Compliance regime for small business faces revolutionary change

The Board of Taxation has recently released a report titled Review of Tax Impediments Facing Small Business, which contains its recommendations to government on what it deems to be the main impediments to small business owners in Australia. The board is a body that was set up to look at various aspects of our tax system and make recommendations based on the board’s expertise.

The recommendations in its latest report are based on a stated aim of reducing the cost of compliance and to “focus on options for the simplification and deregulation” of the small business regime. In particular, it was charged with looking closely at aspects of the present tax system that unreasonably impede the goals of a broad cross section of businesses.

The report identifies a number of initiatives that the Board of Taxation believes can be implemented relatively quickly, and it says the Tax Office has already started implementing aspects that it agrees with. Other recommendations would require legislative change and therefore will need to go through the required processes if they are adopted.

Not all recommendations are listed below — see Appendix A of the report (download it here) for the full list. However the main takeaway points that will affect small businesses are the following:

Small business entity test

Based on Australia’s business population data, the Board of Taxation has recommended that the small business turnover threshold be increased to at least $3 million (from its present $2 million turnover). It also recommended investigation of the feasibility of further increasing the threshold to $5 million.

CGT concessions

Complexity and cost of compliance were the two main concerns raised about the small business CGT concessions. The board identified some options to improve the regime, which includes the option of raising the turnover threshold and considering a more “tapered” approach to the concessions. However it considers that a comprehensive fundamental review is warranted.


One suggestion to note is its recommendation to raise the “minor and infrequent” FBT threshold from $300 “to at least $500”. It has also recommended that that there be an investigation of the possibility of aligning the FBT year to the income tax year. The board notes however that transitional implications and reporting timeframes would need to be considered.

Activity statements

One (possibly) welcome change that the board mentions is the possibility of reviewing whether small businesses could simplify reporting obligations so that an annual combined income tax return and business activity statement, based on the same data, could be lodged once annually after the end of the financial year.

Personal services income tests

It also says that while the Tax Office has developed a decision tool to work through the personal services income (PSI) tests, further work needs to be directed to this tool so that clarification is provided to the user about what tax outcomes will emerge from the test results. It goes further by recommending that where the PSI tool is used in good faith, this should provide protection from the imposition of penalties where the user relies on the outcome.

Super guarantee charge

The present penalty regime faced by employers regarding the super guarantee charge (SGC) is described by the board as being “unnecessarily harsh”, and implemented with “often disproportionate outcomes”. It therefore recommends that a broad discretionary power be implemented where the Tax Office can remit certain SGC components. A review and/or objection process would be required.