Thousands of SMEs to miss out on tax relief as Greens prepare to block company tax cut

Tens of thousands of SmartCompany readers are set to miss out on the Government’s promised broad cuts to the corporate tax rate after the Greens said yesterday they would block the measure in the Senate.

Although the cut for small businesses will still go ahead, which reduces the corporate tax rate for SMEs with revenue under $2 million from 30% to 29%, the Greens say they will not grant any tax breaks for companies that exceed that amount.

However, the Greens still support raising the threshold for SMEs from $2 million to $5 million – and so do tax experts.

“I think it’s a good idea,” CPA Australia head of strategy Paul Drum told SmartCompany this morning. “Based on turnover, $5 million is not a lot these days.”

“It’s something that should be considered at least.”

Using a sample of 50 companies taken from the 2011 Smart50 awards, only six companies will be eligible for the tax break based on revenue in the 2010-11 year.

However, given the substantial growth rates reported by each of these companies it’s reasonable to assume most have passed the $2 million threshold.

Drum says while $5 million sounds impressive, it’s not a huge amount of turnover. The small business threshold was increased in 2007, but some say it’s still too restrictive.

The Henry Review recommended increasing the threshold to $5 million, while it also said the corporate tax rate should be cut to 25%.

“As an amount of turnover, pure turnover not profit or cash on hand, it’s not an enormous amount for any business,” Drum says.

The issue in Canberra is that Greens leader Bob Brown has now said he won’t support the Government’s corporate tax cut for big businesses.

“Giving a tax cut to small business is a pretty good tonic for this economy that we’re in,” Greens MP Adam Bandt told ABC Radio yesterday.

“[But] there’s no case economically or on fairness for giving a tax cut to big business in the order of $2.4 billion.”

These cuts to corporate tax rates were first announced as part of the Henry Tax Review in 2010. They were to happen in two waves, with small businesses getting the first cut on July 1 2012, and then larger businesses getting the same a year later.

The idea was that the current rate of 30% would drop to 28% over a number of years.

But now, Brown says the $2.4 billion saved by not going ahead with the cuts for big business could be used for a national dental scheme or other reforms.

The Greens’ support is essential to passing the tax cuts, with the Coalition blocking any move that’s funded by the resources tax.

“We oppose the mining tax package. Therefore we will be opposing the mining tax in the Senate as we did in the House of Representatives, and any spending associated with the mining tax we will oppose,” Hockey told the Australian Financial Review.

That legislation, and the tax cut legislation, is under pressure to be passed quickly with only three sitting weeks left between now and July 1, when the small business tax cut, and the resources tax, is set to begin.

However, Parliament has indicated its sitting hours will increase over the next two weeks.