10 February 2006 
 
Small businesses suffering from complicated tax laws may have ‘help-at-hand’ following an extensive report produced by the Institute of Chartered Accountants, which is designed to reduce regulatory burden on small businesses.  
 
The Institute commissioned Professor Neil Warren from Atax to produce the report which focuses on improving access to the various tax concessions currently available to small businesses. Recommendations include consolidating and simplifying the ‘definition’ of small business within income tax, FBT and GST legislation.  
 
The Institute’s Tax Counsel, Ali Noroozi, said the complexity associated with the small business tax concessions was a consequence of successive Governments introducing concessions for small business at different times for different purposes. As a result, a number of varying access criteria and definitions have emerged on a seemingly adhoc basis.  
 
“A new, simpler definition and criteria should be able to be applied consistently throughout the Australian income tax, FBT and GST legislation. The main aim is to improve access to tax concessions and reduce the compliance costs which will also have flow-on benefits,” Mr Noroozi said.  
 
“Small business is critical to Australia’s growth as it accounts for almost half of the employment and around a third of Australia’s economic activity. One of its major concerns remains the complexity of the current tax system and associated compliance costs. Our recommendations directly address those concerns as they relate to accessing small business tax concessions”.  
 
The report will be sent to government with a view to providing further support for the consideration of the Taskforce on Reducing The Regulatory Burden on Business.  
 
See Notes to Editors for further detail on the recommendations.  
 
The full report is available upon request.  
 
Notes to editors  
 
Key recommendations:  

1. Technical criteria  
    
   Turnover should be the main criterion for access to small business concessions. In some cases policy reasons dictate that this be supplemented or replaced with an assets test.  
    
   Precise thresholds for turnover and assets are a policy decision and do not impact upon, nor should they be used as a diversion from, the prime goal of a simplified definition. Hence, while the report suggests and uses a basic turnover threshold of $2 million and an assets threshold of $6 million in drafting a sample proposed new definition, the suggested form of this definition allows for deviations and perhaps higher thresholds, such as $20 million, for other concessions where justified.
 
 

2. Grouping  
    
   The preferable approach was to review the current grouping measures and reflect the tests used, but in a simplified manner. This simpler approach incorporates the following features:  
    
   
   • Easy readability – using clear, commonly understood terminology, as succinct as possible and a logical arrangement and progression
    
   
   • Use of general concepts that can, nevertheless, be readily applied and that a court could easily interpret if required
    
   
   • Prima facie rules that give certainty as to how to apply the general concepts – but being prima facie rules, they are capable of being overturned in an appropriate situation to reflect the underlying substance of the primary tests.
    
   
3. Process of definition  
    
   There are three key points for achieving simplification through the process of definition, despite allowing some deviation:  
    
   
   • Consolidate all the relevant access definitions in a single area, so that business or their advisors can easily view all the concessions for which they will or will not potentially qualify.
    
   
   • If there is to be deviation, treat it as such – in other words, commence with the basic definition and use it to the maximum extent possible, rather than writing completely separate and different definitions.
    
   
   • Focus parliamentary attention on the fact that there is deviation.
    
   
4. Sample new legislation  
    
   A preliminary draft of a ‘Small Business (Definition) Act’ has been provided that demonstrates the methodology and uses the uniform criteria recommended in the report.