Natasha Griggs (Solomon, Country Liberal Party) Share this | Hansard source

At the end of 2014 financial year there were 14,289 registered businesses in the Northern Territory. Most of these are in the electorate of Solomon, which, as many of you know, covers all of Darwin and all of Palmerston. In fact, 78.2 per cent of the territory's businesses are based in Darwin and Palmerston. Only 6.6 per cent are in Alice Springs, 5.3 per cent are in Katherine and approximately 10 per cent are across the rest of the Northern Territory. The territory's population is around 244,000 people, so it is plain to see that small business is crucial and is a very big component of economic activity, job creation and social cohesion in our small but rapidly growing jurisdiction.

This brings me to the reason I am on my feet today: when this government released its May 2015 budget, the Chamber of Commerce Northern Territory could barely hide its delight. Under the header 'Small business front and centre in federal budget', the chamber was extremely positive about the coalition's approach to business, and their media release stated:

The engine room of the national economy, the small business sector, has received a much needed boost in the Federal Budget, according to the Territory’s peak business organisation, the Chamber of Commerce NT.

'Five years ago, the small business community wasn’t even mentioned on budget night, but now it is front and centre of Budget commentary. In fact, this is a small business Budget, which is great news for the Territory where over 95% of businesses are SME’s' said Chamber CEO Greg Bicknell.

That is a very important point made by Mr Bicknell and I want to put on record, in this chamber, the approach of the previous Labor government to small business in this country. I want to reiterate that five years ago the Labor government did not make one mention of the very important small-business sector in its budget. As I said, that was according to the Chamber of Commerce Northern Territory. They wanted that point made and I am very happy to reiterate it, here, today. It is quite extraordinary that not one mention of small business was made in Labor's budget.

As far as I am concerned, that is an extraordinary admission by a government—and a very timely reminder in an election year—of Labor's conflicted and very confused priorities. To put it another way: a vote for Labor is a vote against small business, and that would be a substantial mistake given that 96 per cent of all Australian businesses are, indeed, small businesses. They employ over 4½ million people and produce over $330 billion of our nation's economic output each year. There is no shortage of enterprising Australians wanting to enter the small business sector and in the 2013-14 financial year Australians started over 280,000 small businesses. In stark contrast to the Labor Party's 2010 offering, the coalition government's 2015 budget contained the Jobs and Small Business Package which, as reflected in commentary by the Chamber of Commerce Northern Territory and others, was extremely well received.

I will take a moment to focus on one of its most popular measures and that was the accelerated depreciation, under which all small businesses received an immediate tax deduction for individual assets they purchased that cost less than $20,000. Increasing the depreciation threshold from $1,000 to $20,000 meant improved cash flow for small businesses. I know that our local Harvey Normans were very excited about this announcement and it meant that small businesses were able to go in and get some new computers and office equipment up to the value of $20,000. I also know that there were a number of cars available for $19,999 as a result of this announcement. The announcement encouraged small businesses to bring forward their investments in the assets they needed to grow their businesses and service their customers. I got absolutely, amazingly, positive feedback on this announcement. It meant that more money was in the hands of small-business operators and less in the hands of government.

The revised threshold also meant small businesses spent less time tracking assets across various years for tax purposes. This cut red tape and allowed business owners to focus on running and growing their business. That is what this government is all about: ensuring that small businesses have the opportunity to grow their business. It is not the job of government to get in there and try to control small businesses. Similarly, the Tax Laws Amendment (Small Business Restructure Roll-over) Bill 2016 is about reducing red tape and making running small businesses easier.

The bill puts into legislation the final item of the Jobs & Small Business Package. In a nutshell, it provides greater flexibility for small business owners to change the legal structure of their business by allowing them to defer gains or losses that would otherwise be realised when business assets are transferred from one entity to another. In other words, small business owners who find that they are using a legal structure that does not quite suit their needs will no longer be stuck with that structure. They will be able to have the flexibility to change it.

I want to reiterate some of the points that some of my colleagues have made—in particular, those made by the member for Brisbane. She said that when the government released this measure as an exposure draft, the Restaurant & Catering Industry Association said that the ability to change a legal structure without incurring a capital gains liability represents a significant reduction in red tape for small hospitality operators. She would know better than most, with most of her family in hospitality.

