Thousands of small businesses who operate as sole traders or partnerships in residential construction and other industries throughout Australia could lose important tax breaks under new proposals in order to pay for a corporate tax cut worth millions of dollars to large companies, a housing industry lobby group says.
In its submission to a discussion paper released last month by the government’s Business Tax Working Group (BTWG), the Housing Industry Association (HIA) says the BTWG has missed the mark, and that its proposals would do little to stimulate the economy or generate jobs.
The BTWG was set up by the government last year to consider the economic benefits of a cut to the corporate tax rate as well as possible measures to offset the cost of any cut by broadening the tax base.
HIA chief executive of industry policy and media Graham Wolfe says the housing group is particularly concerned about recommendations that propose limiting interest rate deductibility for business, which he says would affect a large number of small businesses in building and construction.
At the same time, many of these businesses are not incorporated and would thus miss out on the proposed reduction in company tax.
“This means that all the mum and dad partnerships or sole traders may well pay for some of the ‘savings’ being proposed, yet will get none of the benefit from any reduction in the company tax rate,” Wolfe says. “Placing a threshold on business interest deductibility suggests that there is a level of gearing that government considers appropriate, which effectively amounts to a government telling entrepreneurs that it knows how to run a business better than they do. The economy is currently not booming for many sectors, but businesses still have to make repayments to the bank regardless. Limiting the interest they can claim as a deduction would be an extra blow just when they didn’t need it.”
The HIA also has concerns regarding proposals to reduce depreciation options for capital expenditure. The housing group rejects an assertion in the discussion paper saying the effect of these changes on home builders would be marginal.
Submissions to the discussion paper closed on September 21. The Working Group is expected to release a draft of its final report to the Treasurer next month.