Ignorance of the law is no defence and the Australian Tax Office doesn’t take very kindly to “I didn’t know” as an excuse either. So what’s a busy small business person or entrepreneur to do when there’s a raft of tax and legal changes every year.
We’ve spoken to legal and tax experts to uncover the key changes to the legal and tax system which you need to be across this year.
Here’s the SmartCompany cheat sheet for the key tax and legal changes of 2015:
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1. Legal changes
Rohan Harris, principal at law firm Russell Kennedy, told SmartCompany franchising, privacy and company directorship are all areas of legislative change that small businesses need to watch out for in 2015.
The myriad of small businesses that operate under franchise systems should be aware of the new Franchising Code of Conduct which came into operation on January 1, 2015.
“There is a new duty imposed on franchisors and franchisees to act in good faith when dealing with each other,” Harris says.
“Franchisors must now provide franchisees with an information sheet outlining the risks and rewards of franchising.”
Harris says greater penalties may now also be imposed for breaches of the code. “Franchisors should be making sure that their documentation and processes are updated to comply with the new requirements,” he says.
A significant portion of small businesses are held in private companies, and Harris says the Abbot government’s promised 1.5% reduction in the company tax rate from July 1, 2015 may only increase that trend.
“Throughout 2014 the Australian Securities and Investments Commission worked with a number of state and federal government agencies as part of an ATO chaired ‘Fix It Squad’,” Harris says.
“One of the recommendations from the squad was for ASIC to work with small business to increase awareness of what it means to be a company director.”
He says company directors can also expect ASIC will continue to be on the look out for small business directors who breach their duties and should be held accountable.
“I expect that ASIC will continue to look to disqualify directors of failed companies, particularly in the construction, labour hire, transport, security and cleaning industries where there have been a disproportionate number of allegations of illegal phoenix activity,” Harris says.
“Directors who continue to allow their businesses to trade whilst insolvent will continue to be held personally accountable for insolvent trading liabilities.”
The new Australian Privacy Principles are now in full swing, including stronger enforcement powers than before for the Office of the Australian Information Commissioner (OAIC).
“I expect that the Commissioner will be proactively seeking to exercise his increased powers,” Harris says.
“Small businesses in particular need to be wary about using cloud services to store ‘personal information’ concerning their staff, customers and suppliers.”
Harris recommends SMEs check their privacy policies are sufficient to cater for the use of offshore cloud servers, and updating as necessary.
The landscape for the increasing number of business owners who will be looking to retire in the next few years will continue to shift, according to Harris.
“Business owners are pro-active about preserving and improving the value of their business and wealth through good succession planning will benefit,” he says.
“This will also continue to present opportunities for the next generation of business owners.”
Harris says business owners who fail to implement a well-considered succession plan will be left behind.
The Abbott government has promised a wholesale review of the tax system and is busy at work on other changes to taxation which are scheduled to be implemented this year.
Tristan Webb, national tax director at Crowe Horwath, says the rules governing the taxation of employee share schemes and superannuation are all in question.
Employee share scheme
The government released draft legislation last month outlining proposed changes to employee share option schemes.
The draft legislation provides more detail on the proposed changes, which the government committed to making last October, as part of its Industry Innovation and Competiveness Agenda.
But it has already proved controversial as the draft legislation only applies to Australian early-stage startups – companies with less than $50 million turnover, existing for less than 10 years.
It excludes listed companies and won’t be of assistance to Australians employed by a foreign company if they get equity in that company.
Nevertheless, Webb says if the draft legislation is implemented this year it’s good news for SMEs.
“For smaller companies which struggle to get capital from elsewhere, this is a good way to attract capital and reward key employees,” he says.
Superannuation Clearing House
The Small Business Superannuation Clearing House is set to be broadened and is now available to any business with turnover of less than $2 million.
Webb says this is “a free online service that allows people to satisfy super guarantee allowance pretty easily and saves a lot of compliance costs.”
He anticipates the changes to broaden the Superannuation Clearing House should pass before the end of the financial year.
Tax white paper and the GST
Webb says there are also further changes to the tax system which have been “hanging around” from the days of the previous government and “need to be tidied up”.
A rewrite of Division 7A is occurring alongside a broader consideration by the government of the taxation of trusts.
Division 7A has been a huge bugbear for businesses since it was introduced around 17 years ago.
The law impacts private companies with trusts and aims to ensure funds can’t be removed from the company and given to shareholders or their associates tax free, but its effectiveness is debatable.
“All of this seems to be in limbo and it seems to be because it will be potentially tied in to the tax white paper,” Webb says.
In terms of GST, Webb predicts the promised tax white paper will flag an increase in the GST rate or a broadening of the base.
“We’d prefer to see a broadening of the base because you can target the equity concerns through the welfare system,” Webb says.
“It just makes the operation of the tax more efficient so you don’t have stupid court cases over whether a biscuit is a biscuit or a bread.”