Earlier, the Tax Institute spotted an apparent oversight in the Treasury Laws Amendment (Enterprise Tax Plan) Act 2017, which passed last year.
The amendment meant that under Section 29-40 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), small business entities with a turnover of less than $10 million could now account for GST on a cash basis, but the same threshold does not apply to entities that do not carry on a business.
“For small businesses, the amount is governed by the definition of small business entity which basically means it's $10 million in aggregated turnover but if you don't carry on a business, and you are still caught by GST, which is possible, then it goes to the definition of the cash accounting turnover threshold which is separately defined in Section 29-40 Sub 3 [of the GST Act] to mean $2 million or a higher amount as the regulation specifies,” said Tax Institute senior tax counsel Professor Robert Deutsch.
In response, Treasurer Scott Morrison’s office told Accountants Daily that there has been no oversight and reinforced the separate cash accounting treatment for entities that do not carry on a business.
“Carrying on an enterprise for GST purposes is not the same as being a small business,” a spokesperson for the Treasurer told Accountants Daily.
“The Enterprise Tax Plan has not changed the tax treatment for enterprises that do not carry on a business – they retain access to cash-accounting for GST purposes where their GST turnover is $2 million or less.”
Professor Deutsch said the government’s view that it was not an oversight and instead the intended outcome was upsetting considering the complexities surrounding the definition of a small business entity.
“It seems to add yet a further layer of complexity and it really disturbs me that we have such a complex legislative position now in relation to what is and what is not a small business,” Professor Deutsch told Accountants Daily.
“We have, for example, small business concessions in the CGT environment where we seem to have a level of $10 million that we are operating with, then we have a corporate tax rate where we have different rates applying on whether a company is engaging in what is loosely described as passive income activities, and now we have GST where we have a difference between a $10 million threshold and a $2 million threshold depending on whether or not you carry on a business.
Professor Deutsch said the shifting definition would make an already complex environment even harder for tax practitioners to operate in.
“It just seems to me that we are creating a very complex environment in relation to what should be a relatively straightforward question — what do we recognise as a small business and what is not a small business,” said Professor Deutsch.
“To my way of thinking, it should be capable of a single answer but we seem to have about five answers depending on what context you're asking the question and I think this is going to make life going forward difficult for taxpayers, and very difficult for tax advisers and tax agents who have to grapple with all this and then make sure they are telling the taxpayer the right information about which threshold applies in which circumstance.
“This is just too complex and complex in a fashion which is unnecessary, unless somebody can persuade me why all this is necessary.”