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Small Business Policy

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    Starting a small business in Australia can be both exciting and daunting. Small businesses have access to many government support programs, but they also have their own unique legal requirements that must be met. This blog post provides an overview of Australian small business policies, including the benefits and disadvantages of starting a small business in Australia.

    We will talk about some of the barriers you'll face as well as what you need to do before you start your company. We'll also discuss what it means for your employees if you're considering employing staff members, as well as how to protect yourself from fraudsters who may try to take advantage of new entrepreneurs seeking guidance with their first steps into the world of running a company through scams or asking for money upfront.

    If you're interested in small business policy, then this blog post is for you.

    It will provide information on the current policies in Australia and their effects on the economy. If you want to learn more about how government can affect your business, make sure to read.

    Comprehensive Small Business Policy

    The economy of Australia is driven mostly by its micro, small, and medium-sized businesses. Small firms employed around 44 percent of the 10.7 million persons who had jobs in the private non-financial sector, while medium enterprises employed approximately 23 percent of those workers.

    In Australia, there are over two million small enterprises, of which around 61 percent are owned and operated by sole traders, while approximately 28 percent have between one and four employees. There are over 200,000 small enterprises in the United States, of which around 10% employ between five and nineteen people.

    Small enterprises may benefit significantly from economic measures undertaken by the government. It is possible for the government, with the correct legislation, to assist small enterprises in the creation of jobs and wealth for the community.

    In industries such as construction, services, retail, hospitality, and transportation – all of which are experiencing growing pressure and upheaval – the prevalence of smaller firms is expanding.

    Reduce Red Tape

    Small businesses are being held hostage by an excessive amount of regulation at every level of government. Both the time and the money that are spent on complying with burdensome laws may be used more efficiently to build the firm, and the fact that there is unneeded duplication makes the problem much worse. Let there be less bureaucratic inefficiency and more relief for small enterprises.

    The process of decision-making among business owners is influenced and directly affected by bureaucratic red tape. As a result, the federal government, as well as state, territorial, and municipal governments, need to acknowledge the impost and work to lessen its impact.

    The majority of economies are moving towards more stringent regulation. In order to stop the tide, politicians need to refrain from using legislative remedies as their initial response to a perceived problem and recognise that governments are unable to eradicate all hazards.

    Many smaller firms may not have the resources necessary to meet their compliance duties, in contrast to larger businesses which typically have more available resources. These smaller firms have valid issues that need to be addressed by the government.

    Make Tax Laws Simpler

    Reforming the tax system and lowering tax rates are two steps that can stimulate economic activity; improving the state of the government's finances requires taking these steps.

    People should be encouraged to participate in the labour force through our tax system, and small businesses should be incentivized to make investments. There is not nearly enough awareness of the positive effects that tax reform would have on our economy, jobs, investment, and our country's long-term riches.

    The goals that governments have for both the current generation and future generations need to be laid clearly. On the other hand, the current policy impasse has resulted in a tax structure that calls for an in-depth examination as well as significant changes.

    Many people who run small businesses find our tax system to be difficult to navigate. The current Australian income tax law is built on historical tax foundations and many amendments that have been enacted since then in response to unanticipated effects or new ways of conducting business. These changes were made.

    This results in needless expenditures and an increase in the complexity of operations for small enterprises, many of which are need to hire specialists. The resources that are currently spent on complying with the tax system could be redirected to pursuits that are more productive.

    Make Hiring People Simpler

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    When it comes to hiring, retaining, and firing employees, it can be expensive for small businesses to operate in Australia. When times are difficult, it typically means that people lose their employment and their hours. Additionally, it may be challenging to find individuals who possess the necessary expertise. Let's make it less difficult to hire new workers and start new businesses.

    Because of the high expense of labour, many small businesses choose not to be open in the evenings, on weekends, or on public holidays. On the other hand, when they are open during these times, the proprietors of the small businesses and their families frequently work.

    People who desire to work during these hours but are unable to because businesses are closed suffer the consequences of excessive penalty rates. When businesses go out of business, not only do their clients and workers suffer, but so do the governments that lose tax money.

    Employers and workers should be able to enjoy the benefits of mutually beneficial arrangements that fit their needs while yet having the security of a safety nett to fall back on if things go wrong.

    Bargaining in the workplace is frequently utilised by labour unions in order to advance causes that are unconnected to the direct relationship that exists between employers and employees. Some examples of these causes include the restriction of the employment of independent contractors. Therefore, we need to restrict the bargaining demands of unions to issues that are directly related to the interactions between employers and employees.

