Case Studies
Issue No. 49 - October/November 2009
How to avoid tax break cash trap
The Government’s dangling of a fat tax carrot to business owners with the aim of stimulating the economy may actually be having a negative impact on small business, warns 10X East Adelaide director, Christopher East.
The Small Business Tax Break, which encourages small business owners to invest in eligible assets through a 50% tax deduction, has driven what xxx-based accountant and business development expert, Christopher East, calls “inefficient spending” by business owners.
“What seemed like a lucrative incentive for SME owners could actually be a misleading lure that encouraged some to buy assets they couldn’t afford or that would be much more wisely spent on marketing activities to generate customers,” Christopher says.
“The tax break applied only to tangible, depreciable assets like cars, computers and hardware, laptops, smartphones, and furniture – in other words, expensive items that businesses don’t necessarily need for growth.
“Unfortunately, many businesses jumped at the opportunity, as evident in the sudden resurgence of the previously-failing car industry, which experienced an 11.3% growth in commercial vehicle sales after the introduction of the 50 percent allowance.”
Christopher says the thousands of dollars some business owners have spent on cars and computers with the allowance would have been more effectively spent on production and marketing-related activities, which help attract customers and contribute to business growth.
Christopher East says the many businesses which have spent to obtain the allowance could be harmed in the following ways:
Decreased profits threatening business futures: “In focusing on reducing tax, many businesses have actually tried to reduce their profit as well, truly losing sight of the bigger picture,” he says. “Lower profits lower the value of your business, which for baby boomers can seriously affect their retirement plans when the time comes...
