BUDGET 09-10: SMEs to benefit from tax reforms, says BDO

By: Graham Gardiner

Tax reforms unveiled in this week’s Budget are set to have both negative and positive impacts on Queensland businesses, according

Tax reforms unveiled in this week’s Budget are set to have both negative and positive impacts on Queensland businesses, according to BDO Kendalls.

As the Budget backlash comes thick and fast, questions turned towards SMEs at the firm’s Budget briefing in Brisbane this morning.

Tax partner Brian Richards gave industry representatives a run-down on changes to tax breaks, loan rules, R&D incentives, PAYG and CGT.

The small business and general business tax break (investment allowance) will be increased from 30 percent to 50 percent for small businesses that acquire eligible assets between December 13, 2008 and December 31, 2009.

Bonus deductions are reduced to 10 percent where the small business acquires the eligible asset between July 1, 2009 and December 31, 2009.

The previously announced 30 percent and 10 percent bonuses will continue for all other business.

Richards says this was "a little bit unexpected" but is great news for businesses.

"It has also been extended to December 31, which gives businesses a wonderful opportunity to invest," he says.

The Government is also extending the operation of non-commercial loan rules in Division 7A of the Income Tax Assessment Act to cover circumstances where a shareholder is permitted to use a company asset (ie boat, car, real estate) for free or at a discounted rate.

BDO Kendalls says this measure will remove inconsistent treatment by deeming a ‘payment’ made to a shareholder through the free use of a company asset to be dividend and taxable accordingly.

Non-commercial loan rules will also be further strengthened to ensure that corporate limited partnerships cannot be used as a loop-hole to Division 7A.

The Government is yet to consult on the form of the planned changes, which will come into effect from July 1, Richards says.

New R&D tax concessions are set to come into effect from July 1, 2010.

"This is really, really positive news for businesses, because we need innovation," he says.

The new regime includes a 45 percent refundable tax credit for Australian-owned businesses with a turnover of less than $20 million.
For those over the $20 million threshold, a 40 percent non-refundable tax credit will be available.

In addition, there will be a new more restrictive definition of R&D, an interim tax offset threshold increase from $1 million to $2 million and abolishment of the175 percent tax premium.

BDO Kendalls says the proposed credit system will be more advantageous to those SMEs conducting R&D activities.

"The restriction of what eligible R&D will be a matter for later consultation by the government. Larger claimants may be disadvantaged by the removal of the premium tax concession," Richards says.

PAYG and CGT relief is also planned for small business.

The Government will reduce the GDP-adjustment factor for calculating quarterly instalments under the GDP-adjustment method from around 9 percent to 2 percent.

This measure is expected to provide cash-flow benefits to approximately 1.5 million eligible small businesses.

While the PAYG amendments will provide welcome relief for certain small business, BDO Kendalls query why the Government did not extend similar relief to all other taxpayers.

Similar to other industry reactions to the Budget, the firm is concerned that no economic support is being given to state governments to allow payroll tax to be reduced or abolished.

"I would have thought the Government would have got rid of payroll tax to generate jobs," Richards says.

The Government holds the view that a resilient economy means things will return to positive conditions in the near future, according to Richards.

However, he remains adamant that growth by large will be a global journey.

The take-home message from the Budget briefing was that the foundations of nation building are out there, and businesses will see stimulation in parts of the economy.

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