New Australian Investment Guarantee / Instant Asset Write-Off
The Labor Party is proposing a New Australian Investment Guarantee (AIG) comprising a 20% capital allowance write-off in the year of purchase of an asset from 1 July 2021. Under the Labor Party’s proposed AIG, taxpayers in business will be able to immediately expense 20% of its investment in eligible depreciable property in the first year. The remaining 80% would then be depreciated over the effective life of the asset. This will only apply for investments in excess of $20,000. For example, a manufacturing company that purchases an item of plant for its business for $10 million will be able to immediately expense 20% ($2 million) and the remaining 80% ($8 million) would then be depreciated over the effective life of the asset from the first year.
While the immediate deduction will improve the business case for new asset acquisitions for companies in a tax payable position, it will have no impact on companies in start-up losses. Additionally, the measure only brings forward, but does not increase, the amount deductible over the life of the asset.
Company Tax Rate
Labor has previously announced that it would not repeal the enacted tax cuts for SME companies with less than $50 million aggregate annual turnover (base rate entities) that are already legislated to come into effect. The Labor Party supported without delay an amending bill in October 2018 which fast-tracked the previously legislated reduction of the tax rate for companies that are base rate entities.
Base rate entities with an aggregated turnover less than $50 million are currently set to have their tax rate reduced to 25% by 2021-22. According to the Labor Party this measure provides certainty to small business ahead of the next Federal Election. No further cuts are proposed by Labor for larger entities – leaving the Australian corporate tax rate very high by international standards. Labor will need to monitor whether this rate becomes a barrier to international investment in this country.
Another ATO Second Commissioner
The opposition has proposed appointing another ATO Second Commissioner to specifically review SME tax disputes. Currently there is the Commissioner of Taxation and three Second Commissioners but there is no separation within the ATO of officials who make tax assessments from those who handle disputes and appeals.
This measure is intended to address concerns raised about engagement with small businesses undertaking tax disputes, including the lack of a perceived and real structural separation within the ATO of officials who make tax assessments from those who handle disputes and appeals. Such an independent review function would be welcomed, although it still may not totally repair relations with the ATO. Additionally, capping deductions for advice on such disputes, as the Labor Party has proposed, appears to negate the intention of this measure.
Ten free tax clinics
The Labor Party has proposed to fund ten free tax clinics to provide assistance with administrative tax matters to low income taxpayers and microbusinesses. There are currently no ‘tax clinics’ offering free tax advice in Australia.
This policy will have a minor benefit for those unable to be represented in their dealings with the ATO.
The Labor Party supports rewarding whistle-blowers where the whistle-blower’s information results in more tax being paid, to allow them to collect a share of the tax penalty (capped at $250,000 or 1% of the penalty figure – whichever is higher). This would be taxable as ordinary income.
There is no doubt that whistle-blowers need to be protected. However, the history of paying bounties to informers does provide troubling precedents of abuse of the system. It is to be hoped that the legislation relating to any such policy protects taxpayers against malicious laying of incorrect information.