2nd February 2005 
 
Exploring whether the burden of small businesses accessing tax concessions could be eased with clearer eligibility criteria and a uniform definition of what constitutes a small business should be a priority for the federal government according to the Institute of Chartered Accountants in Australia’s 2005-06 pre-budget submission.  
 
In its submission the Institute expressed its concerns about the ability of small business to access available tax concessions because of inconsistent eligibility criteria. 
 
“The definition of a small business is generally determined by reference to turnover, however, tax legislation specifies different turnover thresholds and eligibility criteria for small business concessions,” said Institute Tax Counsel, Mr Ali Noroozi. 
 
“This situation leads to confusion and hampers businesses ability to source eligible concessions as well as creating an additional compliance burden. 
 
“The Institute recommends the government conduct a review of how the definition of small business and the eligibility criteria for various concessions be made consistent through tax legislation”. 
 
In other recommendations that benefit small business among others, the Institute has called for reform of GST legislation and Fringe Benefit Tax (FBT) provisions. 
 
“In some parts GST legislation is badly written and ambiguous, it has been in place since 1 July 2000, and a review to ensure that the GST provisions are achieving their original stated objectives is overdue,” Mr Noroozi said. 
 
The Institute said small business has been overwhelmed by the sheer volume and complex definitions within FBT legislation that is inequitable, too complex and too costly to small business to comply with. 
 
“Measures to simplify the application and administration of FBT, including an increase to the threshold for minor benefits to $200, should be introduced,” Mr Noroozi said. 
 
The Institute said small business would also benefit from a review of Division 7A of the Income Tax Assessment Act (1936). Broadly this section deals with taxation of payments and loans made to shareholders by private companies or their associates. 
 
Division 7A took effect in December 1997, however since that time problems with the practical application of the provisions to small businesses operated through companies and family groups have arisen. 
 
“The provisions are quite broad and their application results in unduly harsh consequences for companies and shareholders,” Mr Noroozi said. 
 
The Institute’s submission also calls for funding for further general business tax reform, including legislating for announcements made more than two years ago but not yet implemented. 
 
It said there are several outstanding business tax issues including reform relating to blackhole expenditure, at call loans, a simplified imputation system and recoupment of company losses.  
 
Mr Noroozi, said the continuation and completion of the government’s agenda in regards to tax reform was crucial to clear ambiguity in the area. 
 
“For example share capital tainting and related payment rules are yet to be rewritten under the simplified imputation system which has applied from July 2002,” Mr Noroozi said. 
 
The Institute said it was also waiting for the government to commence consultation on draft legislation on a proposed carve out for small business at call loans as transitional rules applying to these loans cease after 30 June 2005. 
 
“The government must adequately fund for the completion of business tax reform generally,” Mr Noroozi said. 
 
The Institute said it was also looking for major reform to the personal tax system with two key recommendations of the submission being to reduce the top personal tax rate from 47% to more closely align with the corporate rate of 30% and indexing marginal tax rates to CPI to avoid ‘bracket creep’. 
 
“At the very least the government should commence consultation on holistic reform of Australia’s personal tax regime as previous reforms have been ad hoc and often in response to the prevailing political climate. 
 
“With considerable issues of economic efficiency and social equity there is no greater taxation issue facing Australia than personal taxation reform,” Mr Noroozi said. 
 
Other areas in the submission include: 
 
IFRS: The Institute has identified six key tax issues, including thin capitalisation and consolidation, that arise from the introduction of International Financial Reporting Standards, some of which may have unintended consequences that will disadvantage taxpayers. “The government will need to allocate sufficient and appropriate resources to urgently address the taxation issues that arise from the adoption of international standards,” Mr Noroozi. 
 
INTERNATIONAL TAX: The government should continue its commitment to reforming Australia’s international tax arrangements by continuing consultation and implementation of the remaining RITA reforms; considering the Board of Taxation’s recommendations relating to deemed imputation credits for unfranked dividends paid out of foreign source income; and reintroducing measures concerning temporary residents.