Today we announce that the Rudd Government will provide a further $720 million of cash-flow relief for small businesses, self-funded retirees and small superannuation funds doing it tough in the face of the global recession.
Today's announcement will mean pay-as-you go (PAYG) instalments will be cut for around 1.5 million taxpayers for 2009-10, providing further cash-flow relief for small businesses at a difficult time.
Small businesses across the country are the backbone of our economy, providing jobs for millions of Australian families.
That's why the Rudd Government is determined to do everything we can to help small businesses in the face of the global recession which is hitting the Australian economy.
This announcement will also provide a further economic stimulus to support Australian jobs, because taxpayers will have the use of what would otherwise be overpaid tax collections of around $720 million in 2009‑10.
The Rudd Government will cut the quarterly PAYG instalments for the 2009‑10 income year for taxpayers whose quarterly tax instalments are adjusted for previous years' Gross Domestic Product (GDP) growth.
The Government will use the expected increase in the Consumer Price Index for 2009-10 – rather than previous years' GDP growth - to calculate tax instalments.
This will better align the tax treatment of small businesses, self-funded retirees and small superannuation funds with changing economic conditions and help prevent businesses paying too much tax.
For the 2009‑10 income year, the Government has reduced the GDP adjustment from 9 per cent to 2 per cent, aligning it with the expected Consumer Price Index (CPI) growth of 2 per cent for 2009‑10, as forecast in the Updated Economic and Fiscal Outlook.
The reduction will provide cash flow benefits to around 1.5 million taxpayers, cutting their PAYG instalments by around 6 per cent. This will ensure that their PAYG instalments more closely approximate their actual income tax liability for the year.
Most small businesses, individuals and small superannuation funds are eligible to pay quarterly instalments calculated by the Australian Taxation Office on the basis of the GDP‑adjustment method. Further details of the PAYG instalment reduction are attached.
While taxpayers can vary instalments down of their own accord, many taxpayers are reluctant to do so, especially those with unpredictable income streams. This action by the Government will reduce uncertainty for taxpayers and relieve them of the burden of doing their own calculations.
There will be no net cost to the Commonwealth over the full forward estimates period.
Those business owners who pay their GST quarterly will also benefit. The Commissioner of Taxation has advised that he will use the 2 per cent adjustment factor when he calculates GST instalments.
Today's announcement ‑ along with the 20 per cent reduction in the PAYG instalment for the December 2008 quarter and the Small Business and General Business Tax Break – shows the Government's commitment to support small business and bolster confidence in the face of the global recession.
Attachment A
Who will receive the reduction
The PAYG instalment reduction applies to taxpayers whose PAYG instalments are adjusted for growth in GDP (GDP‑adjustment method).
This method bases instalment amounts on the previous year's taxable income, uplifted by a GDP adjustment factor. This adjustment factor reflects nominal GDP growth over the previous two calendar years and is intended to calculate tax instalments payable based on expected profit growth. However, as the adjustment factor is calculated on previous growth rates it will overstate expected profit growth where economic and business conditions have declined quickly.
Taxpayers using this method include those carrying on a business and those with investment income, for example self-funded retirees, and wage and salary earners with investment income subject to the PAYG instalment system.
In the main, small businesses, individuals and small superannuation funds are eligible to pay their instalments quarterly using the GDP‑adjustment method.
How will it apply?
For the 2009‑10 income year, the adjustment factor calculated under the tax law will be set at 2 per cent.
In accordance with the existing law, taxpayers may still vary their quarterly tax instalments, if they consider their income is expected to be lower or higher than the amount determined by the Commissioner of Taxation using the 2 per cent adjustment factor.
This reduction does not apply to taxpayers who calculate their instalments based on the instalment rate notified by the Australian Taxation Office. Their payments will automatically adjust when they apply the given rate to their actual income for the quarter.