Small business is lost in a jungle of taxation law

Taxation requirements for small businesses gobble up so much valuable time, with constantly changing rules, systems and reporting obligations leaving businesses bamboozled.

Business owners simply don’t have time to keep up with the miriad of tasks that are so complex and confusing that it takes a law degree and a commerce degree to ensure compliance. Given that many business owners are Directors of their own companies, regardless of the advice their accountants and lawyers give them; the ultimate responsibility falls on their shoulders.

If you think this is just a small issue in economic terms, remember that there are approximately 2 million small businesses in Australia. They employ more people than any of the large multi-national companies, struggle to make profits and don’t have payroll departments or in-house finance specialists. They must rely on the ATO, accountants, lawyers and the media for their advice.

Is it surprising small business is bewildered and bamboozled when superannuation, employee benefits, sub-contract rules or penalty rate rules change? Updating their systems is not a press of a button; it involves training staff, upgrading software or other systems and stressing the cash flow on a day-to-day basis.

GST reporting was supposed to be easy

Completing a monthly or quarterly BAS Return has a tiny box that is offensive to those completing the process. At the conclusion of reconciling income, expenditure, wages and superannuation, the ATO asks you to tell it how long the process took in hours and minutes.

How offensive!

Many businesses simply record the 60 minutes it took to complete the form. They don’t account for wage reconciliation or adjustments to employee benefits. Prepaid invoices, goods in transit on which partial payments have been made, the 3 transfers with poorly written descriptions…. and that’s before we start on part days off – were they sick days? Other personal leave? Or was it a single annual leave day?

Ready to enter the actual time yet? Not so fast. Why didn’t the superannuation balance between the payroll and banking systems? Call your bookkeeper. They need help from an accountant. But there is no room in the box for these valuable hours.

It was so easy before Budget2018. Then the rules changed again, and you received a warning letter from the ATO in the midst of it all.

It was days and hours, not hours and minutes. The bookkeeper is frazzled, the accountant frustrated and you are totally bamboozled. Is this what operating your restaurant or plumbing business was supposed to be like?

ATO compliance credibility questioned

Recent media reports by the ABC and Fairfax highlighted the stress of ATO threats to business owners – over compliance to tax law. Given that tax law is inconsistent in the application of small business concessions, it is highly likely that 2 professionals may give different opinions on the meaning of the law.

“The complexity that is created by all the different qualifying requirements means that most taxpayers who operate in this space require substantial tax agent assistance in order to understand their tax compliance obligations. Even then they often get it wrong.”

Professor Robert Deutsch of The Tax Institute

Simplification of small business taxation as proposed by the Tax Institute has received little comment from the government. The key problem is not small business tax as compliance. It is as if the ATO thrives in an environment of complication – rather than simplification.

It is vital that the risk of starting a small business provides great rewards financially. Small business often pays wages but doesn’t generate profits to reward the risk taker. Only when we view a small business as its own entity, with a vision, mission, product or service that is purchased by consumers at a rate that includes a significant profit margin can we hope to unlock the entrepreneurial spirit of the risk taker and increase the number true Masters of Trades in our economy.

If a business owner is truly great at what they do, they deserve to be rewarded for it, not tied up in a maze of red tape, changing rules and compliance.