax professionals that the current tax system is cumbersome, particularly for small business owners, and in serious need of simplification.

“Small businesses have to deal with the same, if not more, aspects of the tax law than larger businesses but they have a fraction of the resourcing,” he says

“In addition, the small business concessions in the tax law are amongst the most complex areas of tax law. Something obviously does not gel there and it is in urgent need of reform,” he says.

Jeremenko says while loss carry-back measures have not even been implemented yet, the existing loss carry-forward measures are very complicated for small businesses to deal with.

“These measures, which enable businesses to carry loss forward, require complicated tests called the continuity of ownership test and same business test, which a small business must meet in order to carry forward a loss,” he says.

“So this is something very simple that tax law makes complicated for small business.”

The Tax Institute is advocating simplification of tax laws to alleviate the compliance burden on small business.

“This includes exploring the possibility of creating a separate ‘small business entity’ structure; streamlining definitions and access to small business concessions; and simplifying carry-forward loss integrity measure,” Jeremenko says.