Tony Fittler, managing partner of accountants and advisers HLB Mann Judd Sydney, has warned small business owners of the unfair impact that the proposed cut to small business company tax will have on franking credits already accumulated.
“While the tax cut for small business is to be welcomed, the related change to the franking account rules mean all dividends paid from 1 July 2012 can only be franked to 29 per cent – the same as their company tax rate.
“It is unfair that small businesses will lose the tax credit for taxes they have paid in prior years, at the old 30 per cent rate.
“This is a negative side-effect for small businesses that could cost them money and investment opportunities.
“As an example, if small business pays a franked dividend out of its 2012 profits after 1 July 2012, of $10,000, it will only be able to frank the dividend at $4,084 (i.e. 29 per cent) even though it will have paid company tax of $4,285 (at 30 per cent) on the amount, effectively losing a $201 tax credit.”
Mr Fittler said that small businesses often need to retain profits to invest back in the business and suggested it was likely that the new rules will mean a loss of several thousand dollars for a typical small business.
“Effectively, small businesses lose approximately 4.7 per cent of taxing credits that they have accumulated in previous years, unless some kind of grand-fathering clause is introduced in the legislation to preserve franking credits at the rate at which company tax was paid,” Mr Fittler said.
HLB Mann Judd Sydney is a firm of accountants and business and financial advisers, and a member of the HLB Mann Judd Australasian Association.
For more information please contact:
Tony Fittler – Phone: 02 9020 4094
20 March 2012