How time flies! It’s been four years since I wrote my last wish list for SMEs (‘Just Dreaming’ – February 2004), so I thought it’s high time for a review of the status of those issues.
Review of the 10 wishes from 2004.
1. There would be a simple legal structure for SMEs that would provide limited liability, full access to CGT concessions and allow profits to be taxed at the company tax rate until they are accessed by the owners.
Status: Still just a dream.
2. The Corporations Act definition of ‘large proprietary company’ would be changed to relieve medium sized proprietary companies from compliance costs.
Status: Granted. In 2007 the thresholds used in the definition of ‘large proprietary’ company were substantially increased (including an increase in the turnover threshold to $25 million).
3. Payroll tax and work cover rules (not necessarily rates) to be standardised across states and territories.
Status: Some progress has been made by way of harmonisation between New South Wales, Victoria and Queensland. However the rest of the wish, for one central point for lodgement of returns and payments is nowhere in sight.
4. There would be employee share plans arrangements that would encourage SME owners to provide equity to managers who had the skills needed to drive the business forward and allow for a smooth business succession. Or at least there would not be a system that actually discouraged this – as there is now with the severely limited tax deferral provisions available for discounted employee share benefits.
Status: Absolutely nothing has happened – and in times of skills shortages and an unprecedented level of business succession it is needed more than ever.
5. The tax consolidation rules would be optional for SMEs. The former grouping rules would apply to SME groups to access group losses, CGT rollovers and unfranked dividends.
Status: What a mess! At least from an SME perspective. It really becomes apparent when you are trying to restructure an SME group just how much the complexity of these provisions is out of all proportion to the size and nature of the transactions being contemplated. The problems escalate if you are using both the scrip for scrip CGT rollover and consolidation provisions to rationalise a group of companies. In this context ‘rollover’ is hardly an appropriate term as, in many cases, a tax liability can arise immediately on application of the consolidation cost setting rules. The regulators seem to recognise that such a result is not desirable, at least in some cases, for listed entities but, for some reason, is the desired outcome for SMEs.
6. SMEs could provide FBT-free childcare, so that women could be encouraged back into the general workforce – not just into businesses that are big enough to provide childcare on their own premises.
Status: We now have a child-care tax offset for individual taxpayers but it is limited and complex to administer. It doesn’t level the playing field between big business and SMEs – surely it’s not too much to ask for a bit of flexibility in the definition of ‘business premises’ in the Fringe Benefit Tax Assessment Act.
7. A central point of reference to source private equity capital for SMEs.
Status: As far as I can see, there is still no dedicated reference point for private equity capital. The Australian Venture Capital Guide which covers venture capital and some private equity providers still seems to be the major service of information.
8. The major banks would allow their managers time to spend with small business owners and allow small businesses to have the most appropriately structured finance as a basis for future growth.
Status: A survey in December 2007 by East & Partners found that 71% of SMEs are not provided with a dedicated relationship manager by their bank which begs the question ‘How much growth potential is being lost?’.
9. The small business CGT concessions would apply fairly and eligibility could be determined for a reasonable cost. I specifically referred to a situation where the concessions were denied because of the lack of a ‘controlling individual’ where shares in a company were held equally between four people (2 couples).
Status: Wish partially granted. The 2006 and 2007 amendments to the concessions, have certainly improved the fairness and reduced the cost of compliance for many SMEs. These changes included the introduction of the ‘significant individual’’ test, instead of the ‘controlling individual’ test, and the extension of this test to indirect control; the increase in the net asset threshold to $6m and the exemption from complying with the net asset test for ‘small business entities’.
10. The Simplified Tax System would be simple and would allow the use of accrual accounting. Even better, the STS would not be necessary.
Status: The STS has been replaced with the concept of the ‘small business entity’. It’s still not really simple but it’s a better system than we had 4 years ago.
Sue Prestney FCA is spokesperson on SMEs for the Institute of Chartered Accountants in Australia.