11th February 2020

    By reducing the red tape and simplifying the regulations of small business taxation, the Federal Government would effectively be freeing up the time of small business owners while making the system simpler and fairer…”

    AUTHOR: Carl Valentine

    As a small business owner who works with hundreds of other small businesses, I’ve long been advocating for meaningful and targeted reform to our taxation system to better support and grow the small business sector. Small business plays a key role in developing and maintaining our national economy and that role of small business is magnified and amplified in regional economies.

    Three core elements are needed to grow and maintain regional economies and regional populations:

    • Enabling infrastructure and catalytic projects;
    • Aligned government (local, state and federal) policies to facilitate the above; and
    • Progressive and regionally relevant policy settings to enable the private sector to invest in and grow local economies for job creation.

    Taxation policy, and regionally relevant reform of taxation policy, plays an important role in the development and sustainability of regional Australia. The Board of Taxation’s recently released review into Small Business Tax Concessions provides recommendations which, if implemented, offer a solid start to that reform, outlining a wholistic approach to simplify small business tax concessions.

    With small business accounting for around 96 per cent of all businesses in Australia and employing 5.6 million Australians, small business operations truly are the engine room of our economy. It is important government supports any change which makes the business of doing businesses easier, more effective and more efficient by reducing the time invested in tax compliance and reducing compliance costs more generally.

    The Board of Taxation has recommended the government scrap the varied small business definitions contained within legislation and apply the $10 million turnover threshold across the board for all small business tax concessions. While a turnover based threshold has inherent challenges and potentially unintended consequences, the consistent application of a single threshold for all small business income tax purposes would be a great reform.

    A single threshold for income tax purposes may then spur similar reforms outside the income tax space to further reduce the red tape burden endured by small business. I support the recommendation in the report that further work be done with other regulatory regimes, including State and Territory based regimes, to standardise the definition of a small business.

    From a small business owner’s perspective, this would provide clarity and ease of understanding compared to the current definitions which change from concession to concession and across multiple regulatory regimes.

    It has also been recommended that government look at all stages of the small business life cycle, from the inception and survival stage through to maturity and retirement. I agree with this approach as it would ensure small businesses are supported appropriately from the outset which can often be a challenging and difficult time.

    The 109-page Board of Taxation Review made 12 recommendations in total, including how the small business Capital Gains Tax concessions are applied:  repealing the maximum net asset value test while collapsing the 15-year exemption, active asset reduction and retirement exemption and replacing them with one Capital Gains Tax exemption subject to a cap.

    By reducing the red tape and simplifying the regulations of small business taxation, the Federal Government would effectively be freeing up the time and resources of small business owners while making the system simpler, fairer and less costly to comply with.  

    Taxation concessions and subsidies should be effective, easily accessible and well targeted to ensure they achieve their goal which is to reduce the challenges being face by small businesses.

    The unincorporated small business tax discount was also identified as an area of improvement, with the Board of Taxation recommending it be replaced with an alternative program or be substantially amended to be a meaningful incentive.

    I urge the Federal Government to implement these suggested changes as a matter of priority.


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