Andrew Leigh (Fraser, Australian Labor Party, Shadow Assistant Treasurer) Share this | Link to this | Hansard source

I inform the chamber that I have concluded my remarks.

Bruce Scott (Maranoa, Deputy-Speaker) Share this | Link to this | Hansard source

Is the amendment seconded?

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

I second the amendment and reserve my right to speak.

Bruce Scott (Maranoa, Deputy-Speaker) Share this | Link to this | Hansard source

The question now is that the amendment be agreed to.

Bert Van Manen (Forde, Liberal Party) Share this | Link to this | Hansard source

It is with great pleasure that I rise to speak today in support of the Tax Law Amendment (Small Business Restructure Roll-over) Bill 2015 in its original form.

This is an important bill that plays an important role in assisting Australian small business, the backbone of our growing economy. The small business restructure roll-over bill seeks to amend taxation laws to allow small businesses to change their entity structure without incurring a capital gains tax liability at that point in time. With more than 11,000 small businesses in my electorate of Forde, I believe this amendment will help support this vital sector of our economy.

Small businesses account for 97 per cent of all Australian businesses, employing more than 4.7 million people and producing over $340 billion of economic output each year. In a time when our economy is transitioning from a mining-construction boom, it is more important than ever that the government is providing the right economic environment to help our small businesses grow and invest. We want Australian small businesses to back themselves with the assistance of the government, to give them the confidence to do exactly that.

To do this, the coalition government announced the $5.5 billion Jobs & Small Business Package in last year's budget. Already our government has passed legislation for the 1.5 per cent small-company tax cuts, the unincorporated small-business tax discount, immediate deductibility of assets under $20,000 and the immediate deductibility of professional expenses. Small businesses that provide their employees with work-related portable electronic devices will also be allowed a fringe benefit tax exemption from April 1 this year.

This bill contains the final tax measure from the Jobs & Small Business Package. Schedule 1 will allow 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 measure is important in reducing administrative burdens and cash flow impediments for small businesses.

Sometimes a small business will start operating with a legal structure that is not necessarily best suited to the owner's needs as the business grows. This can occur because they did not receive correct advice, or the advice was inadequate or because the business has developed beyond the original aspirations of its owners. For small business owners who find themselves in this situation, the burden can have a massive impact on them financially.

To remedy this situation, a small business owner could choose to restructure their business, but currently the restructure would likely require the owner to pay capital gains tax on the assets of the business, even though there is no change in its ownership. This aspect of the tax laws means small businesses are effectively locked into the structure they choose, when many small business owners do not have the time or money to seek professional advice on the best legal structure for their business. To resolve this problem, the measure in schedule 1 of the bill will allow small businesses to roll-over assets from one entity to another, providing the underlying economic ownership of the assets remain unchanged.

This bill has a cost to revenue of some $40 million over the forward estimates period and, along with other tax measures announced in the 2015-16 budget, will provide more than $5 billion of support to Australia's hard-working small business owners.

The coalition government is proud of its commitment to Australian small business through this package of measures. We are the government that is creating the right environment to back small businesses in our transitioning economy. In my electorate of Forde, small business provides thousands of jobs for people in our community. Our everyday small business owners are anything but ordinary. They have great ideas and great vision, and can change our country for the better.

Our government policies are focussed on backing these small business entrepreneurs. We want small business to be strong, successful and to create jobs and opportunities across the country. It is this government that will continue to foster an entrepreneurial culture and reduce red tape and regulatory barriers so that small business owners can take advantage of the opportunities to grow and diversify their business and adapt to our transitioning economy.

Michelle Rowland (Greenway, Australian Labor Party, Shadow Assistant Minister for Communications) Share this | Link to 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.

Teresa Gambaro (Brisbane, Liberal Party) Share this | Link to this | Hansard source

I rise today to also speak on the Tax Laws Amendment (Small Business Restructure Roll-over) Bill 2016. This is a very important piece of legislation. I know that it has been welcomed by many businesses in my electorate of Brisbane.

This government is committed to growing the economy and creating more jobs for hardworking Australians. And our strong plan is working for Australia: the economy is transitioning well out of the mining boom, generating 301,300 additional jobs last year. Ninety per cent of those jobs were in the private sector, and over 60 per cent were full time. Youth unemployment is at its lowest rate since July 2013, and there are more Australian women in full-time work than ever before.

This bill will continue this agenda and will put into legislation the final item from the government's widely acclaimed Growing Jobs and Small Business package in last year's budget. This is absolutely great news for a large number of the many small businesses that I represent. There are 30,000 small businesses in the electorate of Brisbane. Whether they are thriving businesses in Fortitude Valley; some of the most innovative businesses in the CBD; Enoggera or New Farm—this is a very welcome bill and good news to them.

