The federal government has recently released the Board of Taxation‘s report on taxation impediments to the success and growth of small businesses, ahead of the government’s white paper tax reform in 2016.
The reform is focused on driving the success and growth of small business in Australia, by simplifying the tax system and cutting excessive red tape.
The key recommendations included:
Tax Recommendations
- That the ATO review its employee/contractor tool. This employee/contractor issue regularly confuses SMEs.
- The alignment of the 21 July Taxable Payments Reporting System reporting date with the 28 August BAS lodgement date to the latter date.
- That the small business entity turnover threshold be increased to at least $3 million and investigate the feasibility of an increase to $5 million. In its response, the government said it supports reducing the regulatory burden on small business and will consider small business taxation in the context of the tax white paper.
- An increase to the “minor and infrequent” FBT (fringe benefits tax) threshold from $300 to, at least, $500. In its response, the government said it will consider FBT in the context of the tax white paper.
- That there be an investigation of the possibility of aligning the FBT year to the income tax year. The tax white paper may look at this.
- That the ATO should continue to develop a prototype online decision tool for the Personal Services Income (PSI) rules. The board also recommended that:
- The tool should go further than just working through the PSI tests; it should where possible incorporate material that clarifies what the result means for the taxpayer.
- Furthermore, where the PSI tool is used in good faith, the tool should provide a decision that will provide protection from the imposition of penalties where the user relies on the outcome.
- In its response, the government said the recommendation is in the process of being implemented by the ATO with consultation on a prototype having commenced in August 2014.
- That the Australian Tax office revise Miscellaneous Taxation Ruling MT 2006/1 (about carrying on an enterprise) and other guidance material to include activities which will evidence that an applicant is intending to carry on an enterprise and is therefore eligible for an ABN.
- The report said the additional activities should be typical of the kinds of things, from a practical perspective, a person may do prior to actually carrying on an enterprise but are not currently within the guidance material.
- Specifically, the board recommended the online ABN application tool ask whether the applicant intends to carry on an enterprise, followed by a “drop down” menu with the extended list of activities that confirm an applicant’s eligibility for an ABN.
- In its response, the government noted that the ATO had already taken steps to implement this recommendation. The ATO is already working to deliver improvements to the ABN online registration facility that will make it easier for start-up businesses to self-assess their entitlement to an ABN.
- That the calculation of the Super Guarantee (SG) Charge components be redesigned by legislation. In its response, the government said it supports this recommendation and has agreed to simplify and reduce the severity of the SG Charge with effect 1 July 2016 as part of the package of reforms to be implemented to reduce small business superannuation compliance costs. The government will consult with stakeholders on implementation details.
- That the SG Charge and any employer contributions paid to a superannuation fund that are used to offset the SG Charge payable should be deductible to the employer when the amounts are paid. The government said it does not support this recommendation. The government has agreed to reduce the severity of the current SG Charge arrangements, and in the context of these changes, considers that retention of non-deductibility is important to deter non-compliance.
- The board recommended allowing employers to assess superannuation obligations for employees against a quarterly threshold of $1350 (currently, the threshold is $450 per month). Employers who do not wish to change their current systems and processes would still meet their superannuation obligations if they continue to test on a monthly basis. The board said it recognised that this may exclude some low income earners from superannuation coverage. However, it considered it would reduce compliance costs for small businesses, particularly for those with a large number of short-term casual employees. The government said it does not support this recommendation. It said the proposal could reduce superannuation for some low income earners and would not reduce compliance costs of the majority of small business that pay their SG monthly.
On medium to longer term reforms, the board said it considers a more fundamental review of the small business CGT concessions was warranted given the potential for significant simplification and reduction in compliance costs.
The board said a more complex issue unlikely to be resolved in the short or medium term is whether tax treatment should be consistent regardless of business structure or entity type. Recognising that this would be a very difficult and complex review, the board considers it should be reviewed give the substantial benefits it could provide. A related issue is the taxation of trusts which, although is relevant across the business sector, presents particular challenges for small businesses as it is a common entity used by them.
Small Business Minister Bruce Billson and the Assistant Treasurer Josh Frydenberg said the report will be an important input to the government’s broader considerations on small business taxation and is particularly timely ahead of the government’s release of its tax white paper.
Thus far, changes have yet to be made and this report remains as recommendations only. Nonetheless, this report is important for SMEs and it is hoped the tax white paper will come through with some positive recommendations for changes to taxation arrangements affecting SMEs. Realisation of any recommendations in legislation that is actually passed by Parliament, or Tax Office administration changes, will wait to be seen. For any concrete change to occur, we will need the support of the major political parties.
Should you require any more information about how these tax reforms could affect you or your business, please don’t hesitate to get in touch with the team here at Fortis Accounting Partners. You can reach us on 02 9267 0108, or via info@exemplary-financial.flywheelsites.com.
