The Australian Small Business Blog

Monday, March 08, 2010

Does the Australian Government Hate Small Business?

The government is currently considering a change in tax regulations that will bind small business in red tape that will make the GST look like a picnic. It is certain to cause people to close their businesses, particularly older business owners.

This change is driven by two things- the union’s hatred of independent contractors, and the government’s insatiable desire to increase taxes. An alignment of planets you might say.

Firstly the unions want to force independent contractors into a unionised workforce. However, the very existence of this sector is largely an arrangement of mutual convenience particularly in project based industries where workforce needs in any business may change dramatically. It offers the business the opportunity to bring in skills as a project demands without the additional cost commitments that placing people on staff has. This keeps project costs down.

For the contractor, it gives them the flexibility to work with businesses where the activity is, and decline work they don’t want but may have to take on if they were employees. This independence is highly valued by these contractors who contract with a variety of businesses in the course of a year. They bid for work like any other small business, putting in quotes, taking care of their own professional development and building their own reputation or brand.

Yes there is probably some rorting of the arrangements with some contractors really being employees, but the existing tax arrangements look through this to see how many clients a contractor may have in a year. If it is just one, they are taxed as an employee.

So how will it affect other businesses? Robert Gottliebsen gives some examples:

“Each plumber or computer consultant in Australia will need to differentiate between their income from capital (spanners, shovels and computers) and their income from labour (digging the ditches and writing software).

Under the Sherry (Nick Sherry- Deputy Treasurer) -blessed plan, part of the income derived from labour would be attributed to the person who supplied the labour and those people would be treated as employees – not business people. The income earned on capital could be returned to the owner(s) of the capital, which may differ from the person who provided the labour. Have you ever heard of anything more stupid? But the Sherry-blessed plan gets worse.

The plumber and computer person must make an annual report to the ATO so that the ATO can match data to see how many clients they have had in a year. If more than 80 per cent of the business income came from one group then whammo! You are an employee.
And once the plumber and computer consultant are deemed to be employees, all their business deductions will be looked at in a different light. Their customers may be required to deduct tax when they pay the invoice.

And, oh yes, every business must have two employees to be a business.”

So how will that work for your business? How much time and cost will it take you to get some kind of exemption if the rules don’t apply to you? I predict a paper nightmare. Gottliebsen predicts a 1 term Labor government.

This is now part of the governments top secret Henry Tax Review. (It was completed last year and the government refuses to say when they will release it.) We will know for sure come May when the budget is brought down or before the election later this year whether the Government really hates small business. If you would prefer that this does not become policy, contact the “advocate” and minister for small business in the government Dr Craig Emerson and let him know what you think of this proposal.

May Your Business Be - As You Plan It.

Over to You. What do You Think? Post Your Comments Below.
Dr Greg Chapman is the Director of Empower Business Solutions and The Australian Business Coaching Club and is Australia's Leading Advisor on Emerging Businesses and provides Coaching and Consulting advice to Australian Small Business Owners in Marketing & Business Strategies Planning & Systems. He is also the author of The Five Pillars of Guaranteed Business Success.

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Unknown said...

I think yor comment on the division between who can or can't be a contractor versus employee is over simplified. The PSI legislation is very specific, and combined with common law, can be a very complex minefield to step through. However, there are mechanisms available for those who wish to be contractors despite these complexities.

Gian Carlo@government grants said...

Money talks, that is why more businessmen love's to befriends and support politicians for them to win bid's in supplying government projects


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