Small business owners who find they are using a legal structure that does not suit their needs will no longer be stuck with that structure. We recognise that for business to grow, adapt, innovate and remain flexible in this period of transition, we must in turn create the legislative environment that reflects all of those fluid changes that occur in the business world so they can be as flexible and innovative as possible.

We know that business has been stifled by overly onerous red tape. My office is constantly contacted by businesses who have struggled with the rules and regulations they have faced in the past, particularly under the various governments run by members on the opposite side. We have done a great deal to reduce red tape and to make sure businesses run at their absolute best efficiency.

Businesses based in my electorate—like Half Brick Studios, Alt VFX, Cloud Manager—all of these businesses have spoken about the new-found confidence in the business community as a result of this government's work. A large part of that is legislating important measures like the tax laws amendment. It is bills like these that display the government's commitment to small business operators, to mums and dads and to the many people who run a small business and grow our economy in Brisbane.

At the time of releasing this measure as an exposure draft, the government received broad support within the community. The Restaurant and Catering Industry Association said: 'The ability to change legal structure without incurring a capital gains liability represents a significant reduction in red tape for small hospitality operators'

They said that restructuring hospitality businesses almost always requires assets to be transferred from one entity to another, attracting significant income tax liabilities. That, of course, impacts on cash flow and available capital. This discourages expansion, meaning that some businesses remain inefficiently small, it reduces productivity and it dampens additional employment opportunities. The National Insurance Brokers Association had this to say of the bill: 'We welcome the proposals as there is an ongoing level of merger and acquisition activity in the insurance broking sector, and the reforms will allow small insurance broking businesses to restructure their legal status prior to sale or merger, in order to make the business more attractive to a potential purchaser. We note that the rollover benefits will only operate when the business remains owned by the same ultimate owners.'

I know that there are many people who work in the financial services industry, in the electorate of Brisbane, who will be particularly pleased. They will be able to provide a much higher level of service because they will be able to streamline many of these processes. This measure is estimated to have a cost to revenue of $40 million over the forward estimates period. Small businesses considering a restructure may obtain assistance from the Australian Taxation Office or by consulting a tax professional.

Introducing this particular rollover is another example of this government reducing the burden of unnecessary red tape on small business. It aligns with the Board of Tax's review of impediments facing small business. Tax is right up there as well as the red tape that I mentioned earlier. Any entity that carries on a business, when the combined annual turnover of the entity and its affiliates is less than $2 million, will be able to restructure and use this rollover provided the underlying economic ownership of the business assets remains the same. As a government we recognise that there are significant barriers and challenges that stand in front of small-business owners in today's economy; therefore we are doing absolutely everything that we can to ensure that from a legislative perspective they have all of the tools that are out there, including all of the tax tools that are available to them, to help grow the economy.

The small business may be a sole trader, company, trust or partnership and the transferee entity may take any of these forms. The rollover allows small-business owners to restructure their businesses by transferring assets to a different entity without incurring an immediate capital gains tax liability, provided that the ownership remains the same. The ability to restructure through the rollover should reduce complexity and make it much easier for businesses to grow. As a former small business operator in the hospitality industry, I know very well the hoops that need to be jumped and the red tape that has to be fulfilled every single day that they go to work. So we are using this experience in putting into practice ways to help small business. The new small-business entity will pay capital gains tax if and when it sells the asset or triggers a capital gains tax event. There may be state taxes, like stamp duty, payable at the time of the restructure, but we are doing everything we can—every small bit we can—to help small business.

This ability to restructure will be available from 1 July 2016. These are common sense amendments. They will make a huge deal of difference to the many thousands of Brisbane businesses that I represent. It is a much welcomed bill. I know that they will look forward to these amendments and the bills being put into place in the very near future.

Tony Zappia (Makin, Australian Labor Party, Shadow Parliamentary Secretary for Manufacturing) Share this | Link to this | Hansard source

Labor supports the Tax Laws Amendment (Small Business Restructure Roll-over) Bill 2016 because, as the member for Brisbane just said, these are common sense amendments. They are indeed fair and sensible, and they will help small businesses throughout this country. In fact, they are amendments that perhaps should have been brought in a long time ago.

In essence, the legislation will allow businesses with revenue below $2 million to defer gains and losses that would otherwise be made as a result of transferring business assets from one type of entity to another. In other words, when a business restructures for one reason or another, in the past there may have been capital gains taxes that would have had to have been paid which, under this proposal, can be deferred.

