With the second tranche of tax cuts for businesses over $50 million shot down in the Senate last month, the government has announced that it will not be taking the policy to the next election, instead focusing on accelerating tax cuts for small to medium-sized businesses.
Speaking to Accountants Daily, the Tax Institute’s senior tax counsel Professor Robert Deutsch said the proposal was “pretty much dead in the water”, with the roadblocks in the Senate demonstrating how it was politically unviable at this stage.
However, Professor Deutsch believes there are other options on the table, including Labor’s proposed Australian Investment Guarantee, which will allow businesses to immediately deduct 20 per cent of any new eligible asset worth more than $20,000.
“There are other ways of delivering tax cuts without necessarily tinkering with the corporate tax rate and Labor has suggested a sort of investment allowance,” said Professor Deutsch.
“In my view, there is much to be said now for both sides of the political spectrum to be looking at that kind of option, I know Labor has made it part of their policy and I think it is a sound idea and the government needs to look at that as well because it is more targeted and directed by trying to give corporates a tax break but at the same time have them invest in important business assets and that's a different way of approaching the questions of a tax cut.
“In one way that’s equivalent of a tax cut but perhaps it is not as bluntly instrument as a straight cut to the corporate tax rate.”
Labor’s investment guarantee has been likened to a beefed up version of the current instant asset-write off, which allows business with a turnover of less than $10 million to write-off eligible assets.
The $20,000 instant asset write-off, which was proposed to be extended for the 2018–19 year, as announced in the federal budget, has yet to be legislated, meaning the threshold has dropped to its original $1,000 value.
The Institute of Public Accountants have long advocated for the instant asset write-off to become a permanent fixture of the tax regime, particularly for smaller businesses who struggle with cash flow.
“What should be kept in focus is the positive impact that this initiative has on the broader economy as it incentivises small businesses to reinvest in their future, making way for growth, employment and prosperity,” said IPA chief executive Andrew Conway.
“We fully support a higher instant asset write-off becoming a permanent feature of our tax system going forward. The Henry Review into Australia’s tax system recommended that a higher threshold should apply.
“The need for this initiative to be set in stone, particularly for small businesses, is paramount as it brings an injection of economic growth, giving small businesses the confidence to buy new equipment, reinvest in their operations and grow.”