Tax compliance costs hurting smaller operators

Tax compliance is costing Australia’s 1.7 million small and medium sized businesses about $18.4bn a year, according to new research.

The figures produced by the Institute of Chartered Accountants Australia show the average gross tax compliance cost for small to medium sized Australian businesses is running at $11,000 per firm each year.

The Institute’s Head of Tax Policy, Michael Croker, said this was a significant increase since the last major study of tax compliance costs in 1995 and that less than half of the increase was due to the introduction of the GST.

With tax compliance now costing the SME sector $18.4 billion every year, Mr Croker said: “This is about 1.2 per cent of GDP and 14 per cent of total tax revenue collected by the Commonwealth. The Institute is recommending a range of tax changes which would give a much needed boost to Australia’s small businesses.”

The Institute’s findings are contained in a submission to the Board of Taxation which is currently conducting a review on the impediments preventing small business from achieving its goals.

The Institute is encouraging the government to review small business record-keeping requirements and the establishment of a more consistent definition of what a small business is including for tax purposes and other administrative purposes such as grant eligibility.

It also suggests the introduction of more “safe harbour” arrangements which have allowed smaller operators to claim deductions for things like home office expenses and avoid penalties for incorrectly categorising workers as “contractors” instead of as “employees”. In addition, the Institute has floated the automatic indexation of small business eligibility thresholds for access to tax concessions.

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