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The government’s plan to accelerate small business company tax cuts could bring about a raft of short-term problems and uncertainty for clients, according to some tax experts.
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Tax experts contemplate small business tax cut plans
10 September 2018
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Following the failure to secure passage of the remainder of the corporate tax cuts for businesses over $50 million last month, ex-prime minister Malcolm Turnbull said the government would instead focus on enhancing its tax plans for small- to medium-sized businesses.
Prime Minister Scott Morrison is expected to reveal plans to speed up the already legislated company tax cuts for business under $50 million, which at this stage will see the rate drop by 2.5 per cent to 25 per cent by 2026-27.
Speaking to Accountants Daily, The Tax Institute’s senior tax counsel, Professor Robert Deutsch, said that while any move to speed up tax cuts were welcome, it would be unwise to stagger the rate drop more than twice over a number of years.
“I just don’t think it’s a sensible policy approach to what is a very simple issue, which is the reduction in corporate tax rate. If you want to reduce the rate by 2.5 per cent, say we’re going to do it by 0.5 [of a percentage point] for five years, to my way of thinking, it is just silly,” said Professor Deutsch.
“I can see that they want to progressively introduce it, but do we really need to break it down to that level where we just constantly have people living in a changing environment, and what is the benefit of that?
“My preference would be to just have a straight 2.5 per cent reduction starting, say, 1 July 2019, and that would be the best solution, but if you had to break it into bits, I think two bits is more than enough.”
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Further, Professor Deutsch believes tinkering with the rate will also spell uncertainty for accountants and their clients in the short term.
“The uncertainty comes with trying to bring it through the Senate and we don’t know if they will be accommodative or as difficult as it was with the general corporate tax cut issue before, and if it is, then it will create a very unsatisfactory tax environment between now and the next federal election,” said Professor Deutsch.
“It will also have an impact on franking credits because every time you change the date or the rate, it does have an effect on the company’s franking credits and that’s an ongoing issue that remains unresolved that every time you tinker with it, it adds a layer of complexity.”
Likewise, Chartered Accountants Australia and New Zealand (CA ANZ) tax leader Michael Croker said accountants and their clients would have to deal with the reality of juggling three separate company tax rates including the large company rate, the small company rate, and the small passive income company rate.
“We do not support the long-term continuation of a multiple tax rate corporate tax system over a substantial period of time for a number of reasons, including complexity about which companies are eligible; the difficulty in defining and administering the carve-out for passive investment companies; the tax arbitrage effects of the lower company tax rate; taxpayer behavioural changes; and confusion around the interplay between the small company tax rate and the franking of dividends under the imputation system,” Mr Croker told Accountants Daily.
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