Business experts unsure about plans to scrap Australia’s Entrepreneurs Tax

by Ray Clancy on May 9, 2011

in Money, Business and Finance

Australia’s Entrepreneurs Tax measure at crossroads

There is rising criticism in Australia among business experts over a plan by the Government to scrap the Entrepreneurs’ Tax Offset which they believe will hit start up businesses.

Those who support the move though say that the tax was a disincentive for growth and poorly targeted and will save the Government $365 million over four years which could be used for others things.

The money saved though will not necessarily go into business creation. The government has signalled that it would use the savings to introduce an across the board deduction of $5,000 for purchasing new cars.

Treasurer Wayne Swan said that the ETO would be scrapped after the Future Tax System Review recommended the change due to high compliance costs and poor targeting.

‘AFTS concluded that ETO provided a disincentive for businesses to grow because the benefit available started to decline at $50,000 of annual turnover and cut out completely at $75,000,’ Swan said.

‘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,’ he added.

The ETO provided small businesses with turnover under $50,000 a tax offset equal to 25% of the income tax payable on business income. The benefit was phased out and stops once the business income hits $70,000.

The latest statistics from the Australian Taxation Office shows that 397,787 businesses claimed the deduction in 2007/08, and 402,485 in 2008/09, accounting for $177 million in deductions.

Sue Prestney, principal of accounting firm MGI Melbourne, said that although the ETO was not necessarily targeted well, the Government should still think twice about taking away early stage assistance.

‘Any assistance you get when you’re starting up is worthwhile, and you would not like to lose this and not get compensated somehow. I’m not sure that giving $5,000 deductions to buy a car is actually the sort of assistance that’s going to get SMEs up and running,’ she explained.

According to Paul Drum, CPA Australian spokesman, while the majority of small businesses wouldn’t qualify for the benefit, those businesses which were eligible found the scheme to be quite supportive.

And tax expert Greg Hayes says while the entrepreneurs’ tax offset did only service a small portion of the business community, the deduction for vehicle purchases will similarly only provide benefits for SMEs in the position to buy a car and be a blow to those who have already replaced a vehicle.

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