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Submission No. 180 Back to full list of submissions
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Australian Council of Businesswomen Ltd
ACN 071 750 788

SUBMISSION
TO THE
REVIEW OF BUSINESS TAXATION

 

FROM
AUSTRALIAN COUNCIL OF
BUSINESSWOMEN
(ACOB)

 

SUMMARY OF RECOMMENDATIONS

Recommendation 1 that if the government introduces the lower corporate tax rates, then a review is required of the tax equity between businesses operating as sole traders or partnerships versus those operating as corporations.

Recommendation 2 if the government taxes Trusts as if they are incorporated businesses, then a review is required of the tax equity between trusts run by small, family entities and those run for larger businesses.

Recommendation 3 that the R&D tax relief remains in place and the relief is made available to trusts, sole traders and partnerships.

Recommendation 4 that the use of the R&D tax relief should be reviewed to ensure that it achieves the required transparency and equity and that it remains beneficial to Australia’s economic competitiveness.

Recommendation 5 that the government makes a special provision for the tax rate for Venture Capital.

Recommendation 6 that the government make every attempt to explain the business tax system to the majority of businesses taxpayers – small and micro businesses. This can be easily achieved by employing specialists in simple English and other languages to write the material for small business owners.

Recommendation 7 that the tax reporting system be simplified for businesses with revenue below the proposed GST threshold.

Recommendation 8 that the immediate write-off provision for low-cost items is increased to $1000.

 

 

AUSTRALIAN COUNCIL OF BUSINESSWOMEN (ACOB)

The Australian Council of Businesswomen (ACOB) takes pleasure in commenting on the Review of Business Taxation Discussion Paper 2. (RBT)

ACOB is a non-profit organisation formed in November 1995 to be a representative lobby group to improve the lot of all women in business. The membership of ACOB consists of large corporations, small businesses, micro businesses (less than 5 employees) and associations involved in the promotion, advancement and benefit of businesswomen.

Membership fees and sponsorships fund ACOB. Westpac is a major sponsor of ACOB but does not impose any policy constraints on ACOB.

ACOB would like to thank the Hon. Peter Reith, MP, Minister for Employment, Workplace Relations and Small Business for convening a Small Business Round Table to discuss the Report. We would also like to thank the Hon. Peter Costello, Treasurer, Mr John Ralph AO and Mr Rick Allert AM for attending the Round Table.

 

Explanatory Note

Where reference is made to specific items in the RBT, the reference is shown as chapter and paragraphs. For example (Ov 21) refers to Overview, paragraph 21.

In this document sole trader means an individual natural person, partnership means individual natural persons in partnership.

INTENTIONS

The RBT has 3 national objectives with which we wholeheartedly agree, (Ov 273) namely to: -

  1. optimise economic growth
  2. ensure equity
  3. facilitate simplification

If we can achieve an internationally competitive and economically effective tax base then we can expect to see growth in business opportunities and general wealth for the community.

To achieve these objectives the report (Ov 8) recommends goals of

  • 30% company tax
  • further reform of the Capital Gains Tax (CGT)
  • changes to bring tax values and commercial values closer together
  • revenue neutrality for business investments.

Conceptually these are excellent goals but it is in the application that inequities can arise and will affect our members.

30% CORPORATE TAX RATE AND EQUITY

Recommendation 1 That if the government introduces the lower corporate tax rates, then a review is required of the tax equity between businesses operating as sole traders or partnerships versus those operating as corporations.

For large corporations the 30% tax rate is applauded.

The change to the corporate tax rate will exacerbate discrepancies between incorporated businesses and small businesses operating as sole traders or partnerships. The majority of small businesses operates as partnerships or sole traders (only 13% of small businesses are incorporated) and will be taxed at the personal tax rates. If RBT is adopted as it currently stands, our members who are in small and micro companies will be disadvantaged. This is an equity issue that currently exists and does not appear to have been resolved in the report.

TAXING TRUSTS AS INCORPORATED ENTITIES

Recommendation 2 If the government taxes Trusts as if they are incorporated businesses, then a review is required of the tax equity between trusts run by small, family entities and those run for larger businesses.

