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Quick comment: what else could we be doing to reduce tax compliance costs for small business?

21 May 2015

Small business is the engine room of the Australian economy, producing $330 billion in economic output, employing 4.5 million Australians and accounting for 96% of all Australian businesses. What else could we be doing to reduce tax compliance costs for small business?

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12 thoughts on “Quick comment: what else could we be doing to reduce tax compliance costs for small business?”

  1. Andrew Skinner says:

    The time taken to attend to “minor” questions from the ATO is mindblowing. Recently, we had a message to call back to the ATO, the message DID not say what the issue was. On ringing back the ATO we spent 45 minutes on the phone trying to find out what the issue was as NO ONE at the ATO new. Thus it is far better to SMS the contact, with details of the issue (e.g., BAS overdue) and make sure that when calling back the ATO database is up to date and the left hand knows what the right hand is doing

    The red-tape is the time taken to do simple compliance tasks. This is excessive and time consuming. Time is money.

    Move FBT year to the same as the tax year and have ONE return for income tax, and FBT.

    Don’t change imputation credits.

    It is unlikely that I would grow my business beyond another 1 -2 people as the cost of employment, and on-costs are just too high.

     1 Like
  2. Vic says:

    Sub-section 328-110(1) of the Income Tax Assessment Act (1997) says:
    Quote You are a small business entity for an income year (the current year) if:

    (a) you carry on a *business in the current year; and

    (b) one or both of the following applies:

    (i) you carried on a business in the income year (the previous year) before the current year and your *aggregated turnover for the previous year was less than $2 million;

    (ii) your aggregated turnover for the current year is likely to be less than $2 million. Un-Quote

    This legislative definition was enacted in 2007 and perhaps it should be updated to take in account inflation over the last eight years.

    Secondly this definition is based on “turnover”. So a small business operating as a retail petrol station or as a grocer would have to sell vast volumes/number of petrol/items to make a realistic living and commercial profit to its proprietor/s when compared to say, a plumber, repairman, jeweller or a used car business.

    I question whether this legislative definition should be more specific to different business categories. However, if this definition is expanded, then the current income tax law and code will become more voluminous and complicated. And this would be contrary to the objective of finding ways to “reduce tax compliance costs for small business”, and the current tax review.

    In the beginning, the government enacted laws to collect tax revenue from a specific activity of employment or business endeavour; for example, income tax. Thereafter, the government soon learned that people and businesses had found ways to reduce, minimise or avoid their taxation burden and hence, the government had to enact integrity measures (viz Part IV anti-avoidance or transfer pricing rules, or thin capitalisation, or prior year loss, etc provisions) as well as supplementary income tax laws (viz Fringe Benefit Tax). No sooner than these new provisions or laws were enacted, then amendments had to be legislated to overcome unintended effects and to plug loopholes.

    Consequently, the introduction of any new taxing regime law has over time developed into complex pieces of legal code; and this has consequently increased the compliance burden for every business in Australia, but in particular for small businesses.

    Since present governments at all levels in Australia have an insatiable need for addition taxation revenue (legislated under whatever legal heading or name), it is highly unlikely that any government would be prepared to abolish in its entirety, any of its already standing taxation, customs duty, levy, etc laws in order to offer any kind of compliance relief to small businesses.

    Hence, I am pessimistic about any genuine taxation reforms will evolve from this tax review process that will provide any (or even minor) relief in compliance costs to businesses (big or small), individuals and trusts.

     2 Like
  3. Patrick says:

    Option 1) introduce a corporate vehicle similar to the S-Corporation in the US , perhaps with a cut-off threshold of AUD 15m turnover and a choice for non-resident owners between a standard 30% WHT or branch taxation [http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/S-Corporations]?

    Option 2) buy a 1,000,000 user licence from Xero at an ultra-competitive rate, make it free to use for all small businesses and allow small businesses that process ALL transactions through it to pay tax on 30% of annual profit based on the Xero output with no further adjustments?

    Option 3) introduce a cashflow tax or cashflow tax equivalent.

  4. Mark Lyons says:

    Greece has the largest percentage of small businesses in the world by percentage of population. Need I say more.

  5. Mark Lyons says:

    Leave Dividend Imputation the way it is! Small companies under 2 million in turn over use it too or how would they get their accumulated profits out of the company without paying double taxation on the company earnings. And if it isn’t fair or productive to double tax small company owners, then it isn’t fair or productive to tax any owner shareholder in any company no matter what their size. This was the original logic for its implementation. We are also above the OECD average for total top rates of dividend taxation this is acknowledged in the ReThink paper, removing imputation would see an impossibly high 80% top tax rate for dividends, nearly twice the OECD average.

