Professor Chris Evans

As we look ahead to the budget, and the possible changes in the taxation that may bring, it may also be worthwhile to look at the cost of complying with tax obligations for small business.  This has increased by an average of 60% in the past seven years for the average small business owner. It is clear small businesses are spending too much time under the paperwork burden of complying with our tax system. This represents a large burden on Australian business which is impacting on profits and jobs.

Indeed, there are many special concessions introduced to benefit small business but which are too complex for their intended audience, such as the entrepreneur’s tax offset. This was a 25 per cent income tax reduction available to small businesses which was recently scrapped because the federal government argued it was ineffectual.

The various small business concessions had very little impact on the burden of compliance for small businesses, as has been shown by the way it was quickly introduced, and then scrapped. Sadly, most business owners didn’t even know they were eligible for it.

The cost of complying with tax obligations for small business has increased to almost $30,000 per company, which represents nearly 500 hours a year for the average small business owner.

Much of this is largely due to the necessity of record-keeping for GST collection on behalf of the government. It is quite clear that aspects of the tax system need to be reformed to ease the compliance burden for business owners, which is growing significantly over time.

There is however find one unexpected result in a survey of small business owners as a part of the report.

Many small business owners were used to keeping their receipts in a shoe box, and trying to work out if they had even made a profit at the end of the tax year. Now, as a result of the government’s tax laws, business owners have had to invest in proper book keeping methods to ensure their tax returns are accurate. As a result they now have a much better idea as to how their company is faring. Indeed, many may now be able to work out if they are making a loss, and if so, what is causing that loss, for the first time.

Alas small companies tell us that firms are still spending too much time under the paperwork burden of complying with our tax system.

Chris Evans is a Professor at the Australian School of Business