Date posted: 26/10/2022

Federal Budget 2022-23: Stable tax settings for small business but greater audit activity

Small business tax settings are stable following the October Budget, but extra ATO funding means an extra check is needed on tax compliance.

In Brief

  • Tax compliance is in the spotlight in this Budget.
  • It is unknown whether the instant asset write off and carry back of losses will be extended past 30 June 2023.
  • Whilst tax stability in an unstable economic environment is welcomed, simplification of the small business CGT concessions is needed.

There is little that is new for small business in this Budget. While $15.1 million will be spent over 2023 and 2024 to extend the small business debt helpline and programs focused on the financial and mental wellbeing for small business owners, the ATO will receive $685 million over four years to raise $2.1 billion from shadow economy activity.

Shadow economy crackdown 

The ATO’s tax gap reports indicate that the bulk of shadow economy activity occurs in the small business market. Small businesses and their advisers will need to review record keeping to ensure that there is adequate governance.  

Existing initiatives such as the expansion and digitalisation of taxable payments reporting system and the sharing economy reporting regime will be providing the ATO with better data to target those under reporting income.  

Going digital

The skills and training boost and the digitalisation incentive for small business, along with reducing FBT record keeping, were originally announced and costed in the previous Government’s March Budget thus this Budget was silent about these measures. Treasury has consulted on these measures, but it is unclear when they will be introduced to Parliament. 

With the boosts for training and digitalising business having limited periods (30 June 2024 for training and 30 June 2023 for digitalising business), legislation will need to be introduced quickly and accountants will need to talk to businesses sooner rather than later about their future strategy to see if they can take advantage of these incentives. 

Cash flow will be an important part of this discussion as the training or digitalisation costs will need to be paid during the financial year and the boost associated with those costs will be received after the tax return for that financial year is lodged. That can be substantially later unless further detailed work is undertaken to vary pay-as-you-go instalments.

FBT reporting obligations

Chartered Accountants Australia and New Zealand welcomes the ability for the Commissioner of Taxation to reduce FBT reporting obligations. Business, especially small business, find FBT compliance cumbersome. 

We also view eliminating the need to produce declarations that duplicate existing accounting records and policies as a step in the right direction. We encourage legislating the framework to implement this measure, and then expanding the circumstances in which duplicate records can be eliminated.

Uncertainty on other measures 

Uncertainty remains about the ability of small businesses to continue claiming 100% of depreciable assets and to carry back losses beyond 30 June 2023. These measures are scheduled to lapse then.  

Originally proposed in 2012 to support investment by reducing the tax bias against investing in riskier but worthwhile projects — and to provide increased cash flow to businesses during an economic downturn — there are strong economic arguments for continuing the carry back of losses.  

The October budget papers indicate that Treasury is closely monitoring the use of the instant asset write off and whether supply side issues or concerns about impact on franking credits are affecting its use.  

There is also uncertainty about the ATO’s approach to section 100A and personal services income with several draft rulings, determinations, and practical compliance guides remaining in draft form.  

Small businesses face an uncertain economic future and should welcome the relatively stable tax settings because it won’t increase compliance costs. 

That said, tax ideas that could have further eased the compliance burden of small business that were not contained in the Budget include simplifying the small business capital gains tax rollover provisions in line with the Board of Taxation recommendations. This would make it easier for small businesses to either recover by restructuring their operations or selling part or all of their business.  

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