     1 Like
  6. Jack Hallam says:

    Your premise that small businesses will save Australia are wrong it is a known fact that large companies are what makes a country strong and wealthy, with more people paying tax. All small businesses do is try to avoid paying tax it is PAYE employees who make a country rich. The reason you promote small businesses is because Australia has lost all the large companies by poor governance. The latest attempt to raise confidence among’st the public by giving your voters $3.500.000 is wasteful, will fail any monies earned will go to pay down debt. 2007-2008 GFC makes us, once bitten twice shy. Sorry that’s my opinion.

     1 Like
  7. John H. Kelmar says:

    First issue is that the Small Business entity should NOT be paying any tax if that business is 100% Australian owned by resident Australian citizens. For businesses that have some proportion of foreign ownership, their tax rate should be a percentage of their foreign ownership component. The elimination of annual taxes and fees should also be pursued, such as licences and registrations.

    If the profits remained in the Small Business entity, then opportunities for growth are enhanced, and increased employment becomes a stronger reality. If the owner decides to take the profits out of the business entity, then the normal income tax would be applicable.

  8. David Ireland says:

    Provide a framework for outsourcing wages management to strictly controlled private providers. This could include all functions including sick leave, annual leave, parental leave, bereavement leave, compassionate leave, unpaid leave, sick day management, superannuation, taxation and even temporary staff replacement, if required.

    Employers would then operate in an environment where staff were effectively “wet hired” while still controlling the amount of hours worked and the employment status and skill allowances for staff.

    Centralising workforce regulatory management should provide mass benefits of scale without increasing costs because the service provider would generate income from the economies of scale that they would retain. The small businesses would free up owner’s time and employees would be ensured of taxes being paid and superannuation guarantee being paid. Leave entitlements would also be better managed and sick leave centrally recorded. Individual businesses could be benchmarked against peers and “outside ratio” businesses informed of better than or less than performance.

    Cheers David

  9. Bill KENDALL says:

    We now know that the Government in 2015 designated a small business
    as one turning over less than two million dollars
    Hoping for a 10% return of $200,000.00 dollars, that is for one owner a reasonable return,
    but, for three owners a return of $67,000 is only average.
    These companies could be designated Dad and Mum companies.

    If the setup is incorporated why bother with a Company Tax for these small companies?
    Any Company Tax paid would only be recouped when income tax returns are submitted.

    The opposition is possibly wise to this by offering to reduce the company Tax by 5%.

    Why not cut the red tape for small businesses, as defined above, by not paying company tax?

     1 Like
  10. Grace McCaughey says:

    Reduce the large number of taxes which cost a lot to collect. Remove sales tax, and increase land tax.

  11. Ken says:

    Stop taking so long to fix tax issues that apply to small businesses.

    It has talken seven years to fix the CGT treatment of earnouts (utterly ridiculous given how simple the solution was). Andwe are still waiting to see if the government will accept the Board of Taxation’s recommendations (not publicly released but well known in the industry) to undo the Commissioner’s position on unpaid present entitlements to corporate beneficiaries -which changed in 2009!?!

    It is as if the most minor changes to the tax system for the large end of town get through in months but any change that only effects small businesses take years.

     1 Like
  12. Hilary says:

    Reduce the amount of detail required for BAS returns and GST compliance. The amount of detail required here compared to the returns for VAT in the UK are ridiculous. Especially as we have a blanket 10% charge.
    Reduce fees to match the cost of issuing licenses/registrations etc, too many costs are revenue schemes not real cost of providing the service and the documentation.
    In the motor trade and QLD, VIC specifically introduce the requirement to have annual road worthy certification of all vehicles over 5 years old like NSW/ACT etc. Benefits;-
    1) Increased road safety
    2) Less work for the Police on road safety and more time to fight real crime
    3) Increased jobs in testing facility and services
    4) junk cars off the road increasing car sales potential
    5) Reduce potential for shonky services who currently rock up at your home and certify a car as safe for $100 when brought in from NSW without even inspecting it. Believe me I know, it happened to me. OR, say it’s got heaps wrong when it hasn’t and demand a big fee to fix it!
    Change law so that small business is defined by turn over and number of staff, anything which turns less than 2 million and employs less than 10 FTE staff should have much reduced regulatory burden to encourage small businesses to open, including relaxed unfair dismissal arrangements.
    Change retail penalty rates, Retail is the engine house of small business. Some penalty rates are far too much and penalise business for opening when people want to work and shop! There is more but I work in a small business so need to get some work done! 🙂

     1 Like

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