CARBON TAX: Experts welcome instant asset tax write-off for small business

Accountants have welcomed the Government’s decision to increase the instant asset tax write-off to $6500 from $5000 but questions remain about how SMEs will cope with increased costs.

Gavan Ord, business policy adviser for CPA Australia, sees the increased write-off as a step in the right direction.

“It’s moving towards the Henry recommendation of $10,000,” Ord says.

The increase, designed to encourage investment in energy efficiency, is part of government plans to make Australia’s 500 top-polluting companies pay a carbon price of $23 per tonne from July next year. The carbon price will rise 2.5% a year for three years before an emissions trading scheme is introduced.

Under plans released yesterday businesses with turnover less than $2 million a year will be able to access a $6500 instant tax write-off for assets purchased after July 1, 2012.

The announcement follows the controversial decision to replace the Entrepreneurs Tax Offset with a $5000 instant tax write-off in the May Federal Budget.

The Government yesterday provided an example of how the tax write-off would work, saying under the new rules a café owner who purchases a freezer for $6000 could claim the entire $6000 due to the increase in the asset write-off limit.

“This could provide a tax benefit of $1800 (assuming a marginal tax rate of 30 per cent) in the income year the cafe owner first uses the freezer or has it installed,” the Government said.

But shadow small business minister Bruce Billson cast doubts on the merits of the plan, saying the benefit does not balance increased cost.
 
“Even under the Government’s own example a cash-strapped café owner would need to find $6000 for some new equipment to receive a one-off earlier tax benefit of $1800,” Billson says.

“The café owner will still need to fund ongoing higher energy costs and more expensive stock and ingredients.”

Robert Jeremenko, senior tax counsel at the Tax Institute, welcomed the increased write-off, but says the big question for SMEs is how they will cope with increased costs.

“Big businesses will have relatively better bargaining power,” he says.

Jeremenko says while the Government wants the increased costs to be passed on to consumers, some of whom are being compensated, some SMEs might not feel they are able to lift costs.

“If costs are trapped within small business I imagine we’ll start to hear about whether this is what the Government has intended,” Jeremenko says.

“But the write-off increase is good news – it’s better to be increasing it than decreasing.”

CPA Australia business and investment policy head Paul Drum says the increase is good news given “you don’t get much for $5000 these days”.

“It’s not profound or a show-shopper and it’s not a rebate either,” he says. “But we don’t want to denounce it because it’s appropriate policy.”