Monday, May 07, 2012

Claw back tax you've already paid? Now that's a refund.

The words “tax refund” will have a more concrete meaning from mid-2013 when for the first time Australian companies will not only be able to claim back tax they have overpaid in any financial year but also tax they have actually paid in the previous two years.

The “loss carry-back” provision to be announced by Treasurer Swan on budget night will bring Australia into line with Canada, the United States and the United Kingdom, all of which allow the reclaiming of tax actually paid in at least the previous year.

Recommended by the Treasurer’s business tax working group after he asked it to fast track a report on the tax treatment of losses the measure will be capped at $300,000 per company, meaning at the 30 per cent tax rate they will be able to claim back tax paid in respect of $1 million of losses.

“It’ll mean businesses can use their tax losses now, when they need to, rather than in the future when their businesses are performing better,” said assistant treasurer David Bradbury. “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 measure is expected benefit 110,000 firms at a cost of $700 million over the next four financial years, none of which is in 2012-13... the year the budget is scheduled to return to surplus. Refunds in respect of losses claimed in 2012-13 will be paid in 2013-14.

The working group was unable to come to a decision about how to fund the reform, identifying but not endorsing a number of possibilities including statutory effective life caps in the oil and gas infrastructure as a means of winding back accelerated depreciation.

The Minerals Council yesterday released a paper disputing the view “that the Australian mining industry pays a disproportionately low amount of corporate tax”. It said Tax Office data showed mining companies paid tax at close to the statutory rate of 30 per cent.

It said the fuel tax credit scheme - reportedly under threat in the budget - was not a “subsidy”.

From July 2012 small businesses will also be able to immediately deduct the cost of any new business assets costing less than $6500, for as many assets as they purchase.

“We recognise that for many small businesses their biggest asset is their ute or van, Mr Bradbury said. “Small businesses will also be able to 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 after the budget.

In today's Sydney Morning Herald and Age

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