Labor understands the value of small businesses to the Australian economy. Small business employs some 4.7 million people around Australia and contributes $340 billion to the Australian economy. Indeed, small-business enterprises make up some 97 per cent of all Australian businesses. I note that of the small-business enterprises 61 per cent have no employees at all—that is, they are owner-operators, perhaps a husband-and-wife team, a father-and-son team or a mother-and-daughter team. Another 27 per cent have between one and four employees.

So 88 per cent of them are relatively small enterprises, but they are enterprises run by hardworking Australians who not only work long hours but also, quite often, take huge personal financial risks to get their businesses established. Once their businesses are established they are the people who ultimately pay their fair share of taxes to the Australian government. They pay all of them—the local government, state government and federal taxes that are imposed upon them. I suspect that collectively they would be one of the biggest contributors to tax across all three levels of Australian government, unlike many of the multinationals, who seem to always find ways of avoiding their taxes.

The coalition purports to be a party of small business, but the facts do not necessarily support that. It seems to be more a case of rhetoric than anything else.

I frequently speak to small businesses—indeed, I have spoken to several of them in the last week alone. Many of them are not only people I know as small-business operators, in my region, but also are people I personally know. I know their history within their business and the struggles that they have endured in order to keep their businesses viable through good times and bad. There are two clear messages that inevitably come back to me when I speak to them. The first is that the thing that they look forward to the most is a strong and stable economy, an economy that provides them with a degree of certainty so that they know, to some extent, what the future might hold for them and for their business. In fact, nothing matters more to any business than to know that you have a strong economy in which you are able to win a fair share of the work and increase your business turnover. If business turnover continues to increase, most businesspeople I speak to seem to be on a winner. For them, that is what their objective is. Whilst they might have other issues and concerns, inevitably it is all about business turnover. When the economy is not going well, then the reverse happens: business turnover starts to fall. Whilst business turnover and profitability fall, the taxes, fees and charges that are imposed on businesses do not fall very much at all, and so businesses become very difficult to run and, in some cases, those businesses simply cannot survive.

The truth of the matter is that, under this government, the economy is not doing well. The government has now been in office for over two years. It is into its third year, and there will be an election some time this year. It is a government that has no economic vision and no economic plan. We heard that again today in the responses to questions in question time today by the Prime Minister, where it was clear that everything is still to be determined somewhere down the track, sometime into the future. We had the Treasurer last week give a 48-minute address and again outline no clear vision for Australia's economic future. We have a budget deficit that is going to blow out to $38 billion. Even on the one thing that the government tries to continually promote as a win for it, the fact that there have been several free trade agreement signed in the last year or so, we have a balance-of-trade deficit that blew out to $32.7 billion for the year 2015. In fact, even in December we had a net deficit in trade of $3.5 billion.

These figures speak for themselves. The economy is not doing anywhere as near as well as it could or should be doing. The truth of the matter is that confidence out there throughout the business community is not good. We have heard other speakers talking about the government's record with respect to employment. The fact of the matter is that only last week we had employment figures released that showed that unemployment is now up to six per cent. That does not include underemployment. But unemployment figures have risen to six per cent. Youth unemployment is 12.7 per cent. We have 761,000 people unemployed and, of those, 268,000 are young people. When people are unemployed, they are not spending money. When they are not spending money, that is not good for the two million small businesses around the country, who rely on money going around in their local community.

The reason why the economy is not doing well is directly attributable to the policies of this government, policies which saw this government turn its back on the car industry in Australia. When the government turned its back on Holden and Toyota, what it really did was turn its back on thousands of small businesses across the country, small businesses which depended entirely on that industry for their survival, small businesses which ranged from component makers through to couriers and transport companies right down to the local snack bars, food manufacturers and clothing suppliers for the people that work in those factories. All of them are affected, because, when the primary industry no longer exists, other smaller industries fall as well.

It was a Liberal Premier in South Australia, the late Thomas Playford, who had the vision to support manufacturing and an auto industry in South Australia and invested appropriately in order to do so. He literally created a whole new city, the City of Elizabeth, around the proposed GMH plant in order to sustain it. And now we have a conservative coalition government doing the exact opposite and turning its back on an industry that was generated by a previous Liberal state Premier of South Australia.