The strategy to tax trusts in a similar manner to incorporated businesses makes economic sense. While on the one hand we acknowledge that trusts can be used for tax minimisation that produces unacceptable inequities, we also acknowledge that many business entities at the smaller end of the scale only survive through Trust arrangements. Many small businesses are in fact family businesses where the family assets, including the home, are at risk. Trusts are intended to give effect to the concept of the family ownership and family risk involved in the business.

If all Trusts are taxed as incorporated bodies, we may see unintended consequences of large amounts of tax being paid by individuals who would otherwise pay much lower tax rates if they were taxed under the personal income tax rates.

ECONOMIC COMPETITIVENESS AND R&D

Recommendation 3 that the R&D tax relief remains in place and the relief is made available to trusts, sole traders and partnerships.

Recommendation 4 that the use of the R&D tax relief should be reviewed to ensure that it achieves the required transparency and equity and that it remains beneficial to Australia’s economic competitiveness.

If Australia intends to become economically competitive, it is essential that we continue with improvements obtained through R&D. The current tax incentive for R&D is excellent in practice for corporations. It is simple to implement and encourages the appropriate attitude and behaviour to improve through innovation. It meets the definition of a "superior form of government intervention" (Ov 95).

Unfortunately, this tax advantage is only open to corporations and hence is not available to trusts, sole traders or partnerships. As most new small businesses start as sole traders or partnerships, they are unable to access the R&D benefit thus leading to an inequity. Grants are available for these organisations but the complicated application process proves, in practice, to disadvantage small businesses and trusts compared to large corporations.

The RBT recommends that when the tax system is used to achieve non-tax objectives, the operation shall be efficient, cost effective and transparent (Ov 10). The current R&D tax relief is very efficient and cost-effective to the companies using the system. It is not transparent to the taxpayer what benefit is achieved from this incentive.

Because of the overwhelming capacity of the R&D benefits to further the economic competitiveness of Australia, ACOB does not agree with removing the R&D tax benefits. However the equity and transparency issues need to be addressed.

ECONOMIC ACTIVITY AND VENTURE CAPITAL

Recommendation 5 that the government makes a special provision for the tax rate for Venture Capital.

It is very difficult to obtain Venture Capital (VC) for entities within Australia. To grow, Australia needs to encourage the establishment and continued existence of innovative businesses through VC. Currently, our tax system is not competitive with other countries in this area. The USA has introduced tax rates of 10% for Venture Capital.

RBT states that it is the government’s intention to establish Australia as a centre for global financial services (Ov 94). This cannot happen if VC is not competitive.

SIMPLIFICATION OF THE TAX LANGUAGE

Recommendation 6 That the government make every attempt to explain the business tax system to the majority of businesses taxpayers – small and micro businesses. This can be easily achieved by employing specialists in simple English and other languages to write the material for small business owners.

We applaud the intention of making the tax laws more readily understood by the people who pay the tax.

The majority of business entities are small businesses. Whilst the RBT is expressed in simple language compared to much of the existing tax law, the language and content is still inaccessible to many small business operators.

It is essential that the concepts proposed in RBT should be easily understood by the bulk of the business entities – the small and micro businesses – without them having to pay their business advisers to explain the report.

 

SIMPLIFICATION OF THE PAPERWORK FOR TAX

Recommendation 7 that the tax reporting system be simplified for businesses with revenue below the proposed GST threshold.

 

Recommendation 8 that the immediate write-off provision for low-cost items is lifted to $1000.

Small businesses traditionally operate on very small overheads. It would be of great assistance to small businesses if the paperwork associated with the tax system could be made as simple as possible.

This can be readily achieved if the tax reporting system is very simple for businesses with revenue less than $500,000 (the proposed GST threshold).

A further simplification is in the area of depreciation. If the current threshold of $300 is lifted to $1000 then the bulk of purchases by small businesses (especially for computer related items) will be readily dealt with in the accounts.

 

We are aware that a number of submissions are being made by other organisations regarding the RBT. Therefore, we have not attempted to deal with the technical issues regarding taxation but have chosen to focus on the conceptual framework as it applies to our diverse membership. We thank the government for the opportunity to comment.