The dust has settled following the Federal Government’s two-day tax forum, with initiatives already underway in a bid to improve the tax system for businesses.
The forum has resulted in the establishment of a business tax reform working group, and an agreement between the states to work together to harmonise state laws.
Other outcomes of the forum were the establishment of a $1 million think-tank on tax reform, and an independent tax advisory board.
With regard to small business, StartupSmart identified three key developments:
Increased tax-free income threshold
Treasurer Wayne Swan wound up the summit with a promise to lift the tax-free threshold to $21,000, which would deliver every wage earner with a modest tax cut and free 1.2 million people from paying tax.
The threshold, now $6000, was scheduled to rise to $18,200 next year and $19,400 by 2015 as part of the government’s carbon tax package.
Hiking it up to $18,200 would be worth about $300 a year for someone earning $60,000, while an increase to $21,000 would translate into about $500.
Swan remained tight-lipped about a date for the increase, stating it would occur “when we think it is affordable to do it”, although it’s likely to be implemented before the next election.
It would be partly funded by abolishing the low-income tax offset; a targeted tax exemption for those who earn up to $30,000.
Special entity for small business
The government is being encouraged to consider introducing a special entity to make it easier for small businesses to comply with the tax system.
Chris Jordan, chairman of the Board of Taxation, said in a statement a new entity might be considered to allow income and losses to flow through to business owners without the red tape.
“Maybe for a small business, you have an entity that gives you limited liability, allows you flow-through as a trust does, but eliminates the multitude of entities that you have,” he said.
Venture capitalist Mark Carnegie described the tax system as a “huge impost” for small business, calling for immediate change.
“It’s a nightmare what you people have created, and if you just spent a week understanding what it was like, you just wouldn’t be going that.”
COSBOA executive director Peter Strong echoed Carnegie’s sentiments, saying a special entity would represent an opportunity for small business to offload the work of the government.
Carry back tax losses
Peter Anderson, chief executive of the Australian Chamber of Commerce and Industry, said the tax system needs to recognise that business activity moves in cycles of profit and loss.
“To minimise the chance of enterprises going out of business… these peaks and troughs can be flattened by allowing losses to be carried back and offset against previous taxable income,” Anderson said.
“The beauty of this idea is that it helps business cash flow but doesn’t reduce Treasury revenue across the cycle.”
Anderson’s suggestions include:
- Allowing depreciating assets less than $10,000 to be written off immediately for small business, as suggested by the Henry review. This would streamline capital depreciation and provide cash flow certainty to small business.
- Require government departments to spend less on non-essential services. This could be done by increasing the efficiency dividend required to an annual 2% reduction of spending in each of the next five years.
This would produce a revenue boost, which could fund some of the tax reform ideas.