Figures from the Australian Ombudsman for Small and Family Businesses show that small and family businesses account for 98 percent of all businesses in Australia, employ 35 percent of gross profit in Australia and 44 percent of the Australian workforce. However, there is no clear and unambiguous meaning of what makes a small business.
The Tax Institute's Director of Tax Policies and Technology, Andrew Mills, believes that many of the programs, benefits, and concessions that exist in tax law are designed to aid small businesses through the various stages of the business life cycle, the constant changes, and the complexity of the law – and integrity rules make compliance a major challenge for small businesses and their advisors.
"The small business law is more complex than ever and needs to be simplified," said Mills. “There are too many ways small businesses can accidentally stumble upon and find that they are actually not eligible for something that they are qualified to do.
“We counted 25 different tax breaks for small businesses, many of which have different turnover thresholds and eligibility requirements and different application dates.
“A good tax system should balance simplicity, efficiency and equity. The current small business system is unlikely to achieve any of these. "
The sector has not been lacking in attention over the years and various reviews of small business tax breaks have been carried out. The most recent review by the tax authorities in March 2019 made 12 recommendations, including that the aggregate turnover threshold should apply consistently to all current “small business” tax breaks.
The CGT concessions for small businesses have been changed several times since their inception in September 1999, replacing the previous 50 percent goodwill exemption. The current concessions have become so complex that many practitioners prefer to pass this work on to specialists than take the risk of advice in this complex area, similar to the way transfer pricing or consolidation work is referred to specialists in large companies.
"The question must be asked: Are the rules still functional or is there an easier way to relieve small businesses?" Mr. Mills said.
“It makes sense to replace the current four concessions with a single“ lifetime leave from company retirement ”that would allow a small business owner to ignore, whether or not it does, gains or gains from the sale of company assets on an asset-independent basis Goodwill, real estate, amortization of assets or intellectual property up to a lifetime limit of, for example, US $ 1.6 million, which could contribute to retirement savings on a franchise basis.
“This would reduce complexity while also providing reasonable tax breaks for selling corporate assets. A single replacement asset rollover could be an alternative option to complement the superannuation contribution model. "
Mr Mills also believes that the existing corporate income taxation model also needs to be reformed. The current interplay of the two tier corporate tax rate, imputation system, rules in Division 6 for Trusts and Division 7A has resulted in the creation of many more corporate beneficiaries than would have been the case with a lower penalty rate for Trusts taking their business profits do not pour out completely.
"Regardless of the small business reform, it is clear that the current law is unsustainable and changes are needed," said Mills.
Small business tax system "cry out for simplification"
Last updated: December 23, 2020
Published: December 29, 2020