What do Scott Morrison’s tax cuts means for small businesses in Australia?

Newly appointed Prime Minister Scott Morrison and the federal government are seeking to bring tax cuts for small and medium businesses into effect by 2021-2022, five years earlier than scheduled, according to Treasury costings.

Scott Morrison's Tax Cuts

The Australian Financial Review reports that the policy, flagged by Malcolm Turnbull, Scott Morrison and Mathias Cormann two days before the leadership spill, was developed in anticipation of next year’s election. Prime Minister Scott Morrison has adopted the tax cut strategy and moved Small Business back into the Cabinet Room with Michaelia Cash as the Minister for Small and Family Business.

What do the tax cuts mean for small businesses?

The government’s initial business tax cut plan, which was first introduced early last year, prepared to drop the corporate tax rate for small and medium-sized businesses from 30% to 25% over a 10-year period, with the first drop to 27.5% coming into effect this financial year, before a staggered drop to 25% by 2026-27.

However, the latest Treasury costings reportedly reveal that the government is considering expediting the process – dropping the tax rate to 27% in the next financial year, followed by a reduction to 26% in 2020-21 and then a further cut to 25% in 2021-22, according to SmartCompany. This means SMEs could see lowered tax rates sooner than expected.

Although bringing the tax rate down to 25% by 2021-22 is Morrison government’s preferred plan, an alternate plan has also been proposed that would see a drop to 27% next financial year, followed by a yearly 0.5% reduction until the company tax rate reaches 25% in 2024.

The jury’s out on whether the proposed tax cuts would offer long-term benefits to small businesses and the national economy. Peter Strong, chief executive of the Council of Small Business Organisations Australia, told SmartCompany he believes the move by the government is a positive one.

“This would be very good for the economy, and we think it would quite quickly have a positive impact on Australian businesses,” Strong said.

Murray Howlett, tax specialist at Pilot Partner, said it will be difficult for the government to pass the changes through the Senate, and that the tax cuts may leave out small businesses run through non-company structures.

“Smaller businesses are often ran through trusts or partnerships, so this policy change actually misses quite a big portion of business operations and many small businesses are being overlooked,” Howlett said.

Potential reform to the $20,000 instant asset write-off.

Also on the table for discussion is the $20,000 instant asset write-off applicable to Australian businesses with annual turnover of less than $10 million. According to the Australian Financial Review, the government is reportedly considering increasing the $20,000 cap, which would give eligible businesses the ability to immediately deduct assets over and above $20,000 up to a new limit that hasn’t yet been proposed.

Howlett told SmartCompany he believes an extension of the $20,000 asset write-off would have a more far-reaching impact on small businesses than the proposed tax cuts.

“That, to me, is a far more significant change than the tax rate change. Businesses often make their investments based on their abilities to make a tax claim on them, so a change here really will drive small business behaviour towards buying more plant and machinery and buying it sooner,” Howlett said.

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