Michelle Rowland (Greenway, Australian Labor Party, Shadow Assistant Minister for Communications) Share this | Hansard source

I rise in support of the Tax Laws Amendment (Small Business Restructure Roll-over) Bill 2016. Whilst the opposition supports this bill, I do have some concerns with the process and potential consequences of the bill which many third parties have actually raised and which I will come to. This bill amends the capital gains tax rules applying to small businesses which transfer assets as part of a genuine restructure. Businesses with revenue below $2 million will be able to defer gains or losses that would otherwise be made as a result of transferring business assets from one type of entity to another. This measure was originally announced by the government in the last budget. This new small business rollover is in addition to rollovers currently available where an individual, trustee or partner transfers assets to a company in the course of incorporating their business.

I want to make some points regarding the contribution of small business. We know that at the core of their needs small businesses want customers and opportunities, and it should be the motivation of all of us in this place to help make this happen. Small businesses are a driving force of private sector employment in this country. They are crucial to the economic success of the nation. With an economic contribution of $340 billion to GDP per year, employing approximately 4.7 million Australians and comprising 97 per cent of all businesses, small businesses play a vitally important role in the Australian economy. As a result, measures to assist small business growth throughout their lifecycle must be carefully calibrated to ensure they achieve their stated aims and do not increase complexity for small business owners and operators.

Allowing small businesses to change their legal structure at different stages of their life cycle does have merit and recognises the fact that for many small businesses the legal structure they originally operate under may not be the optimum structure further down the track. Labor agrees with this intention.

In the Assistant Minister to the Treasurer's address to the House in introducing this bill we were told:

We must continue to foster an entrepreneurial culture and reduce regulatory barriers so that people can take advantage of the opportunities afforded by a growing, diversifying and adapting economy.

That is true and that is why we need to be very careful we are not unintentionally adding to the regulatory barriers and increasing complexity for small businesses.

As I have travelled around Australia since being appointed opposition spokesperson late last year, one message I have received loud and clear from small business owners and small business representative bodies is that they want government to reduce regulatory complexity. I know this government thinks they have finished the job on deregulation and reducing red-tape, but don't take it from me; look at the facts. After four rounds in the arena of red tape reduction, the government's third minister responsible for repeal days, the member for Eden-Monaro, recently announced there will be no more red tape reduction.

Decisions in Canberra must not increase the complexity for small businesses driving employment opportunities and economic growth around the country. In fact, we must do the opposite. We must reduce complexity for small businesses to allow them to flourish and concentrate on what is most important. It is therefore concerning that some submissions on this bill point out some issues around its evolution. As Chartered Accountants Australia notes in its submission to the bill's exposure draft:

The ED differs from the Government's Budget announcement in that:

So what does this mean? I note that the government has tightened the eligibility requirements from the budget announcement. I suspect this will be disappointing for some small businesses who thought they would be eligible for this measure. The Chartered Accountants also note that the definition of small business is 'narrower than the small business CGT concessions'. This in effect creates another definition.

As small businesses will tell you, one of their great frustrations is the different small business definitions that different Commonwealth departments and agencies use. As I said, we must be doing all we can to simplify this for small business rather than adding layers of definitions that increase complexity and make it more difficult for small businesses to function.

The Tax Institute notes in its submission to the bill's exposure draft:

While it is encouraging that the Government has sought to offer small businesses a roll-over to allow small businesses to select the most relevant legal structure at various stages in the life of the business without being inhibited by tax costs, The Tax Institute has a number of significant concerns with the proposed small business restructure roll-over as currently drafted in the Exposure Draft.

Again, the Tax Institute points out the differences between what the government announced in the budget and what was presented in the drafting process of the bill. More concerning, the Tax Institute highlights the definitional problems that arise from the bill. As the Tax Institute goes on to say:

Making them cumulative tests severely limits the cohort of taxpayers who will qualify for the roll-over and runs against the policy intent of having the two alternative tests in the first place in the context of Division 152. This will disadvantage high volume, low margin businesses and asset rich, turnover poor businesses.

