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2011 budget for small business

Small businesses largely ignored in the 2011 Federal BudgetAs part of the annual federal budget, Treasurer Wayne Swan has announced that small businesses will be eligible for a tax write-off of the first $5,000 spent on a motor vehicle for the business in 2012.

According to a joint-statement released by the Treasurer and the Small Business Minister Nick Sherry, this means that a tradesman – on a 30% marginal tax rate – buying a vehicle valued at $33,960 would receive an extra tax benefit of $1,275 in the year they purchased the vehicle.

“Motor vehicles are the main capital item for many of Australia’s 2.7 million small businesses so this extra tax relief will deliver real benefits by improving cash flows and helping operators to reinvest and grow their businesses,” read the statement.

The initiative is expected to cost the Federal Government more than $350 million per year, and is being paid for by scrapping the Entrepreneurs Tax Offset (ETO).

The ETO is an offset equal to 25% of the tax payable on business income, for those with an aggregated turnover of less than $50,000. For businesses earning more than that, the offset is reduced until it gets to $75,000 and above – where it no longer applies.

Removal of the ETO comes as a result of the Australia Future Tax System Review, which concluded that the offset provided a disincentive for businesses to grow due to the decline that begins at $50,000.

“The ETO was also only available to individuals with incomes under $70,000 and its poor targeting and complexity meant 2.3 million small businesses missed out on any benefit,” read the statement.

Elsewhere, the budget brings little news or change specific to small business. In addition to the motor vehicle rebate, the budget has entailed a minor reduction in PAYG installments for small business. The controversial carbon tax is one major small business concern that was not addressed in the budget, instead being sidelined for review in October’s tax forum.

Image credit: Thinkstock

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