6 October 2020

News that the Government is set to bring back the loss carry back initiative is welcomed but it will not help the majority of small businesses, according to the Institute of Public Accountants (IPA). The offset rate increases are welcomed but the cap of $1,000 is inadequate.

“Whilst we fully support the loss carry back scheme and continue to advocate for it to be a permanent fixture of our tax system, it does not help unincorporated small businesses” said IPA chief executive officer, Andrew Conway.

“The majority of small businesses are unincorporated entities, and therefore this policy will not directly benefit the army of entrepreneurs struggling to survive in a post COVID world.

“Increasing the unincorporated tax discount would be a better option to incentivise most of the unincorporated small businesses around the country to take a risk, grow their business and employ workers. Whilst this group will enjoy any brought forward stage 2 or stage 3 tax cuts, this initiative directly rewards individuals who take on the arduous challenge to run a small business.

“The small business income tax offset (also known as the unincorporated small business tax discount) can reduce the tax a business pays by up to $1,000 each year.

“Only taxpayers carrying on a small business as a sole trader or have a share of net small business income from a partnership or trust are eligible.

“The rate of the offset was 8 per cent up to the end of the 2019-20 income year but will increase to 13 per cent for 2020-21 and again increase to 16 per cent for 2021-22 and then remain at that level.

“Whilst we are pleased that the small business tax offset rate is increasing, it is still capped at $1,000 which means that most small businesses will achieve their offset faster, rather than enjoy any more benefit as the rate increases.

“To incentivise small business to employ people, we are calling for the rate and threshold increases to be tied to small businesses which employ people. Over 60 per cent of small businesses are non-employing and in the current environment Government needs to encourage all businesses, both small and big, to do their bit to soak up the pool of unemployed,” said Mr Conway.