The Tax Institute says a new inquiry into improving the tax system for small businesses must look at streamlining eligibility rules for key tax breaks like capital gains tax concessions.
The review, conducted by the Board of Taxation, will report to government before the end of August on how to “unshackle” the small business sector from the overly complex features of the tax system. It will also identify a list of short-term and medium-term priorities for small business tax reform.
The terms of reference require the review to identify “features of the tax system that are unreasonably or unnecessarily hindering or preventing small businesses from pursuing and achieving their commercial goals”.
Tax counsel at the Tax Institute, Stephanie Caredes, said that some of the key tax concessions available to small businesses were “quite complex” and weighing down too many business owners.
“For something that is meant to be concessional and make life easier it can be a whole lot of trouble to work out whether you can access the concessions,” she told Dynamic Business. “It adds to that ordinary compliance.”
“I think the review is basically about identifying barriers in the tax system that are adversely impacting on the operation of small businesses and seeing how those impediments can be removed or simplified,” she said.
Ms Caredes said the rules around the capital gains tax concessions and the carry forward loss integrity rules under which losses can be “carried forward” and deducted against future taxable income both needed to be tidied up.
The Tax Institute has also called for the development of a new “small business structure” in which specific concessions available to companies, trusts, partnerships and sole traders can be amalgamated.
For example, currently only individuals and trusts are able to have their capital gains reduced by a discount percentage of 50 per cent, before being included in their assessable income.
The Tax Institute has also called for trust tax reform to reduce compliance costs for Australian businesses that use trusts.
The inquiry, announced by Parliamentary Secretary to the Treasurer, Steven Ciobo on March 28 will complement the taxation White Paper process and focus on reducing the regulatory burden confronting small business owners.
“We want small business owners to spend less time on paperwork and more precious time and resources on growing their business,” Mr Ciobo said. “We can start by making their dealings with the Australian Taxation Office simpler, which is what this review is about.”
The Board of Taxation will use its tax professional contacts and consult with key business groups before reporting to government at the end of August.