6 May 2012

Tax relief for businesses in our patchwork economy

Note

Joint media release with
The Hon Wayne Swan MP
Deputy Prime Minister and Treasurer

The Hon Brendan O'Connor MP
Minister for Small Business

The Gillard Government will provide new business tax relief with a loss carry-back initiative to help businesses facing pressures in our patchwork economy and encourage them to invest and grow.

While our economic fundamentals are strong, Australia's economy is in transition, creating major challenges for many businesses that aren't in the fast lane of the mining boom, such as the high Australian dollar and the cautious consumer.

In its first 4 years, this major tax reform is estimated to provide much-needed assistance to nearly 110,000 companies struggling with these challenges of an economy in transition, helping them ride out difficult times and invest for the future.

This new initiative is part of the Government's reforms designed to boost productivity by helping businesses invest and innovate.

Currently, businesses are able to carry forward their tax losses to offset future profits and reduce future tax liabilities.

This new initiative will allow businesses to also 'carry back' their losses, to offset past profits and get a refund of tax previously paid on that profit.

In doing so, this reform will mean businesses can use their tax losses now - when they need to - rather than in the future when their businesses are performing better.

As part of the loss carry-back, from 1 July 2012, companies will be able to carry back up to $1 million worth of losses to get a refund of tax paid in the previous year.

From 1 July 2013, companies will be able to carry back up to $1 million worth of losses against tax paid up to two years earlier.

It will give businesses greater access to their legitimate tax deductions when they are making losses.

The introduction of the Loss Carry-back will encourage companies to adapt to changing economic conditions and take advantage of new opportunities through investment.

It will help struggling companies adjust to the challenges and opportunities of the patchwork economy by improving cash flows and reduce disincentives for businesses to take sensible risks.

The introduction of the Loss Carry-back tax reform implements another recommendation of Australia's Future Tax System review.

It received strong and widespread support at the Government's successful Tax Forum last year and was developed further in close consultation with business representatives and tax experts through the Business Tax Working Group, which recommended the measure in its Final Report on the Tax Treatment of Losses.

This important tax reform is in addition to other major tax relief measures for small businesses that start in the 2012-13 income year, including the $6,500 instant asset write off - worth around $1 billion in its first year.

From 1 July 2012, small businesses will be able to immediately deduct the cost of any new business assets costing less than $6,500, for as many assets as they purchase.

In addition, businesses will be able to write off assets costing more than $6,500 in a single pool (15 per cent in the first year, 30 per cent in each subsequent year).

We also recognise that for many small businesses their biggest asset is their ute or van.

Small businesses will be able to also immediately deduct the first $5,000 of a new or used motor vehicle, purchased from 1 July this year.

These reforms will make the tax system simpler for small businesses, whether they are run by sole traders, partnerships, trusts or through a company.

The Government will release a Discussion Paper about the introduction of the Loss Carry-back shortly.