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Ken Phillips is co-founder and Executive Director of Independent Contractors of Australia. He is a published authority on independent contractor issues and directs research on related commercial and trade practices issues. Through his numerous articles in newspapers and think-tank and academic journals, Ken is known for approaching issues from outside normal perspectives and is frequently sought out for media comment.

Small business policy is greater than the sum of its parts

Wednesday, May 06, 2015

It’s a bit of a magician’s act to make something big out of something small. But that’s the task the Abbott Government has put before it in staking so much of its economic credentials on the small business sector.

However, when you realise that over 60 per cent of the workforce work in SMEs, the government is not playing a magician’s game but responding to a hard-core economic reality. As the mining boom winds back, small business has to be a primary target for jobs growth. It’s already been announced that next week’s budget will strongly feature small business incentives.

A lower tax rate for incorporated small businesses has been the major initiative placed on the table. Noises are also being made around allowing small business asset purchases to be written off in the year the purchases are made, though nothing on this has yet been announced.

What has just been announced, however, is a package to make starting a new business easier.

The government’s going to allow professional costs (lawyers, accountants, marketing plans and so on) made in the process of starting up a new business to be immediately tax deductible, rather than deducted over a five-year period. Frankly, this is a piece of tax accounting detail -- let’s just call it nonsense. To start a business and not be able to claim these start-up costs at the time of spending the money is simply illogical. But who ever said tax is logical? Fixing this is a sensible ‘tax justice’ step forward.

Running parallel to this, the government intends to allow small business owners to change the legal structure of their business, say from a partnership to a company, without finding themselves with a capital gains tax bill. Again, it seems incredible that this is currently the case. People most affected will be those who are growing a business. When a business first begins, a simple structure is best – sole proprietor or partnership. But if growth occurs, becoming a company is often more appropriate. Removing this existing capital gains risk makes sense.

Furthermore, the government is going to investigate whether there are corporate regulations, presumably for small businesses, that can be removed or relaxed. This will target easing up the complexity of corporate structures.

I’m on the board of a small, volunteer, not-for-profit association that last year incorporated. We felt that the board member who handled the incorporation process deserved high praise for his fortitude in the face of the red tape war that had to be waged. Yes, please fix this up.

Another item on the government’s to-do list is the creation of a single online registration site for business registrations. There’s no detail around this, but the idea makes sense. Currently, separate processes are required for Australian Business Numbers, Tax File Numbers, company registrations, business names, workers compensation, employee tax withholding and so the list goes on. It’s unclear what will be merged or how, but it’s a positive concept.

My hope would be that this initiative might trigger major improvement to the mess the Australian Taxation Office has made of ABN allocations. The Board of Taxation has noted a “lack of transparency around the registration process” and that much of it created “an unreasonable impediment to small businesses”.

The joint announcement by Treasurer Hockey and Small Business Minister Billson flags expanded tax concessions for employee share schemes. This has been talked of for some time, what is new, however, is opening up crowd-sourced equity funding for small businesses. Again, details are not known but both the UK and New Zealand have legislation in this area that has apparently produced positive results. These countries provide templates for the government to consider.

This announcement is one of conceptual intents. We will wait until budget night for the details, no doubt located somewhere in the piles of budget documents.

Each of the items above is relatively small news when taken on its own but the hard grunt of reform usually requires a focus on individual items to produce a cumulative overall positive outcome.

It’s this attention to reform detail that the government clearly hopes will create an improved small business focus. This should eventually lead to jobs growth in the biggest chunk of the jobs sector in Australia. 

[First published in Business Spectator, May 2015]

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