It goes further than that. We see the same thing being applied right now to naval shipbuilding in South Australia. The government's procrastination, backflips and uncertainty are all bad for small business in that state. Again, I have spoken to many of the component suppliers, who, because of the uncertainty, do not know whether they should invest in upgrading the machinery within their plants—spend more money—or whether they should downsize. The are really left in limbo. We know that over the next couple of years, because of the government's procrastination, there are likely to be another 1,300 job losses at ASC in Adelaide. Again, job losses will mean that other small businesses will also close. The 1,300 jobs that I referred to are at ASC directly. There are other industries that hang off them. Recently I met with one of those industries, an industry that employs about 50 people. It is an engineering business. It produces very highly sought-after precision components for our defence sector. That business wants to invest new capital in a new plant and it wants to do that in the hope that it might win some of the contracts relating to naval shipbuilding in this country. But it does not know whether that will happen or not. It has got to borrow money from the bank. All of that uncertainty is making its business decision very, very difficult. I imagine that many other businesses are in the same mindset, where they really do not know what the future holds for them because of this government's procrastination and uncertainty with respect to naval shipbuilding contracts.

Right now we have a similar situation in Whyalla, South Australia. Arrium operations have seen some 600 jobs being lost in the Southern Iron project, south of Coober Pedy, and we are now seeing that the future of the Whyalla steelworks is also in doubt. If the Whyalla steelworks close down, the effects right through the City of Whyalla will be felt and felt very hard. If the Turnbull government fails to support the Whyalla community, it will be responsible for the demise of hundreds of small businesses. That is what small businesses look for the most in government—security that comes with government support of the business sector in this country. And yet they are not getting that from this government; they are actually getting the opposite. It is not just the commodity prices that are hurting Arrium and other industries; it is also the policies of this government.

One of those policies, which I have referred to time and time again, is the need to have a common-sense procurement policy for Australia. It is a matter that I have raised on other occasions, and I have gone through in detail the arguments for why we should do that. It is not always the case that buying the cheapest product from overseas is in the long-term interests of this country, and it is certainly not the case that it is always in the social or economic interests of Australia. Procurement decisions should take into account whole-of-life costs, product suitability and the tax losses and social costs to the Australian government that arise from job losses when Australian suppliers lose contracts. A terrific example that has been referred to on previous occasions is the Rossi Boots affair in South Australia. Those boots could have been made in Adelaide by Rossi Boots, but they were outsourced to a company in Indonesia. With that, there are job losses and the loss of the new jobs that might have been created had the company won the contract. It is the same when we see that the ministerial car fleet for the government is given to a car maker from outside of Australia. Again, that is jobs that could have been secured for people here in Australia.

The reality is that, in one way or another, most other countries have policies which support the manufacturers within their own countries. For example, the US has the Buy American Act 1933, which was updated in the eighties. S they have acts of congress that ensure support is given to local American industries. We know that China, one of the economic powerhouses of the world, has very tight controls as to who gets contracts and how they get them—not to mention that China still controls its own currency.

The notion that we should operate with no borders and that we should have free trade across the world would be fine if every other country operated on the exact same level playing field. The reality is that that does not happen right now, so Australian manufacturing industries and Australian businesses are losing out. I have had three or four examples in recent weeks of where local industries are able to provide a particular service or product that is required by government and our own government chooses to buy an alternative from overseas rather than buy an Australian made product which is fit for purpose. It is nothing to do with cost, it is just because the Australian manufacturer has not proven themselves on the market. Ironically, in one case brought to my notice, the product was purchased from a multinational company who in turn subcontracted to the company that was deemed unsuitable to supply the good in the first place.

We need to overcome that and give our own industries every chance of winning the contracts and work that arises from government expenditure. What we are seeing with cladding, with glass that has been used on buildings, with steel and with electrical cabling is that the products we are getting from overseas are not always fit for purpose. They might initially save us a few dollars but, in the long run, it often cost the community and the government a lot more in retrofitting. If we want to support small businesses, there are many ways of doing so. The government has the opportunity to do that by simply making their ability to win work in Australia a lot easier, and that is what it is failing to do.

Dennis Jensen (Tangney, Liberal Party) Share this | Link to this | Hansard source

The Tax Laws Amendment (Small Business Restructure Roll-over) Bill 2016 provides a sensible measure which allows Australia's small businesses to change their legal structures without attracting capital gains tax liability at the time of change. This bill will provide far greater flexibility for small business.

Unfortunately, Australian small businesses were let down by the previous Labor government. Under Labor, Australia experienced a decline in productivity and competitiveness. Australia slipped down in the world rankings of competitiveness. After increasing by an average of 0.7 per cent per year during the Howard government, productivity decreased by an average of 0.7 per cent under Labor. Every day, Australians, Australian businesses and the Australian economy suffered under Labor. Small businesses make up 97 per cent of all Australian businesses. That is a huge number. It is clear that the government needs to do what it can to support Australia's small business.

