While William Buck welcomes today’s announcement that the Government will remove Fringe Benefits Tax (FBT) on employer-provided training and expand access to small businesses, these changes are limited in impact and need to occur immediately rather than next year, to assist SMEs through the pandemic.
Greg Travers, Director, Tax Services at William Buck said that the proposed changes “will do little to reduce the compliance burden that FBT places on SME businesses, or the disincentive FBT creates for SME businesses to spend on a range of goods and services in their local community”.
While some benefits should continue to be subject to FBT like cars or non-cash benefits that are incorporated into employee remuneration packages, everything else should be exempt.
“This will encourage small businesses to spend on things that benefit employees and other small business – for example, taking the team out for lunch, buying flowers for a birthday, registering a sports team and making decisions that benefit the business and local economy without the concern of triggering a large FBT liability,” said Mr Travers.
He added that the changes should take effect now, rather than next year.
“Costs of providing employees with car parking, electronic devices to facilitate remote working and retraining for those whose roles have become redundant have been forced onto businesses because of the response to COVID-19. Each of these proposed changes to FBT will assist SME businesses by removing the potential addition FBT cost. However, the changes are not intended to start until the next FBT year so don’t actually support SME businesses right now whilst they are in the middle of dealing with the impact of a pandemic and when the benefit would be greatest.”
Mr Travers said SME businesses are the lifeblood of the Australian economy, employing millions of Australians and tax is one of the many factors impacting on SME businesses.
“As we progressively move to a post-COVID world, supporting these businesses to rebuild, to grow and to drive Australia’s economy will be critical.
“A good tax system would support SME businesses rather than impede them,” he said.
Exempting SME businesses from most parts of FBT is one change the Government could make now to support SME businesses, but there are five others than Mr Travers feels are critical.
1. Simplify depreciation and lock in investment strategies
The rules for depreciation have chopped and changed over the years and investment incentives for acquiring new assets are generally shorter term.
“A simplified depreciation system where assets are either fully deductible in the year of purchase or deductible over a fixed number of years will remove compliance costs for SME businesses. Setting the depreciation rates to an attractive level will provide an ongoing incentive for them to make capital investments,” said Mr Travers.
2. Having a single definition of “small business” for tax purposes
“It can be expensive for a business to determine if it will qualify for an incentive or concession because of the need to deal with conflicting and complex eligibility tests,” said Mr Travers.
He suggests having one straightforward test for the major incentives and concessions targeted at small businesses. The $10 million turnover test suggested by the Board of Tax is probably the right place to start as it sets the bar high enough that for most businesses it is clear they will qualify.
3. Fix Division 7A
Division 7A impacts on almost all SME businesses. If one of these businesses needed funding from an associated company to help it survive COVID-19, it will likely have to deal with Division 7A.
Since the 2016 – 17 Federal Budget, the Government has said it will fix Division 7A which the Board of Tax has described as overly complex and not achieving its underlying policy objectives.
Mr Travers said this complexity means high compliance costs or unforeseen tax liabilities.
“There has already been significant consultation on the changes required, the Government just needs to get on and implement the changes. But they need to do this from the perspective of supporting SME businesses, not wielding a big stick.”
4. Act on corporate tax residency
“The changed approach to tax residency of overseas companies and the limited transitional relief offered to private businesses and new business by the ATO is creating an unnecessary burden for some of the most dynamic Australian SME businesses,” said Mr Travers, adding that this inhibits SME businesses expanding overseas.
“The issue is compounded by COVID-19 travel restrictions. While the Board of Tax has recommended a solution, the Government needs to act decisively to implement this solution and take this issue off the table for business.”
5. CGT Simplification
The Capital Gains Tax (CGT) regime contains concessions targeted at smaller businesses. However, the eligibility criteria are incredibly complex so SME businesses that should benefit from concessions don’t benefit as they just don’t have the resources to get the advice needed.
“The eligibility criteria need to be simplified and concessions better targeted at SME businesses that they are intended to benefit,” said Mr Travers.
“It’s expected that post-COVID there will be an increase in changes of ownership of SME business, be it through selling, family successions, or takeover from existing management. This will stimulate economic activity and the future growth of these businesses. The small business CGT concessions are a critical part of the decision-making process for all of these transactions.”
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