    Improve Infrastructure

    Roads, railroads, and ports are the primary modes of transit utilised by small business owners and operators to move both their products and themselves. Despite this, our major thoroughfares are clogged with traffic, our ports are at a standstill, our rail networks are creaking under the strain of increased usage, and our communications infrastructure is having trouble delivering internet connections that are safe, dependable, and quick. In addition, the price of energy is going through the roof, which is making us less competitive.

    This impacts all of us, but it is especially challenging for locally owned and operated businesses. Therefore, now is the moment to take action by improving the infrastructure now in place.

    Make It Easier For Small Business To Get It Right And Harder To Get It Wrong 

    Australia’s system of legislation covering taxation and the surrounding regulatory environment is one of the most complexes in the world. While the system is built on three main pieces of legislation – the Income Tax Assessment Act 1936; the Taxation Administration Act 1953; and the Income Tax Assessment Act 1997 – there are approximately 47 Acts in force that deal with various sections of income tax alone, on top of which are relevant Acts for other specific taxes, for example, those relating to the GST. In total, Australia has about 125 different taxes operating within their associated legislative and regulatory environment.

    The foundation for the existing laws were written over 80 years ago, and the attempt at simplification in 1997 resulted in an additional piece of complex legislation. However, with the advancements in regtech and business accounting and compliance software, we should be able to make it easier for small business operators to understand their compliance obligations and to meet them in a timely manner.

    The first step in this process is to incentivise small business owners to digitise across their accounting and record-keeping systems. STP has laid the groundwork for this. The next step is integrating that data into tax compliant reporting to streamline the lodgement and payment functions.

    Recommendation 1: ATO should pre-populate small business tax returns. Since 2009, the ATO has provided a pre-filling facility for individual taxpayers, where their tax returns can be automatically populated with data reported to the ATO by third parties.

    This includes wages, interest received, dividend income, managed fund and trust distributions, and superannuation contributions made. My Office proposes that the ATO extend the pre-filling service to small businesses. For example, the business schedule in the annual income tax return would be populated with data held by the ATO; gross revenue obtained from the lodged business activity statement (BAS) returns, and wages and superannuation expenses as reported through the STP system.

    Recommendation 2: In addition to ongoing and appropriate integration of accounting software with tax systems, all known and relevant ATO data should be easily available to registered tax agents, and the ATO should pre-populate a small business taxpayer’s return (including data from the Taxable Payments Reporting System).

    Recommendation 3: Make ATO specialist advisers available in certain Centrelink Offices to assist small business taxpayers personally.

    Recommendation 4: Ensure interpretive consistency across ATO and other agencies on critical issues such as the employee-contractor distinction and the research and development tax incentive program. There is no agreement on a relevant and material interpretation, so taxation penalties and interest charges cannot apply to a small business taxpayer.

    Recommendation 1

    ATO should pre-populate small business tax returns. Since 2009, the ATO has provided a pre-filling facility for individual taxpayers, where their tax returns can be automatically populated with data reported to the ATO by third parties.

    This includes wages, interest received, dividend income, managed fund and trust distributions, and superannuation contributions made. Accordingly, my Office proposes that the ATO extend the pre-filling service to small businesses.

    The business schedule in the annual income tax return would be populated with data held by the ATO; gross revenue obtained from the lodged business activity statement (BAS) returns, and wages and superannuation expenses as reported through the STP system.

    Importantly, this proposal provides certainty to taxpayers who have reported revenue and employee entitlements honestly throughout the year. In addition, businesses that operate in certain industries and supply specific services have been required to provide details of payments made to contractors to counter the informal economy.

    These payments are reported annually to the ATO via a taxable payments reporting system (TPRS). The intention of the TPRS is reasonable, and my Office welcomes any technological improvement to assist businesses to ensure the correct amount of tax is paid.

    It seems reasonable and simple that a small business contractor who has been reported via a TPRS report should receive an electronic summary of payments made to them over the previous financial year to simplify their own tax affairs.

    Recommendation 2

    ATO advisory officers within Government shopfronts Centrelink offices have become hubs for government services, allowing individuals to deal with Centrelink, Medicare, and Child Support in the one location. In addition, the various States have introduced shopfront service centres where any government matter can be dealt with at the one location.

    The Ombudsman recommends that the ATO make small business advisers available in certain Centrelink offices to assist small business owners with taxation matters. Importantly, these small business advisers should be able to give real-world, specific advice to small business owners and explain their current tax position in terms of lodgement and account balances.

