Small business and the Australian Federal Budget

29th April, 2016

The small business community may have a long wish list ahead of this year’s federal budget, but it may have to wait to get all it wants.

There was plenty for small business to smile about in last year’s budget – an instant write-off for the purchase of assets up to $20,000 and a 1.5 per cent drop their tax rates.

Non-incorporated businesses, such as sole traders and contractors, also got a 5 per cent tax discount, capped at a $1,000 per year benefit.

But this year, many expect the government’s focus to be on the big end of town. There’s been some talk of a 1.5 per cent drop in the corporate tax rate of larger companies, so that their tax rate matches that of small business. Also widely expected is a focus on multinational and corporate tax avoidance, and changes to thin capitalisation rules.

Generally, however, the small business sector appears to be in the dark about what to expect.

“The government seems to be in disarray,” says Anne Nalder, founder and CEO of the Small Business Association of Australia (SBAA).

“There hasn’t been much talk or any leaks. When we had Bruce Billson as the Minister for Small Business, we usually knew what we could expect. There was a lot more communication between government and the small business sector then.

“There have been some leaks about company rate cuts, but we will have to wait and see. But with an election pending, the political debate isn’t on the things that affect the majority of small businesses.”

Many small businesses aren’t expecting much either. A recent survey by accounting network Bentleys found that close to 40 per cent of small and medium-sized businesses (SMEs) believe the budget will not include measures beneficial to them. Most, however, want the government to get out of the way of their day-to-day operations, with simplified compliance and reporting processes at the top of most budget wishlists (64 per cent).

That’s also what Craig West, executive chairman of the SME Association of Australia, wants to see in this year’s budget.

“We need to simplified ways of doing business,” he says. “Dealing with the Australian Securities and Investments or Australian Taxation Office can be a nightmare. Nothing can be done online or easily. Everything is slow. It’s all done on paper and physical. We’d also like to see is making the funding for small business easier, for example, through crowdfunding.”

West also hopes that more details will be announced around some of the reforms included in the government’s National Innovation and Science Agenda. “It’s great to talk about things, but you have to make it happen. And, we would like to get some clarity around Employee Share Schemes. They’ve been talking about this for ages.”

Most of all, he says small businesses are looking for certainty. “We haven’t had that for some time in Australia. We’ve had so many changes in prime ministers, governments and everything else. If we can get some certainty and clarity around where we are heading and what we are doing, that would be fantastic,” says West.

In its pre-budget submission, the Council of Small Business of Australia (COSBOA) called for a flexible and less complex tax system so that small business owners could focus on growing their businesses and not on unnecessary administration.

One suggestion was allowing small businesses to “opt in” to a system where they declined all applicable deductions in exchange for a much lower tax rate.

“This would reduce costs and the administrative burden on the tax system and create less need to maintain records for tax purposes, which are currently a drain on the resources of small business,” explains COSBOA CEO Peter Strong.

In terms of legislation, Nalder would like to see Australia embrace a small business Act, similar to those in the European Union and United States.

“This would ensure that when governments are considering budgets and other changes, they take into account the impact these have on small business,” she explains.

“No matter which party is in power, this Act would be a blueprint for what the government should do and the areas it should cover. Australia has never had a plan for small business.

“The way we’ve approached small business is a bit like having a dozen builders construct a house from different directions without a plan.”

But Nalder adds: “If we do get anything at all in the budget, I do hope that the government thinks it through carefully and ensures it is workable and beneficial at the end of the day. Sometimes what it introduces doesn’t work in practice because it doesn’t always understand what’s really affecting small business owners.”