Controversial tax cuts for larger businesses are likely to be dumped in the upcoming federal budget, a prominent tax specialist has predicted, which could have significant ramifications for SME tax rates.
Mark Chapman, director of tax communications at H&R Block and former senior director at the ATO, told My Business that tax cuts over and above those already in place for small businesses have become too “politically sensitive” to be included in the May 8 Budget, particularly given that this is likely to be the last Budget before the next election.
“The small business tax cuts have been pretty much locked in now; the rate for small businesses is expected to continue to come down over the next few years, and I don’t think they will do anything to change that side of things,” said Mr Chapman.
“But I think they’ve found it so difficult to get these tax cuts for the larger businesses through Parliament – they’ve not succeeded so far after several attempts… I think really a combination of factors, of which the latest is the banking royal commission, has really made that politically a very, very complicated sell.
“They’ve expended a huge amount of political capital trying to get that package through Parliament; they’ve not succeeded, and I don’t think they will succeed.”
However, that in itself could prove to be a new windfall for SMEs, in that the money allocated for those tax cuts could be given to further reduce SME tax rates, Mr Chapman suggested.
“Probably some of the wiser heads will be saying ‘let’s take these tax cuts for bigger businesses off the table and use the money for something else – that something else could be bigger tax cuts for small business, for instance,” he said.
Asked how likely such a move would be, Mr Chapman replied “that would be politically a much easier sell in the Parliament and a lot more popular with voters”.
“There’s a reasonable chance they will go down that road,” he said.
Mr Chapman is also expecting the $20,000 instant asset write-off for SMEs to end from July 1 this year, as it is currently slated to. But the Budget may “soften the pain” by amending the threshold on a more permanent basis.
“It was originally supposed to go at the end of last financial year, and the government extended it by one year … I don’t expect that they will extend it again,” he said.
“Having said that, I think given that there is a general election not too far off and that the government hasn’t had a particularly smooth period with small business recently, I suspect they will look to do something to replace that.
“That might simply be as straightforward as changing the threshold to say $5,000 or $10,000, so that is still relatively generous; if they don’t do anything, that threshold will drop down to $1,000, and that is really neither here nor there for most small businesses.”
And he suggested that SMEs could enjoy more certainty on the measure if it's going to be made permanent.
“I think there’s a good chance that they would make it permanent,” said Mr Chapman.
“Small businesses have become very accustomed to that instant asset write-off, and they like it, and I think it would give [the government] a lot of kudos with the small business community if they just bit the bullet and said ‘this is here to stay’.”
Adam Zuchetti is the editor of My Business, and has steered the publication’s editorial direction since early 2016.