The Australian Small Business and Family Enterprise Ombudsman’s latest research paper outlines 25 recommendations geared towards creating a tax environment that empowers small business owners.
ASBFEO Kate Carnell’s newly released report focuses on “small, achievable” changes to the tax system so as to better serve small business owners in the wake of COVID-19, as it reckons with a collective tax debt of $21 billion.
To ease their recovery, Ms Carnell recommends the ATO do away with fringe benefits tax (FBT) on small businesses, and introduce reforms that would see defined “work” benefits exempt, and “choice” benefits taxed as “income” in the hands of employees.
The two recommendations would be welcomed by the sector, said Scott Treatt, general manager of tax policy and advocacy at The Tax Institute, and should be introduced to the broader business community, too.
“Quite simply, FBT is outdated,” Mr Treatt said. “It’s a system from the 80s that isn’t fit for purpose in the present day.
“The cost of compliance for FBT is absolutely extraordinary. It brings in around $4 billion a year, and we’ve had reports from companies saying that they pay the same amount in FBT compliance costs as they do for income tax compliance costs.”
Remitting GST at the source
A slew of the changes would alleviate the administrative pressures placed on small business owners in dealing with the ATO, and take the heavy lifting out of the day-to-day tax-paying tasks involved in trading, such as paying goods and services tax (GST).
In her recommendations related to cash flow and compliance, Ms Carnell urges the ATO to allow small businesses to opt in to remit payments of GST at point-of-sale, “calculated as a percentage which aligns with previous annual net rates”.
“When the BAS return is due, the small business will continue to calculate and report the exact amounts of GST collected on sales and GST input tax credits to which they are entitled on business expenses, along with any PAYG(I) liability,” Ms Carnell said.
“The result will be reduced by the amount already remitted to the ATO at the time the customer paid for the sale.”
The ability to opt in to immediate GST payments, Mr Treatt said, will negate the temptation to use the funds for working capital.
“That’s actually what I love about it,” he said. “This is an opt-in [option]. If you think, ‘Hey, this is going to help my business perspective, you can choose to opt in’.
“That could help you not get into trouble because you’re not tempted to use some of that cash for working capital, therefore exposing you to penalties.”
Offering more clarity around small business compliance obligations emerges as a key driver of the recommendations, too, as Ms Carnell urges the ATO to disclose all data that could better inform and support taxpayers around their compliance obligations.
Ms Carnell suggests making all known and relevant ATO data easily available to tax agents, and that the ATO pre-populates a small business taxpayer’s return with gross revenue obtained through lodged business activity statements, and wages and superannuation reported through Single Touch Payroll.
“Over the past few decades, administration responsibilities have shifted from the government to small businesses, which face significant penalties and interest if an honest mistake is made,” Ms Carnell said.
“That’s why our report makes a number of recommendations to take this unnecessary burden off the shoulders of small businesses.
“At the end of the day, the taxation system should be easy to get right and hard to get wrong.”
Mr Treatt said that not only will doing so offer taxpayers a better chance to educate themselves on their tax system, but it will mitigate the risk of small businesses getting it wrong, too.
“It takes the burden off smaller businesses who are out there doing their best to understand and comply with what is a very complex system,” he said. “And the cost of getting it wrong? Particularly with withholding — it’s up to a 200 per cent penalty.”
John Buckley is a journalist at Accountants Daily.
Before joining the team in 2021, John worked at The Sydney Morning Herald. His reporting has featured in a range of outlets including The Washington Post, The Age, and The Saturday Paper.