The Government has provided temporary tax relief for small businesses with the aim of freeing up cash flow for these entities and improving business confidence.
The Government will cut the quarterly pay-as-you-go (PAYG) instalment payable early next year by 20 per cent.
The National Institute of Accountants (NIA) believes the move could help to fend off a recession.
“This change to the tax formula could have a ripple effect through the economy as it assists small businesses to pay suppliers faster or even expand their businesses, which we would encourage to help fend off a recession,” NIA president Greg Dennis said.
Dennis said the cash flow pressure felt by small businesses was drawn into sharper focus in uncertain economic times. Dennis said the change will free up cash flow to help small businesses meet short-term payment obligations and help keep the business solvent.
The 20 per cent reduction will be available to small business entities; generally those with aggregated turnover of $2 million per annum or less.
Treasurer Wayne Swan said many of the 1.3 million small businesses in operation are doing it tough in the current crisis.
“This 20 per cent cut in the February instalment will more accurately reflect small businesses’ average actual profit growth in the current economic environment,” Swan said.
Under the existing provisions, small businesses can already change the level of instalments at their own discretion, but many are reluctant to do so. Swan said this move will relieve small businesses of the cost of doing their own calculations.
The 20 per cent reduction applies to the instalment amount shown on the Business Activity Statement (BAS) dispatched by the Australian Taxation Office (ATO) in December 2008 for the quarter ending on December 31, 2008.
Small businesses can further vary their instalments based on the reduced amount in accordance with the existing law. The reduction doesn’t apply to taxpayers who calculate their instalments based on the instalment rate notified by the ATO. Their payments will automatically adjust when they apply the given rate to their actual income for the quarter.
While applauding the Government’s initiative, the NIA is also calling on the Government to lower the ongoing rate of tax for small business. In its recent submission to the Henry Review the NIA proposed the Government consider a lower tax rate of around 20 per cent for small business.
