Published on 09/02/2019 by Any Business.Com.Au

Federal Election: Will Labor or Liberal be best for Small Business?

With the Federal Budget due to be delivered a month early on 2nd April 2019, Australians will likely be headed to the polls in May and experts believe small business topics will be key to claiming last minute votes.

In fact, some experts have said that the SME (small to medium enterprise) space will be the hottest topic in the lead up to the election as all sides of politics attempt to gain voter support.

But which side has the most to give (or promise) the small business sector?

Liberal

Over the last 12 months, SMEs saw an acceleration of already legislated tax cuts for business under $50 million, as well as changes to the definition of a base rate entity.

The accelerated tax cut plan will see those companies facing a tax rate of 26 per cent by 2020–21 before finally dropping down to 25 per cent in 2021–22.

From the 2017-18 income year, a 'bright line' test will determine eligibility for the lower company tax rate. Under the bright line test, companies that receive more than 80 per cent of their income in passive forms will not be eligible for the lower company tax rate of 27.5 per cent.

Many businesses are enjoying the increase in the threshold for small business concessions to $10 million, up from the previous $2 million. As well as companies with a turnover of up to $25 million appreciating the lower 27.5 per cent tax rate, which will increase to $50 million in the 2019 year.

The little-noticed 20 per cent instant asset write-off for capital expenditure above $20,000 is one of the few economic policies that will directly help the big end of town. It contrasts with Opposition Leader Bill Shorten's class-war rhetoric, planned tax hikes on the wealthy and proposed bolstering of trade union power.

Overall 2018 was a quiet year for tax in the SME space. There was a lot of talk about it, but little in the way of change.

Labor

Business pressure is building on the Morrison government to beat Labor's proposed $10 billion in accelerated tax breaks for corporate capital expenditure that will reward investment-intensive manufacturers, energy generators, oil and gas producers, miners and other firms.

Labor's proposed Australian Investment Guarantee has been well-received by the business community because it caters for large capex outlays (as distinct from the current $20,000 threshold for the instant asset write-off for businesses turnover less than $10 million).

Under the Australian Investment Guarantee, all Australian businesses would be able to immediately deduct 20 per cent of investment in eligible depreciable assets over $20,000, with the balance depreciated in line with normal depreciation schedules from the first year.

Assets such as tangible machinery, plant and equipment (for example, trucks and utes, but not buildings) and intangible investments such as patents and copyrights would be eligible for the immediate deduction, according to Labor's policy document.

Experts say projects modelled on cash-flow economics would benefit most from Labor's faster asset write-off, particularly in energy, natural gas and possibly mining.

Businesses in industries with large-scale investments with long depreciation time frames over several decades would receive the largest cash flow boost. Many power, oil and gas and mining projects are depreciated for tax and accounting purposes for 20 to 30 years.

Labor is funding the business tax breaks from curtailing the generosity of negative gearing, the capital gains tax discount, cash refunds of franking credits and trusts typically used by wealthy families and private businesses.

Typical company investment such as stand-alone supermarkets, modelled on corporate economics, would benefit less, because the instant asset write off would merely change the timing of tax payments, not the overall tax paid.

Regardless of the election result, the challenge will be the make-up of the Senate cross bench and their views on business taxation as compared to the elected government. This will result in some uncertainty for small businesses as the government may need to negotiate with the crossbench to allow its legislative reforms to proceed.

AnyBusiness.com.au

Curtis is a leading expert in the business-for-sale industry, serving as a senior content creator at anybusiness.com.au.

With a career spanning over fifteen years, Curtis has accumulated extensive knowledge in the domain of business sales, acquisitions, and valuations. His deep understanding of market dynamics and his ability to translate complex industry jargon into accessible insights make him a trusted resource for entrepreneurs and business owners looking to buy or sell businesses.

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