It is time to up the ante on the turnover threshold associated with the small business entity definition, writes Andrew Conway.
The $2 million turnover threshold for small business that came into play in July 2007 has not been indexed since its introduction.
The Board of Taxation’s 2014 Review of the Tax Impediments Facing Small Business recommended an increase to the threshold, noting that it would reduce the number of businesses who are at or near the current threshold and so face uncertainty as to their tax treatment.
Increasing the threshold would also assist businesses with a higher aggregated turnover with low margins to access the concessions.
It is estimated that increasing the threshold to $10 million would allow an additional 90,000 to 100,000 businesses access to the full suite of small business tax concessions, decreasing their compliance costs and increasing cash flow.
This would enhance the capacity to reinvest in small businesses, providing the opportunity for these businesses to grow with increased employment and wages.
It would also incentivise small businesses at or near the $2 million threshold to grow, as currently they would lose these concessions once they pass the threshold.
According to ABS data, around 61 per cent of actively trading small businesses are non-employing.
However, increasing the turnover to include small businesses in the growth phase is likely to contribute to employment growth as these businesses are already employing and in a position to increase their productive capacity.
The revenue foregone is likely to be substantially covered by the economic benefits from increased employment, higher wages and lower compliance costs.
Increasing the threshold would allow more entities access to simpler depreciation rules, lower corporate tax rate and the newly enacted small business rollover restructure relief.
The IPA recommends that small businesses with aggregated turnover of less than $10 million be given access to the small business tax concessions.
Andrew Conway is the CEO of the Institute of Public Accountants (IPA).
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