SMEs would benefit greatly from simpler structure options, according to the Institute of Public Accountants, which is urging the government to review the existing framework options.
“It is most unfortunate that the taxation of trusts has not been rewritten and updated to reduce complexity, despite numerous recent announcements to this effect. The result of simpler structures would be reduced red tape and/or the extension of safe harbours.
“The IPA has long held the aspiration of achieving the simplification of the small business taxation system through the application of a structure which eliminates the need for multiple structures,” says the IPA's chief executive officer, Andrew Conway.
“Multiple structures are commonly needed to achieve tax outcomes which would otherwise be unavailable through a single entity.
“Small businesses seek measures which promote asset protection, the retention of profits for working capital, lower tax rates, access to CGT discounts, succession planning and income distribution. A combination of entities is generally used to achieve these outcomes.”
According to Mr Conway, the current tax system treats the structures as separate tax entities from the business' owners. This results in a “quantum leap” in complexity, as well as additional compliance requirements.
“International evidence shows entities specifically designed for small businesses provide a number of advantages such as asset protection, income streaming and retention of after tax profits,” he explains.
“A simplified small business entity regime which combines the attributes of companies, trusts and partnerships could significantly reduce regulations and red tape for small businesses.
“The creation of this new small business structure would allow small business entities to use a single simplified structure rather than the current complicated ownership structure such as trusts.”
Mr Conway adds that there is a sizeable burden on businesses owned as part of a trust, and a revision to accommodate modern business frameworks would again bring substantial cost and time savings to hard-working SME owners.
“The compliance burden from the use of trusts to the small business sector must not be underestimated. A simplified taxation of trusts regime could go a long way in creating a flexible small business structure of choice,” he says.
“It is most unfortunate that the taxation of trusts has not been rewritten and updated to reduce complexity, despite numerous recent announcements to this effect.”