The Small Business Ombudsman believes that removing the fringe benefits tax, and enabling GST to be remitted at the point of sale, would potentially make the tax system more small business friendly.
A recent research paper published by Australia’s Small Business and Family Enterprise Ombudsman has listed 25 recommendations that aspire to create a tax environment that empowers small business owners.
The report developed by Kate Carnell from ASBFEO evaluates the “small, achievable” changes to the tax system that would better serve Australian small business owners in the age of covid-19, which is reckoning with a combined tax debt of $21 billion.
Ms. Carnell encourages the ATO to remove the fringe benefits tax (FBT) on small businesses, and to introduce reforms that see defined “work” benefits exempt, and “choice” benefits taxed as “income” in the hands of employees.
The cost of compliance for FBT brings in around $4 billion each year. There have been several businesses saying that they pay the same amount in FBT compliance costs as what they do for income tac compliance costs. Many small business owners believe that FBT is simply outdated and is a tax that is not necessary for how the world operates in 2021.
Remitting GST at the source
Kate Carnell from ASBFEO has also encouraged the ATO to enable small businesses to opt in to remit payments of GST at point-of-sale, “calculated as a percentage which aligns with previous annual net rates”. She believes that this will assist with cash flow and compliance.
“When the BAS return is due, the small business will continue to calculate and report the exact amounts of GST collected on sales and GST input tax credits to which they are entitled on business expenses, along with any PAYG(I) liability. The result will be reduced by the amount already remitted to the ATO at the time the customer paid for the sale” says Ms. Carnell.
Having the option to opt in to instant GST payments, will refute the temptation to use the funds for working capital. This could potentially prevent businesses from getting into trouble because they aren’t tempted to use some of the money for working capital, which could expose the business to penalties.
Kate Carnell also wants the ATO to provide more clarity about small business compliance obligations. She wants the ATO to unveil all data that could better inform and support taxpayers in regards to their compliance obligations.
She believes all existing and relevant ATO data should be made available for tax agents. She also contends that the ATO should pre-populate a small business taxpayer return gross revenue obtained via lodged business activity statements, and wages and superannuation reported via Single Touch Payroll.
Implementing these changes will prevent small businesses from being subjected to major penalties and interest if any honest mistake is made. She believes that making this change will lift an unnecessary burden off small business owners’ shoulders. This will give taxpayers an opportunity to educate themselves on their tax system. It will also consequently reduce the risk of a small business making an honest mistake.
In December 2020, the ATO announced that it is working towards introducing 1st July 2021 as the start date for STP phase 2. Under these new rules, employers will be required to report additional payroll information on each pay day.
Some of the major changes which set to be introduced include; moving away from the payment summary categorisation of income to reporting by income type, including gross, allowances (tuple), paid leave (tuple), director fees, overtime, bonuses, salary sacrifice (tuple), and commissions.
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