We have already taken positive and essential steps to support this vital sector in the economy. This government has introduced legislation that provides small businesses with a 1.5 per cent tax cut and introduced the unincorporated small business tax discount and the immediate deductibility of assets under $20,000. We have also legislated the immediate deductibility of professional expenses.

Supporting small business is only a small part of this government's commitment to create the culture of entrepreneurship and innovation. Ronald Reagan once said: 'Entrepreneurs and their small enterprises are responsible for almost all economic growth.' The Turnbull government is taking action to ensure Australian businesses are supported to encourage entrepreneurship and innovation. We are doing this by attracting funding and investment for businesses, by protecting mum and dad investors who share in the risks and successes of Australian business and by changing the laws around employee share schemes. We are ensuring that we take all the necessary steps to support innovation and success in Australia's small businesses.

This bill was announced as part of the 2015 budget's Growing Jobs and Small Business package. This was a no-nonsense commitment to growing jobs in Australia's small business. The government has introduced measures to encourage start-ups and entrepreneurship. We have implemented measures to cut red tape and help unemployed job seekers gain employment. Our economy is now one of the fastest growing economies in the advanced world. We have created the right conditions for Australian businesses to grow and thrive.

Amending the Income Tax Assessment Act 1997 is another example of how the government is taking action to provide greater flexibility for small business. Small businesses will be supported by allowing them to change legal structures without paying capital gains tax at the time of change. Small businesses may find themselves in structures that are no longer supporting their businesses. We want to support growing businesses by deferring financial barriers, when they wish to genuinely restructure their business.

As small businesses grow, the entity structure that once suited the business may no longer support the optimum success of that business. The small business may be hampered by additional administrative burdens and cash flow impediments. This can be detrimental to small business that may have simply grown out of its entity structure or received wrong or poor advice.

Schedule 1 of this bill ensures that small businesses will not be financially burdened, if they choose to change entity structures. Small businesses will be able to roll over to a more appropriate business structure without paying capital gains tax at the time of change. The capital gains tax normally associated with the transferring of structures will be deferred until eventual disposal of the business.

No longer will small businesses be locked into a structure that is not allowing business to grow and innovate. Poor advice or business growth will not hold Australia's small businesses back from success. The success of Australian small businesses is essential to Australia's future.

This bill has a cost to revenue of $40 million over the forward estimates period. Together with other tax measures that were announced in last year's budget, the government will be providing over $5 billion of support for Australia's hardworking small business owners.

In Australia, small businesses operate as sole traders, partnerships, trusts, companies or any combination these structures. Small businesses consider tax issues, personal liability, access to equity capital and compliance costs when choosing their business structure. These factors may change over time.

Changing the legal entity structure can help a business to continue to develop and grow; avoid unnecessary compliance costs; enhance business efficiency; move to a more efficient structure for tax purposes; or adapt to current conditions.

Capital gains tax may prevent some small businesses from making a change that could be positive for their business. These amendments extend the relief to transfers of trading stock, revenue assets and depreciating assets to ensure flexibility for small business restructures.

This legislation will give Australia's small businesses the opportunity to increase their capital. This means more jobs for Australians and growth for our economy. We are cutting the red tape that is holding businesses back from growing. Small businesses may wish to increase their capital and hire more employees but they may be unable to do so due to the unnecessary fees applied when a business simply wants to change entity structure. The government is now removing these financial barriers that would prevent a business from expanding, innovating and succeeding.

This rollover is only available for small businesses who want to undergo a genuine restructure of an ongoing business. In this bill, we have provided small businesses with the opportunity to grow. We are facilitating flexibility by removing income tax impediments that may arise for small business owners who are wishing to change legal entities. The rollover will be available as part of a genuine restructure. This means that the asset must be part of a genuine restructure of an ongoing business. This ensures that a range of potential transfer combinations and a range of factual situations will be covered.

The genuine requirement of this bill ensures that this legislation will not apply to artificial or inappropriately driven tax schemes. It is a question of fact as to whether a restructure will be genuine. Examples of genuine circumstances may include bona fide commercial arrangements undertaken to improve business efficiency; situations where the business will continue to operate after the transfer through a different entity structure but under the same ultimate economic ownership; situations where the transferred assets continue to be used in the business; or where the restructure results in a structure that is likely to have been used, had the business owners obtained appropriate advice when setting up the business. The legislation is clear: restructures that are not genuine will not be exempt from capital gains tax.

