A damned big ‘small’ business

According to Mike Seccombe in the Saturday Paper of June 7-13, the Abbott government has a rather expansive view of what constitutes a “small” business.  As a result, they have announced their intention to revise section 25-90 of the tax act, the “thin capitalisation” rules.

The previous Labor government had announced steps to limit the process by which companies could structure their operations to load up a subsidiary with debt borrowed from a related company off-shore, and then claim the interest as a tax deduction.  Under this scenario,  once the debt to equity ratio passed 1.5 to 1, and total interest repayments exceeded $250,000, the tax man would start asking questions.

Not any more.  The Abbott government will increase the threshold for interest repayments eightfold, from $250,000 to $2 million, in order to “spare small business compliance costs”.   Somehow, a small business borrowing enough to incur interest repayment costs of $2 million each year, and then writing it off as a tax deduction, doesn’t quite sound like a small business to me…..

Just sayin’.

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2 responses to “A damned big ‘small’ business

  1. A small business is your local greengrocer, independent menswear store, your newsagent, your local garage. About twenty years ago I noticed the Liberal Party took a very wide view of what constitutes a small business and I think it is something like a business with less that two hundred employees. But helping small business still sounds good to the voters, as they imagine the Liberal government is looking after their local shopkeepers.
    Unrelated, it is outrageous that Abbott is attempting to remove the law that states that financial advisors must act in their client’s best interest.

    • residentjudge

      I agree wholeheartedly about the financial advisor regulations being rolled back. How farcical, too, that the CBA report landed at much the same time, providing a case study for why such reforms are needed. Interesting to see the way that the government is pressuring Commonwealth Bank to act ‘on their own initiative’ so that they can say that there’s no need for a wider enquiry.

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