From The Australian, Entrepreneur:
CANBERRA IS CUTTING SOME OF THE RED TAPE TO REDUCE THE BURDEN, ED CHARLES REPORTS
TAX isn’t the simplest of subjects and for many entrepreneurs or small business it is an annoyance that gets in the way of business.
But now the tax office seems to be finally acknowledging that it is anything but simple.
It is dropping the moniker of the Simplified Tax System in favour of the Small Business Tax System and cutting red tape to reduce some of the burden on small business.
The latest tweak in the system has still to pass through federal Parliament but should come into force for the 2007-08 tax year and could even put more money in the pockets of small business.
The main change is unifying the definitions of small business and increasing the qualifying turnover from $1 million to $2 million for all the Simplified Tax System benefits.
Under the current system there are different thresholds for different tax benefits. The move could bring more than 100,000 businesses into the new Small Business Tax System.
Out of 1,963,907 businesses in Australia, according to the Australian Bureau of Statistics, 1,837,503 — or almost 94 per cent of them of them — have a turnover of less than $2 million.
The move follows submissions on the definition of small business in the tax system by the Institute of Chartered Accountants in February 2005.
Tax counsel for the Institute, Ali Noroozi, says the measures will improve access to tax concessions and reduce compliance costs, which will also have flow-on benefits. “Small business is critical to Australia’s growth as it accounts for almost half of the employment and around a third of Australia’s economic activity,” he says. “It’s great to see the Government addressing some of the concerns around the complexity of the current tax system and associated compliance costs.”
According to Greg Hayes, senior partner of accountancy firm Hayes Knight in Sydney, the question is: can a business benefit from the features of the Simplified Tax System?
“If you’re a business that can utilise the features that STS offers, then there is no question that it makes life easier for you,” he says. “It’s not hard to sit down with a case and show how a business can be $10,000 or $20,000 better off.
“For a small business $10,000 or $20,000 is fairy meaningful.”
Gary Addison, senior tax adviser at CPA Australia, says that the planned changes will definitely make the system much more attractive. He says that when the Simplified Tax System was introduced, only about one-third of small businesses bothered with it as they, and their accountants, weren’t as open to it as they had been with the GST. In short, it meant learning a new set of rules.
“Lots of accountants or tax agents haven’t been putting their clients into the Simplified Tax System,” he says. “The comment has been made, even by some of our own members now, that if an accountant doesn’t use the system for his client, he could face a negligence claim from his client as the system is now quite beneficial.” Tony Stephen, CEO of the Council of Small Business Organisations of Australia, says that businesses under the $2 million threshold will only benefit if they use the new system and most will only do that if their accountant advises them to do so. He says 95 per cent of all small businesses in the current STS are only doing so through their accountant.
Under the proposed changes companies can access the small business tax system and maintain accrual accounting rather than just use cash accounting. Hayes says that this is a significant change.
“The value of STS on a cash basis is that you only account when you actually physically receive the money,” he says.
Column: Entrepreneur
Section: FEATURES