The legislation will not be used as a divestment to facilitate the economic realisation of assets. This legislation has also provided a safe harbour to provide certainty to small businesses using the rollover. The safe harbour provides that small businesses will be taken to satisfy the genuine restructure requirement if, three years after the rollover, there is no change in the ultimate economic ownership of any significant asset of the business that was transferred; those significant assets continue to be active assets; and when there has been no noteworthy or material use of those significant assets for private purposes.

To be eligible for the rollover, the legislation provides that each party to the transfer must be a small business entity for the income year during which the transfer occurred; or must be affiliated, connected or partnered with that small business entity for the income year during which the transfer occurred.

The rollover must also satisfy the requirement that the transition should not have the effect of changing the ultimate economic ownership of the entity—that is, those natural persons, who directly or indirectly beneficially own an asset, must not change nor should their shares in the interest change.

The difficulty of meeting the ultimate economic ownership requirements for a non-fixed discretionary trust is also provided for in this legislation. In some cases, a discretionary trust can still apply as long as those individuals who are benefiting from the trust do not change. If the discretionary trust is a family trust, then they may need to meet an alternative ultimate economic ownership test. Here the legislation provides flexibility to all those small family businesses that carry their business through family discretionary trusts. This is administered by allowing them to meet the requirement, if the non-fixed family trust stays within the family.

Thanks to this government, my electorate will be in a better position for success. Over 90 per cent of Tangney's businesses are small businesses. This amendment will provide the businesses within my electorate with the tools to succeed The families and businesses of Tangney are being supported to reach their full potential. They consist of high-end businesses such as management, architects, consultants and financial services. The government have made the wonderful achievement of supporting small businesses by securing free trade agreements such as ChAFTA and the TPP. These agreements will allow my electorate's small businesses to trade in services, opening up their opportunities around the world.

Over six budgets, the Labor Party managed to increase spending by over 50 per cent. Labor wasted and mismanaged hardworking Australian taxpayers' dollars. They broke an election promise and introduced the world's largest carbon tax. In the first year of this tax, Australia suffered a $7.6 billion hit to the economy, and let us not forget that Labor was left with a strong starting point from the coalition government. Labor then subsequently ran Australia into the fastest acceleration of debt in most advanced countries. It was not the lack of revenue that caused Labor's failure; it was the spending problem.

Australia was ranked among the best in the world in terms of minimising waste, maintaining low debt and delivering strong budgets. Australia's position deteriorated sharply under Labor. Australia's small businesses were affected by Labor' introduction of more than 20,000 new or amended red tape regulations in six years. This added to project lead times, increased costs and created new layers of overlapping bureaucracy. Labor failed small businesses. They increased pressure by introducing the carbon tax and introducing red and green tape. They hiked up interest rates with the level of debt. They abolished the entrepreneurs tax offset, an incentive to 400,000 of Australia's small businesses. Labor had six business ministers in six years and ensured consumer confidence was at a low.

We are a proud government, showing effective solutions to growing jobs, strengthening our economy and supporting innovation. Small businesses provide income to families and jobs within our communities. Small businesses are Australia's future. They are Australia's creation of ideas and visions that can change our country and achieve success throughout the world. We must support the very sector of our economy that provides support to families, communities and the critical support to Australia's growth. With the correct support, 'There are no limits to growth because there are no limits to human intelligence, imagination and wonder,' as stated, once again, by Ronald Regan.

This government have supported new trade agreements that will ensure opportunities are afforded to businesses to expand and grow into new markets. We have ensured policy focuses on small business so that hardworking Australians can succeed. We must continue to support the growth of our entrepreneurial culture and continue to remove the barriers to success. We are providing Australians with the opportunities to innovate, adapt and diversify. Australians are excited about the future this government are providing. We are leading Australia into an age of entrepreneurship and innovation. Our agile and nimble governance will provide Australia with a strong and diverse economy.

Craig Kelly (Hughes, Liberal Party) Share this | Link to this | Hansard source

I am pleased to rise this afternoon on this rather hot Canberra day to speak on the Tax Laws Amendment (Small Business Restructure Roll-over) Bill 2016. I would like to start with some comments from the Governor of the Reserve Bank at a hearing of the Standing Committee on Economics about a week ago. I asked the governor a question about what we need for growth in the long term. I would like to quote a few passages from the governor's answer because they are very appropriate. He said, asking himself a rhetorical question:

… in the longer run, where does the growth come from?

He went on:

It cannot really be the case that we get long-run growth by just using monetary policy which, in the end, borrows from tomorrow's income to spend today. That cannot be a recipe for sustained, strong long-run growth. The sustained and strong long-run growth in living standards comes from innovation, risk taking, productivity et cetera et cetera. We have talked about all that, as you know, many times before, and I think the committee understands our view.

