Small Business Minister Dr Craig Emerson has announced that the government will consider two new measures to simplify small business taxation and reduce small business compliance costs.
The first measure, developed by the Institute of Chartered Accountants (ICAA) and Deloitte, proposes that ownership arrangements will be set to one side for income tax purposes. The “entity flow-through (EFT) tax regime” would treat the entity like a partnership with owners taxed at their marginal rates.
According to ICAA Tax Counsel, Ali Noroozi, said that small businesses have for some time identified the complexity of the taxation system and the cost of compliance associated with it as one of their main concerns.
“Under the proposed EFT regime, instead of the entities being taxed, the tax effect of transactions would ‘flow through’ to the ultimate owners of the entity,”Mr Noroozi said. “Essentially, this results in the operating entity being ignored for tax purposes.”
The proposal has been referred to the review of Australia's Future Tax System headed by Treasury Secretary Ken Henry.
Deloitte Tax Partner, Alexis Kokkinos, said that while the introduction of any new regime will present transitional challenges, an EFT regime would greatly simplify tax compliance for small businesses, particularly if they adopt the regime from the outset.
“Although the complexities of the current taxation regime can be reduced by using a partnership structure, this can expose [small businesses] to unlimited liability, unlike a corporate structure,” Mr Kokkinos said. “To address this, the proposed EFT regime seeks to produce similar tax outcomes to a partnership, but in a way that allows [small businesses] to limit their liability.”
“The EFT regime also provides an alternative to the use of trusts, an area of tax law that has become increasingly complex and in many respects unworkable,” he said.
Compliance with GST requirements remains the greatest administrative burden for small business. The second measure proposes to streamline the operation of the GST with a view to reducing compliance costs and removing anomalies from the system.
The Business Activity Statement (BAS) “easy option for small business”, has been referred to the Board of Taxation’s review of the legal framework for the GST.
The review provides an opportunity for entities to raise issues concerning the legal framework for the administration of the GST including reforms to the GST law that result in reductions in compliance costs, that improve the operation of the GST or remove anomalies provided the changes do not result in any changes to the scope and extent of what goods and services are subject to the GST.
For information about the proposals, please visit www.treasury.gov.au or www.taxboard.gov.au.