Small businesses use tax cut for new tools, profits and wages

Small and medium-sized businesses are using the federal government’s company tax cut to boost profits, increase spending on capital goods and lift wages but pressure is growing for the Coalition and Labor to maintain tax incentives to boost productivity.

Exclusive survey work by MYOB found more than a third of small and medium-sized businesses had used this year’s reduction in company tax to 25 per cent for firms with a turnover of less than $50 million to lift capital investment.

Small and medium-sized businesses are using the federal government’s company tax cut to lift spending, boost profits and pay staff more.Credit:Dominic Lorrimer

Treasurer Josh Frydenberg is expected to use Tuesday’s federal budget to provide further assistance to the business sector as it recovers from the COVID-19 recession.

Ahead of COVID-19, it had put in place a lower company tax rate for small businesses. But the Coalition abandoned plans to extend the 25 per cent corporate rate to all businesses, failing to win the support of the Senate crossbench.

Through the pandemic, it extended the instant asset write-off program and enabled businesses with turnover of less than $5 billion to immediately deduct the value of newly acquired assets. Both are due to end in the middle of next year.

While the two programs reduce upfront costs for businesses, the reduction in the corporate tax rate delivers an ongoing financial boost.

The MYOB survey found 29 per cent of businesses reported an increase in their profits attributable to the cut in the tax rate.

A quarter said their staff received a larger increase in their pay than they would have got because of the tax cut while 22 per cent of businesses said they were able to carry out staff training.

MYOB chief employee experience officer Helen Lea said the survey results showing a surge in capital investment from small and medium-sized businesses was significant as it showed them “tooling up” for the future.

Helen Lea, chief employee experience officer at MYOB, says small businesses are preparing for the post-Covid economy.

She said the increase in profits, on top of the cash many businesses had saved through the recession, had put them in a strong position.

“That’s going to give them resilience coming out of the recession and into the uncertainty that they are facing at the moment,” she said. “The increase in wages and staff training is a sign of the times that SMEs are facing. There’s the challenge of the tight labour market, holding on to staff and training those that they have.”

Ahead of Tuesday’s budget, Mr Frydenberg has come under pressure from the business sector to continue programs to help firms through the post-COVID period.

The Institute of Public Accountants on Friday became the latest organisation to press for the continuation of the instant asset write-off.

Chief executive Andrew Conway said small and medium businesses needed ongoing support in the face of COVID-related issues.

“SMEs have shown incredible resilience and agility. While government support has provided welcome relief and economic stability, the disruption of COVID-19 has taken its toll. Supply chain disruptions, staff shortages and inflation are biting,” he said.

Chartered Accountants Australia and New Zealand has also pushed for both the asset write-off and the full expensing measures to continue, saying supply chain disruptions were preventing many businesses from importing capital goods.

“Constant tinkering with the capital allowances regime has also added substantial complexity to the
income tax law and confused many business operators. Small businesses need long-lasting, clear
and easy to follow capital allowance incentives,” it said.

Full expensing, however, would put a large hole in the budget. Extending it for a single year cost the budget almost $11 billion.

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