He went on:

That is where prosperity comes from. It does not come from manipulating the price of money. There is a place for doing that in a demand downturn but long-term growth does not come from that. We have been very clear about that.

The governor is exactly right. What grows our economy in the long term are innovation and increases in productivity. That is why the steps that this government are making to assist small business and to encourage and incentivise innovation are just so important. It is not because we are trying to give one group special favours over another group; it is the small business entrepreneurs of this country, those who put their capital on the line and take risks, who drive our long-term prosperity and innovation. We must have a taxation policy that does everything possible to encourage those people to start up new businesses. As the governor said, that is where our long-term innovation comes from.

We know that many of those businesses will not succeed. In fact, we know that most will not succeed. We know it will only be a very small percentage that will actually achieve and come up with some better way of doing something—as they say, to find a better way of building a mouse trap. It is only a very small number so we need to get as many businesses as we can to attempt to innovate. How can we do it?

We have seen the way the Labor Party did it and we have seen the results they got. You only have to look at the recent labour force statistics from the ABS. They make very interesting reading. In Labor's last year of government, January 2013 to January 2014—there was a change in government late in that year but there was no time to change policies and turn the track around—full-time employment in this country actually went backwards. There were 108,800 fewer people in full-time jobs at the start of 2014 than there were at the start of 2013. In fact, for the entire year, the increase in jobs was only 7,200—but that was because we had the offset of full-time jobs being converted to part-time jobs. There were a paltry 7,200 jobs created in that full year.

Let us have a look at what the coalition's record has been since then. We hear the member for Makin talking about the coalition's record, but let us have a look at what has happened since 2014. In the last two years—January 2014 to January 2016—250,000 jobs have been created. A quarter of a million new full-time jobs have been created in this country in the last two years—and, add to that another 198,000 part-time jobs. The record of this coalition government over the last two years has been 447,800 new jobs created in this economy. Most of those jobs have been in new start-up businesses, because we have given encouragement and incentives to those businesses. That is another thing that this bill does.

We have lowered the corporate tax rate from 30 per cent to 28½ per cent. As I have said before, I would like to double my bet that, when the taxation results are finally in for this financial year, we will get more taxation revenue from small business at 28½ per cent than was achieved in the previous year at 30 per cent. I know it may sound counterintuitive and that, if you reduce the rate of tax, you may get less tax, but that forgets incentives. I have history on my side here. Over the last 30 years, every single time this country has lowered the corporate rate of tax we have not got less tax revenue; we have got more tax revenue as a per cent of GDP. I will give you some of the numbers. In the mid-1980s when our corporate tax rate was 49 per cent, we averaged 2½ per cent of GDP in corporate tax. We dropped that tax rate from 49 per cent to 39 per cent. You would think it would result in less tax being collected if you are charging a lower tax rate, but taxation revenue went up. It went up to 3.1 per cent of GDP. In the mid-1990s, when Peter Costello came in, we lowered it from 39 per cent to 36 per cent. And what happened? Again, taxation revenue went up. We were getting 3.4 per cent of GDP back in corporate tax revenue. And exactly the same thing happened when we went to a 30 per cent tax rate. Over the last decade we have averaged 5.2 per cent of GDP of corporate tax revenue paid by companies. Every time we have lowered the tax rate, the tax take has gone up—and my prediction is that exactly the same thing will happen.

This bill will incentivise start-ups. Often when businesses start up they are not sure what the best corporate structure is for them. Should they be a sole trader? Should they be a partnership? Are they best to start up as a trust or a proprietary limited company? Under the current tax law there is a problem when you change from one entity to another. For example, a business might start up small as a partnership, have a lot of success and then decide that the best structure for them going forward might be as a proprietary limited company. But, under the current taxation laws, if they do that they are liable for capital gains tax on the capital gains that they have created on the value of the business. So that is a disincentive for them to start up in the first place and it becomes a disincentive again for them to modify their business to what is the best corporate structure for them. Very simply, we are removing that obligation for them to pay capital gains tax.

