Govt’s 1.5% tax cut to include all small businesses, including those not incorporated

Small Business Minister Bruce Billson will extend the federal government’s proposed small-business tax cut to all small enterprises, regardless of the structure in which they operate.

Just one day after Billson denied the government was under pressure to drop the budget measure, he told Fairfax the government is determined to make sure all small businesses benefit from the tax relief.

“We’re keen to make sure that the incentives of a tax cut reaches beyond incorporated businesses into businesses that operate under other structures,” Billson said.

Billson confirmed the plans to SmartCompany, saying the government is “working very hard to see that this package energises enterprise”. 

As part of the small business package that will form part of this year’s budget, small businesses that are incorporated and sole traders, as well as businesses that operate within a trust structure, will receive tax relief.

The mechanisms by which this will be achieved is still being finalised, but both company turnover and taxable income are being considered. Billson says the final policy will depend on the definition of small business adopted by the government.

Billson says there is “no silver bullet” to encouraging small business, but the policy puts the government on the right track. 

“Only about one third of Australian small businesses are structured as companies,” Billson says. 

“The balance arn’t incorporated, yet we absolutely value and want to respect their enterprises as well … I’m doing all I can do to extend the benefits to the small business community in a way that is affordable and sustainable.”

When Prime Minister Tony Abbott flagged a small-business tax cut in February, the cut-off for the proposed 1.5% cut to company tax was set at taxable income of $5 million.

At the time, tax experts told SmartCompany there were questions as to how many small businesses would benefit from the policy.

“It assumes that all small businesses are run through companies and that, in the ones that are, the companies will be able to retain profits, rather than distributing them to owners as wages and dividends,” BDO tax partner Mark Molesworth said at the time.

Pitcher Partners tax consulting partner Greg Nielsen said a “large part of the small and medium business population” generates more than $5 million each year and so to cut off the tax relief at $5 million means many SMEs will miss out.

Peter Strong, executive director of the Council of Small Business of Australia, welcomed the move, telling SmartCompany this morning “we know Bruce has been working on the definition of small business so this can happen in a proper way”.

While Strong says it may be difficult to come up with a tax break that will benefit all small businesses, he says Billson “doesn’t back way from difficult tasks”.

According to Strong, one way to deliver a tax break to small businesses that are not incorporated would be to tie to it the threshold at which businesses must lodge Business Activity Statements.

“That would be one logical way of doing it,” Strong said.

“You do need some rules and regulations to keep out the scammers and those who want to rort the system.”

Strong says it may come down to the question of what is a business and what is someone’s hobby, but the Australian Tax Office has expertise in that area.

“The tax office has been doing that forever,” he said.

Billson told Fairfax he is also considering granting small businesses accelerated depreciation of their assets, a proposal being advocated for by COSBOA.

“This does not have to be an either-or option,” Billson said.

“I’m not ruling out anything.”

Strong also welcomed the government’s changes to Employee Share Schemes, which Billson introduced to the Parliament this morning.

“There are so many of us [small businesses] and so you might say changes will only affect 10,000 businesses, but they are all ones that want to grow,” Strong said.