    Naturally, the ATO advisers would not be able to provide specific financial services advice or any other advice which they are unqualified to deliver. However, the adviser should be able to provide more detailed advice than that which can be found on the general ATO website and help explain the taxpayer’s position to them.

    Recommendation 3

    Interpretive consistency between agencies is crucial. In December 2019, ASBFEO released a Review of the R&D Tax Incentive (R&D TI), which highlighted the current difficulties and negative consequences for small business taxpayers when government agencies operate inconsistently on common ground.

    We wrote: The (R&D TI) program requires a fairer, more consistent, educative and customer-focused approach by both the Department of Industry, Innovation and Science (AusIndustry) and the Australian Taxation Office (ATO) embedded consistently throughout both networks.

    A self-assessment system for registration in the R&D TI program, without any process for confirmation or approval of such registration, leaves small business participants uncertain and at risk of retrospective amendment or outright rejection of their R&D activities. The very real potential for financially devastating consequences is detailed in our report.

    Further, our Assistance function within ASBFEO regularly receives complaints regarding the inability to obtain reliable advice from Fair Work Australia or the ATO on categorising workers as employees or independent contractors. Business.gov.au provides general advice on the distinction between an employee and a contractor, and the ATO website hosts an employee/contractor decision tool, which

    • uses the information the user provides to outline their tax and super obligations;
    • draws on outcomes of court cases that considered various indicators to establish whether a person is an employee within the common law meaning of the term;
    • does not consider other obligations – for example, payroll tax or WorkCover obligations; and
    • is designed to guide the user’s decision

    The ATO website advises users that independent advice or a private ruling should be sought if they are still unsure about their individual circumstances. 14 The consequences of not having clarity and certainty on the status of workers engaged by a small business can be catastrophic to that business.

    Under ATO review, if the small business is found to have wrongly categorised workers and particularly where superannuation guarantee contributions are involved, the cost of correction, including administrative penalties and foregone earnings, can make the entity insolvent.

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    We understand there is no discretion in the superannuation guarantee charge regime, and audit and review work is often commenced on the inquiry of a worker who may not have understood the initial offer of work or engagement contract in the first place.

    Given the government’s recent proposed amendments to the industrial relations system, including a definition of ‘casual employment’ 15, we seek to resolve this potentially devastating issue for small businesses by defining employees, defining contractors and ensuring interpretive consistency across agencies.

    Encourage Ongoing Compliance By Small Business Taxpayers

    Recommendation 4: The government should commit to the ongoing support of the national tax clinics with administration and governance moved under an appropriate agency (such as the IGTO or ASBFEO) or to a private organisation via an open competitive grant.

    Recommendation 5: Suspend penalties and interest charges for first tax offences and then waive them after 3 years of tax compliance.

    Recommendation 6: In order to assist with small business cash flow and encourage compliance, small business taxpayers should be able to opt in to;

    • The Goods and Services Tax (GST) collected to be remitted directly to the ATO at the electronic point for the sale of goods and services at an estimated rate appropriate to the business;
    • An option to remit amounts to the ATO in the first year of operation in respect of their estimated income tax based on their BAS reporting;
    • Income averaging measures as offered to sportspersons and artists should be extended to individuals in business.

    Recommendation 7: Where an income tax return or activity statement is prepared by a registered tax or BAS agent, the review period is reduced to 12-months following lodgement, where that agent has proven compliance over 3 consecutive years with:

    • Full membership of a recognised professional association with a Professional Code of Conduct and compliance with continuing professional education requirements;
    • There is not a single record of a client who has lodged a complaint that has been proven to be valid with either the Tax Practitioners Board or their professional association;
    • Full compliance with their own taxation lodgement and payment obligations; and
    • Achievement of tax agent lodgement program benchmarks annually.

    The Australian Bureau of Statistics (ABS) defines a small business as a business employing fewer than 20 people. ... Micro-businesses (businesses employing between 1 and 4 people including non‑employing businesses) Other small businesses (businesses that employ between 5 and 19 employees)

    The ACL protects small businesses and consumers from unfair terms in standard form contracts. A standard form contract is a contract between 2 parties where 1 party prepares the contract giving the other party little or no opportunity to negotiate the terms. You enter standard form contracts all the time.

    You are a small business entity if you are an individual, partnership, company or trust that: is carrying on a business. has an aggregated turnover of less than $10 million.
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