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Confusion continues over instant asset-write off

Clive Palmer has caused a headache for the government on carbon, but his positioning on the mining tax repeal has heightened uncertainty over a key small business tax break.

Mr Palmer was elected on a platform to scrap the Minerals Resource Rent Tax introduced by the former Labor government. But the political maverick now wants to terminate the tax while keeping many of the measures it was intended to fund.

Mr Palmer has confirmed his team will not support the abolition of the school-kids bonus or the scrapping of the low income superannuation guarantee. All in all, the move threatens to blow about a $9bn hole in the budget.

However, there is still confusion over a number of key initiatives designed to help small business. These include the instant asset write-off and the company loss carry back scheme.

The instant asset-write off allowed small businesses to claim an immediate deduction on business assets valued up to $6,500. As part of its plan to scrap the MRRT, the Abbott government has pledged to reduce the $6,500 deduction to $1000. However, the start-date is to take effect retrospectively from January 1 2014.

The retrospective start-date has left many small business operators in limbo. While small businesses are technically able to claim the $6,500 deduction, many would have opted to only claim up to $1,000 to avoid having to amend their returns once the changes pass the Senate. Many also would have decided not to purchase equipment this year because of the change.

Senior tax specialists have told Dynamic Business there is now general confusion over the status of the tax break and called for clarity from the Palmer United Party.

Senior Tax Adviser at the Institute of Public Accountants, Tony Greco, told Dynamic Business that Clive Palmer’s new position on the mining tax potentially meant it was possible the higher threshold could stay in place after all. If Palmer keeps the threshold at $6,500 it means small business owners who opted not to buy assets or claimed the lower deduction may end up being comparatively worse off.

“A lot of people didn’t go out and buy things in the second half of the year because that legislation was retrospective to the first of January,” he said.

Senior Tax Counsel at The Tax Institute Robert Jeremenko also said certainty needed to be restored for business owners.

“It’s a complete mess and it’s another real life example of uncertainty up at parliament house resulting in business decisions being hamstrung,” he said. “To restore certainty the balance of power Senators including Clive Palmer’s party need to make their position clear on the instant asset write-off.”

Mr Greco said the loss carry-back provisions were very useful to businesses, but understood the government’s need to get the budget back on track.

“It should be a feature of our tax system. We are asking for that to be re-introduced. It puts equity back into the system. You are effectively going to help a viable business to survive… It could help a viable business survive a downturn or structural change.”