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Tighter regulations proposed by Treasury would deprive many small businesses of certainty.
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Millions of SMEs could lose short tax amendment window, says CA ANZ
13 September 2022
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11 minute read
More than 2 million small businesses will find it harder to access the two-year tax amendment period if Treasury proposals are adopted, CA ANZ said.
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The accounting body said the changes would almost double the items that could prevent small businesses from benefiting from the shorter amendment window.
CA ANZ senior tax advocate Susan Franks said the original proposals were aimed at medium-sized firms and would only make life more difficult for small businesses.
“The March 2022 budget announcement implied that these additional measures would target medium, rather than smaller sized businesses,” she said.
“A series of dot points that related to business entities with a turnover of between $10 and $50 million stated that those with significant international dealings or particularly complex affairs would be excluded from accessing the two-year amendment period.
“Under this proposal, many small businesses are going to lose the certainty of a two-year amendment due to the small business entity threshold being increased to $50m, which would allow medium sized entities to access the shorter amendment period which was designed for small businesses.”
The two-year amendment period was provided by the ATO to small businesses unless they had disobeyed the anti-avoidance provisions, had deemed dividends under Division 7A, or non-arm’s length transactions with related parties.
The proposed regulation changes by the Treasury mean that small businesses now would not be able to access the two-year amendment period if:
- They have transactions between related parties that relate to assets or non-cash benefits that have a market value of at least $50,000 — regardless of whether the transactions were at arm’s length or not.
- The entity, its affiliates and connected entities have $200,000 or more of foreign-sourced income for the year.
- The entity is a foreign-controlled Australian entity or a non-resident.
- The total number of entities that are connected with or an affiliate of the assessed entity is 10 or more.
- If the anti-avoidance provisions of multinational anti-avoidance law or diverted profits tax apply to the entity.
- If the entity is entitled to an R&D tax offset or certain related deductions.
- The entity has accessed the CGT rollover relief.
- The entity has a capital gain/loss disregarded due to Division 855-10 that affects foreign residents.
Ms Franks said that the change would unnecessarily impact over 2 million small businesses due to 20,000 medium-sized entities receiving a leg-up.
“In the last budget they have increased the small business entity threshold to $50 million and said that they are going to put restrictions on that,” she said.
“We were expecting those additional things (restrictions) to happen to those 20,000 additional entities that were now able to access small business concessions that hadn’t previously.
“What we’re asking is for the government to explain why small businesses should have to go through all this extra paperwork and regulatory red tape to see whether they are entitled to a two-year amendment period.”
CA ANZ said that the additional regulations should only apply to medium-sized firms as international transactions and CGT rollover relief had not been mentioned as an issue for small businesses by the ATO.
However, the Tax Office said that the medium-sized business tax gap was contributed to by international dealings and arrows in calculating capital gains.
“When you look at the tax gap analysis for small businesses and medium businesses the ATO’s tax gap analysis quite clearly shows that the items that they are adding to restrict access to the two-year amendment period are issues which affect those medium sized businesses that are now being classified as small,” said Ms Franks.
“ATO research shows that international transactions and CGT rollover relief isn’t causing the tax gap at a small business level.
“In fact, those issues are contributing to the tax gap at a medium business level.”
CA ANZ said that the proposal indicated a greater problem than just regarding the two-year amendment period.
“It’s a bigger policy issue, what are small business concessions for, are they for the micro-businesses or are they for all businesses apart from very large businesses in Australia,” said Ms Franks.
“If circumstances have changed and with digitalisation and globalisation maybe there are a lot more doing international transactions and making mistakes but that’s not being shown in the tax gap, and that’s not being explained to anyone it’s just being put out as a surprise.”
The CA ANZ said that if the amendment periods for small businesses were to be increased greater consultation would be needed.
“Small businesses always have a heavier compliance burden than anyone else as they have so many rules to deal with so when you increase the threshold to include larger businesses you need to consider the impact on small business as well, one size doesn’t necessarily fit all,” said Ms Franks.
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