The association went on to say that restructuring hospitality businesses almost always requires assets to be transferred from one entity to another, attracting significant income tax liabilities and impacting on cash flow and available capital, and that this discourages expansion—meaning that some businesses remain inefficiently small, reducing productivity and dampening additional employment opportunities.

In another sector, the Australian Automotive Dealer Association was also extremely positive when the measure was announced and provided a comprehensive analysis of its implications, which I would like to put on the record. It is headed 'Improved flexibility for small business restructuring':

The amendments make it easier for small business owners to restructure by allowing them to defer gains or losses that would otherwise be made from transferring business assets from one entity to another. The new small business roll-over is in addition to roll-overs currently available where a sole trader or partner in a partnership transfers assets to, or creates assets in, a company in the course of a business restructure.

Under current laws, restructuring requires business assets to be transferred from one entity to another, such as from a company to a trust, and significant income tax liabilities may arise. The impact of these liabilities on cash flow and available capital may create an impediment to restructuring. Currently, roll-over relief is available in limited circumstances for business restructures.

The Growing Jobs and Small Business package in the 2015-16 Budget introduced a roll-over to allow small businesses to change legal structure without attracting Capital Gains Tax (CGT) liability at that point. These amendments seek to provide further flexibility for small business owners by extending the roll-over to apply to gains and losses arising from the transfer of CGT assets, depreciating assets, trading stock or revenue assets between entities as part of a small business restructure.

There are two types of entities that may be eligible for the roll-over. The first is those that are small business entities in the income year in which the transfer takes place and that satisfy the maximum net asset value test. An entity will be a small business entity if it carries on a business and the combined annual turnover of the entity and other entities that are affiliated or connected with it is less than $2 million.

The entity must also satisfy the maximum net asset value test, which requires the sum of the net values of the entity’s CGT assets, together with the net values of CGT assets of other entities that are affiliated or connected with it, to be less than $6 million. This first kind of entity may access the roll-over in relation to CGT assets that are assets of the business carried on by the small business entity.

The second kind of entity that might be eligible for the roll-over is one that is an affiliate of, or is connected with, a small business entity for the income year that satisfies the maximum net asset value test at the time of the transfer. These entities may access the roll-over in relation to CGT assets that satisfy subsection 152-10(1A) or (1B) of the Income Tax Assessment Act 1997, which relate to passively-held assets that are used by the small business entity in their business.

This was a very positive and very detailed analysis of the amendments by the Australian Automotive Dealer Association, and it mirrors other positive feedback attributed to the amendments.

In Australia, small businesses may operate as sole traders, partnerships, trusts, companies or a combination of any of those. A small business owner may take a number of factors into account in determining which structure is the most appropriate for their business, including tax issues, personal liability, access to equity capital and, of course, compliance costs. The most appropriate structure for a small business may change over time, or a new small business may select an initial legal structure that it later finds to be inappropriate. Restructuring into a more appropriate legal structure may help a business to continue to develop and grow. It may also help it to avoid unnecessary compliance costs, to enhance its business efficiency, to move to a more efficient structure for tax purposes or, indeed, to enable a small business to adapt to its current conditions.

This bill introduces a new subdivision—328-G—into the Income Tax Assessment Act 1997, which enables small businesses to change the legal structure of their business and to have the capital gains tax liability disregarded and deferred until eventual disposal. This differs to current legislation, as in the current law rollovers are only available in very limited areas that encompass those areas and expand the areas covered by tax exemptions for rollovers by including all legal entities.

A practical example of how the amendments will impact on business was published online by respected business analyst, Julie Van De Velde, who wrote:

An individual starts a business in her own name and is more successful more quickly than she ever expected. The roll-over can be used to move that business to a more appropriate structure, giving better asset protection, more access to funding and a better tax environment for the reinvestment of profit. Assuming the business holds no land there will be neither tax nor duty on the rollover.

As I said earlier, the Tax Laws Amendment (Small Business Restructure Roll-over) Bill is about streamlining business and easing some of the pressure off business operators, who are the backbone of our economy. The new law is expected to apply from 1 July this year and will have around $40 million revenue costs to the budget. In my view this is a very sensible approach to helping small business thrive and, with that in mind, I commend the bill to the House.

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