Small gains, big crackdowns: What the tax measures in the budget mean for small business

Any moves that go towards improving the small business tax landscape are always welcomed, however, if you’re a small business owner who is struggling and fighting to stay alive, the 2023 federal budget will provide little joy.

Small businesses are the backbone of the Australian economy, yet the support measures revealed in Tuesday night’s budget simply do not go far enough, with many of the incentives providing temporary or limited relief.

Limited tax relief for small business

For example, consider the instant asset write-off that’s been announced for the next financial year, allowing small businesses with an aggregated annual turnover of less than $10 million to immediately deduct the full cost of eligible assets costing less than $20,000; it’s a far cry from the generous temporary full expensing measure that expires this June 30, 2023.

The instant asset write-off will help small businesses buy small assets like computers, printers, and photocopiers, but it’s unlikely to move the needle for those businesses that require significant capital assets for their operations.

Small and medium-sized businesses looking to electrify their business to reduce energy costs and lower emissions will also soon be able to access a maximum additional tax deduction of $20,000, but these assets or upgrades must be first used or installed ready for use before 30 June 2024. 

While both measures benefit businesses making profits as they are able to reduce their taxable income against asset expenditures, increased tax deductions will be of no value to those businesses struggling to break even. 

And from 1 July 2026, employers will be required to pay their employees super entitlements on the same day they pay salary and wages — a looming compliance nightmare. 

GST in focus

There is a silver lining, however, with the government announcing that it will reduce the quantum of PAYG and GST instalments which will provide cash flow support to small businesses and individuals who are eligible to use the relevant instalment methods.

Further, there are new compliance crackdown measures which are mainly extensions of existing Australian Taxation Office programs, but the one that will be most relevant for small business owners will be the $588.8 million funding boost to the ATO’s GST compliance program.

This will allow the ATO to develop new advanced analytical tools to identify and address GST risks in the current system, as well as ensuring businesses are accurately reporting and remitting GST as part of their tax obligations. Importantly, the funding will also result in measures that ensure entities are not overclaiming any GST refunds. To be fair this is warranted.

Tax leniency is over

Small businesses with outstanding tax and superannuation liabilities should also be on notice, with the ATO receiving additional funding over the next four years to claw back these debts.

This funding boost will allow the ATO to target taxpayers who have high-value debts greater than $100,000 and aged debts older than two years where those taxpayers are either public and multinational groups with an aggregated turnover of greater than $10 million, or privately owned groups or individuals controlling more than $5 million of net wealth.

This all but signals the end to the tax leniency shown by the ATO during the pandemic.

Importantly, to give businesses time to adjust to this renewed approach towards tax debts, the ATO will offer a seven-month amnesty period that will waive failure-to-lodge penalties associated with outstanding tax statements that were originally due between December 1, 2019, to February 29, 2022.

Whilst the amnesty approach appears to be narrowly targeted, experience tells us that it is much better to engage with the ATO when it offers a lifeline than to wait for it to come knocking after an amnesty period expires.

These measures are aimed at cracking down on tax compliance and will generate significant revenue for the government; however, it does not provide for any structural reform to ensure that we have a sustainable tax system fit for the future.

The bottom line is that we urgently need an open and transparent discussion around genuine tax reform. The tax system should be reviewed on a holistic basis where both direct taxes and indirect taxes are considered, leading to a sustainable tax system that will encourage investment and generate economic growth. We need structural reform rather than piecemeal and ad-hoc concessions. 

Dr Mark Pizzacalla is a partner at BDO in Australia.