Compliance burden to add to small business costs

Archer said this additional compliance burden could add substantial costs to small businesses as business owners seek advice from accountants on whether they should restructure their trust or their entity.

“The real damage being done here is the uncertainty introduced into the tax and compliance area for small businesses as they may have to obtain advice to understand what structure would suit them best should the proposals become law,” he told Accountants Daily.

CPA Australia recently released modelling which showed that taxpayers could incur between $2 billion and $2.8 billion in professional advice costs just to determine how the discretionary trust regime could apply to them.

It said it could take around 7.9 million hours by the average professional services rate to obtain advice to make the election for 850,000 trusts.

While Archer suggested that small business owners may have to pass on these additional costs to their customers, he noted that this may be difficult as they are already having to pass on the costs of inflation, rising prices, and higher interest rates.

“People already can’t afford the prices in this inflationary environment. The rising cost of doing business is going to drive more small businesses to become unprofitable and unviable. This could increase the risk of small businesses facing insolvency,” he said.

Indeed, research by CreditorWatch revealed that economic pressures and the growing AI industry are placing construction businesses under growing pressure. The August Business Index showed that over the past 12 months, the construction industry has a 60-plus-day payment arrears rate of 6.5 per cent, the fourth highest of the 18 industries CreditorWatch tracks.

Data from July revealed that hospitality businesses closed at nearly twice the national rate in the past year due to increasing operating costs, cost-of-living pressures, and higher wages.

“It’s not the changes themselves, but the cost of dealing with the changes and the complexity that the government is increasingly putting on small businesses and accountants that is damaging the small business sector,” Archer said.

“Accountants are drowning under increasing levels of compliance being placed on them by the government and all the legislation. It’s reducing the amount of time available for them to provide meaningful strategic advice to their small business clients while increasing compliance costs for those already operating in a difficult economic situation. The government is adding more compliance costs and extra tax on top of this.”

While the first tranche of the capital gains tax (CGT) and negative gearing changes have passed parliament, the second tranche and the discretionary trusts reforms have not yet become law.

Jarvis said small businesses and their accountants are expending resources, time, and effort to understand changes that have not even come into fruition yet.

“We’re looking at a productivity commission to increase productivity. On the other hand, the government’s announcing these changes that are costing small businesses and their accountants time and effort as they understand the proposed changes,” Jarvis said.

“What an absolute waste of time, effort, and money that is.”

Jarvis said that accountants are well-placed to provide advice to small business owners about the tax reform but suggested that they opt for more scalable methods of delivery. This could include videos explaining the common issues and compliance pitfalls business owners face.

“This could free up the accountant’s time to have discussions with business owners about improving profitability, boosting cash flow, and remaining viable,” he said.

He also urged the government to introduce “smarter” measures that target more profitable companies to generate revenue for the economy rather than small businesses who may already be unprofitable or financially constrained.

“Taxing businesses that are already struggling is not an effective policy to generate more revenue,” Jarvis said.

“Instead, we could increase the tax revenue from profitable business owners who may be paying less tax than we would like to see them pay.”