When the Tax Institute says 'cumulative tests', it is talking about the requirement to satisfy the SME definition. That is the same concern that the Chartered Accountants raised and it is a concern I think is valid.

The Tax Institute goes on:

Further, making the two tests cumulative instead of alternative effectively introduces yet another definition of 'small business' into the 1997 Act, increasing the complexity of tax matters for such taxpayers and unnecessarily amplifying the potential for confusion and error.

As policymakers concerned with this vitally important policy area, this is exactly the type of thing we should be seeking to avoid.

The Tax Institute also highlights concerns regarding residency requirements in the bill, saying:

Section 328-440(2) contains the 'residency requirement' that applies to the ultimate economic owners of the assets subject to the roll-over. In our view, this requirement will inadvertently disqualify many taxpayers from accessing the roll-over which we believe is contrary to the policy intention behind the roll-over.

I want to turn to some issues regarding the fact that those opposite do talk a big game when it comes to supporting small business. Listening to the Prime Minister in question time today, I had to take issue with some of his comments on the free trade agreements and the benefits for small business. Labor supports our free trade agreements. We worked hard to progress them when in government, and in 2015 the Abbott-Turnbull government allocated $25 million to promote business understanding of these free trade agreements.

Utilising FTAs is a complex business. Only nine per cent of Australian businesses currently operate in Asia and only 12 per cent have experience operating in Asia. To assist with this, that $25 million was allocated to 'promote business understanding' of free trade agreements. But here is the rub: over half of this was spent on political ads when parliament was still debating the agreements. So the big loser here was actually small business. As I said, only 19 per cent of exporters use free trade agreements, often due to their complexity and a lack of understanding of the benefits.

These pressures are understandable and they are more acute for small and medium enterprises than for big business. I would argue that wasting money on political ads instead of spending it on practical measures to actually help small businesses understand and take advantage of those global opportunities and new markets sums up this government's approach in this area.

I now just want to briefly touch on the recent announcement by the Leader of the Opposition and the shadow Treasurer regarding negative gearing and the capital gains tax discount as it relates to small business. This is an extremely important reform and stands in stark contrast to the policy-free zone of the government. Labor recognises the significant contribution that small businesses make to the economic success of our nation, and Labor's recent announcement regarding negative gearing and the CGT discount reflects this.

If returned to government, Labor will reform both negative gearing arrangements and the capital gains tax discount. More specifically, Labor will remove existing negative gearing arrangements for all non-business related investment assets on 1 July 2017 but will allow it to continue to be used when investing in new housing supply. Labor will also halve the capital gains tax discount from 50 per cent to 25 per cent. Importantly, all investments made prior to the start date will be fully grandfathered.

Importantly for small businesses, the CGT discount will not change for small business assets. This will ensure that no small businesses are worse off under these changes. In fact, small businesses will certainly benefit under these changes. By taking measures to make the housing market more accessible for young people and first home buyers, with a focus on new construction, Labor is directly supporting small-business growth.

It is arguable that the single most important factor in accessing finance for small businesses—as I have received feedback on around the country—is housing as a form of collateral. For too long, young people have increasingly been missing from this market. As the income-to-house-price ratio increased from 3:1 to 6:1, new business opportunities have gone begging. Even the Australian Chamber of Commerce and Industry recognises this, with their CEO Kate Carnell recently stating this was the issue they heard the most feedback on. The best way to increase the number of new jobs is by new business creation. Young businesses are proven to be the most effective vehicle to get people into the workforce and into employment.

By supporting the next generation of small business owners and operators, Labor is getting on with it, while the government dithers. These reforms are the biggest step forward for tax policy in a decade. They will help underpin an additional 25,000 jobs in the construction sector, by stimulating new investment, the effects of which will be critical for subcontractors and other small businesses.

To sum up, Labor supports the bill. Allowing small businesses to restructure their legal arrangements throughout their life cycles is a worthy initiative and will allow small business greater flexibility. I have expressed and articulated the concerns that third parties have raised with the drafting of the legislation and the implications this might have for small businesses, particularly around increasing complexity for owners and operators.

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