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Mixed reaction to budget as company tax cut dropped and carry-back loss system introduced

Treasurer Wayne Swan has delivered the federal budget for 2012 with the planned cut to the company tax rate being scrapped. Originally announced as a perk of the mining tax (which was going to fund it), the Federal Government was going to reduce the corporate tax rate from 30% to 29% for businesses with more than $2 million in revenue in 2013, with smaller businesses to get it this year in July.

The move saves the government a projected $4.8 billion over the next four years, and has freed it up to make a number of sweeping changes such as beefing up the cash handouts as part of the Family Tax Benefit. Under the new system, those qualifying for the benefit will receive a ‘Schoolkids Bonus’, where families will receive $410 for each child in primary school and $820 for each child in high school in a one off payment.

This year’s budget also saw $714 million allocated to a loss carry-back tax scheme, where businesses can claim any losses made, against tax, up to a total of $1 million. In order to take this offer up, a small business would have to incur a loss in the 2012-2013 tax year, and then claim against it after that.

Under the existing rules, tax losses can be carried forward into future years (offsetting future earnings). The new system will allow businesses to claim a loss against tax from the previous two financial years in their current tax return.

The government coughed up a further $27.5 million in funding for the Small Business Advisory service, which funds a number of Business Enterprise Centres and helps establish local support services.

Swan also earmarked $8.3 million over four years to establish an Australian Small Business Commissioner. The role has the lofty aim of representing and advocating small business interests to the government and is expected to work closely with the Small Business Ministry.

Andrew Conway, ceo of the Institute of Public Accountants, reacted to the news by claiming the government has failed to meet its own small business benchmarks.

“New reforms are being funded by previously announced reforms which are now being cancelled. On balance, many small businesses may not be better off.”

“The announcement that businesses will be able to carry back up to $1 million worth of losses and offset it against the previous profits was a welcome relief,” he said “However, this measure doesn’t go far enough – it doesn’t benefit profitable businesses or provide immediate relief. Unincorporated small businesses which make up over 66% will receive no relief.”

Roger Gillespie, president of the Australian Retailers Association (ARA), claimed that the scrapping of the company tax cut was penalising businesses to fund the budget surplus.

“Retailers will benefit from inclusions such as small business being able to immediately deduct asset costs under $6,500, and the extension of the Small Business Advisory Service, which will ensure more retailers receive timely assistance,” he said. “Retailers will also benefit from the relief provided to low to middle income households through Family Tax A and the Schoolkids bonus, but the ARA would also like to have seen these as tax cuts as well as provide a real difference in consumer confidence by putting more money put into the pockets of upper and middle income earners.

“The ARA is disappointed retailers will suffer from the abandonment of an important promised tax cut from 30% to 29% and shows small to medium businesses aren’t sharing in the benefits of the mining boom.”

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