Tax deductions designed to support businesses are failing to reach those most in need, as poor targeting of benefits and a focus on bringing forward deductions deliver little real value.
That is the view of the Institute of Public Accountants (IPA), which has suggested that most tax concessions are failing to adequately support businesses during their most stressful periods but could easily be altered to boost business growth and ultimately tax revenues.
“Most tax concessions (excluding the Small Business Capital Gains Tax and refundable R&D concessions) are merely timing benefits that bring forward tax deductions to reduce the amount of tax payable, which is only useful if the business is in a tax-paying position,” said IPA chief Professor Andrew Conway.
“Small business can do it tough at every stage of the business life cycle, including during the start-up phase or during a temporary setback.”
According to Professor Conway, bringing forward deductions – either during the initial business start-up phase or as a supportive measure during temporary downturns – is unlikely to provide much-needed cash flow benefits.
Instead, they merely generate “more carried-forward losses”.
“Loss carry-back for corporate entities is one way the tax system can assist taxpayers to deal with a temporary setback,” he said.
“We will continue to advocate for the loss-carry-back initiative which had a short life but proved beneficial.”
Professor Conway added that while problematic to introduce, non-corporate entities may in some instances require similar relief in order to “assist with the survival of viable businesses”.
The comments come after the IPA released its Australian Small Business White Paper earlier this month, which found a “disturbing” lack of productivity growth in local businesses.
In terms of taxation, the report claimed that “reform has stalled in Australia, in part because most tax discussions have been the subject of political trench warfare”.
“Partisan arguments over reforms will usually result in no change unless a government has the necessary numbers in both houses of the federal parliament to successfully shepherd through reform,” it said.
“Some Australian companies or individuals may choose to base their corporate operations overseas while this domestic policy skirmish continues.
“Reforming the tax regime may assist in keeping businesses in Australia. Encouraging entrepreneurs to start, run and keep their businesses in Australia by dealing expeditiously with taxation reform is an essential ingredient when contemplating how best to ensure a stable economic future for the country.”
The paper made a number of recommendations, most notably that tax reform be put firmly back on the political agenda, noting that much of the work has already been done by the Henry Tax Review and the Tax Forum.
It is also pushing for changes to the GST, looking to other countries such as Singapore to identify tax measures capable of supporting new businesses, creating greater consistency across business taxes and deductions, as well as a federal-led approach towards the abolition of payroll taxes by the states.
Adam Zuchetti is the editor of My Business, and has steered the publication’s editorial direction since early 2016.