That brings me to the issue of capital gains tax, which was talked on at length by the member for Fraser. In question time today in this parliament we saw the economic illiteracy of the opposition and the economic threat that they pose to this country. As the Prime Minister said, if you remove one-third of buyers from a market, prices will go down. Yes, we want to work on housing affordability, but the worst thing we could do would be to implement a scheme to fiddle with negative gearing and see house prices tumble down. That would destroy confidence in the economy. And what is often forgotten is that the increase in housing prices is something that underwrites the capital for small business entrepreneurs to borrow against their own family home to start up a business. So, if Labor's plan were introduced, we would be destroying billions of dollars worth of wealth and we would be making it much harder for people who want to get into business, to have a go themselves, to use their own family home as capital. This would be one of the most detrimental and economically reckless policies that anyone could think of; yet it is the policy the Labor opposition are going to take to the next election—a policy that would drive down housing prices, smash confidence and destroy the ability of many people to get into business for themselves.

The other thing that needs to be commented on is the amendment moved by the member for Fraser, where he says:

… while not declining to give the bill a second reading, the House calls on the Government to make Australia's capital gains tax and negative gearing regimes fairer and more sustainable.

The member loves the words 'fairer and more sustainable'. I had a little bit of deja vu. The taxation changes and the capital gains tax changes proposed by the member for Fraser would bring Australia's capital gains tax in line with that utopia Venezuela! This brings me back to a statement from 2007 when members of the Labor Party and the Greens actually sent an invitation to Hugo Chavez begging him to come to Australia. This is what the invitation said:

We have watched developments in Venezuela with great interest. We have been impressed by the great effort that your government has taken to improve the living standards of the majority of Venezuelans …

... what Venezuela has been able to achieve in so little time will be a source of inspiration and ideas for many in Australia.

That is probably the source of inspiration for the member for Fraser. That letter, in 2007, was signed by a Democrats senator, an Australian Greens senator, an ALP national president, an ALP Speaker of a legislative assembly, another ALP senator, another Greens MLC—the list goes on and on, and it is a who's who of the Labor Party and the Greens. They all signed that.

We have seen what has happened in Venezuela through economically irresponsible policies. When they made that invitation, the Venezuelan bolivar was worth US50c. So two bolivars was worth US$1. Today, with the economically reckless policies and increasing capital gains tax—exactly what the Labor Party wants to do—that two bolivar note is no longer worth US$1; it is worth less than one sheet of toilet paper. This is the economically irresponsible policy the Labor Party wants to inflict upon our nation.

There is another issue that we need to tackle. To make sure that we give as much incentive as we can for people to start up new businesses, to try new things, to experiment, to innovate, to drive the economy in the long term and to create those jobs, we need to make sure we have the right competition policy in this country. There have been some reforms suggested in the Harper review, which, with respect, I think completely missed the mark. We know that the legislation that we previously had did not deal adequately with predatory pricing. That is why Peter Costello, the former Treasurer, agreed with the now Deputy Prime Minister Barnaby Joyce—then a senator—to introduce the Birdsville amendment to give us an effective regime against predatory pricing. Yet, under the Harper review, that gets repealed and we get this faux effects test. I call on my colleagues: please, look at this proposal very carefully. It is not an effects test; its effect is to substantially lessen competition. It is not what you think it is it; it is a Trojan Horse.

We need to do everything that we possibly can to maintain incentives and encourage small business to innovate, to take risks— (Time expired)

Fiona Scott (Lindsay, Liberal Party) Share this | Link to this | Hansard source

I rise today to speak in support of the Tax Laws Amendment (Small Business Restructure Roll-over) Bill 2016. In my maiden speech, I read a quote from Winston Churchill:

Some see private enterprise as a predatory tiger to be shot, others as a cow to be milked, but few are those who see it as a sturdy horse pulling the wagon.

Small business is just that: a sturdy horse pulling the wagon. All businesses were once small. If you look back at the history of businesses, you will always find at their heart, once upon a time in the generations that have passed, an entrepreneur with a vision, be it somebody like Steve Jobs, Bill Gates or Richard Branson. That is the thing about small business: they start small. Some will grow into multinational enterprises. Some will be one-man sole traders. But, for businesses to become large, they need to start somewhere.

This bill will enable Australian small businesses to change their legal structure without attracting a capital gains tax liability at that time. If we want a small business to grow into medium businesses or large businesses, if we want it to go from being a sole trader to employing a second, third, fourth or fifth person, at some point in time the structures that were appropriate when it was a sole trader may be inappropriate when there are two, three or four employees or the structure within the family's life changes as things happen. That is why this is a good bill. That is why this is a bill that is good for small business. We need more entrepreneurs—more entrepreneurs who will take risks and innovate.

In Australia, small businesses account for 97 per cent of all businesses. In the electorate of Lindsay, Gai Hawthorn, who runs the CBD Corporation, reports that there are close to 1,100 businesses in Penrith alone—and you can add on top of that the other major centres such as St Marys, Kingswood, Emu Plains and Glenmore Park., According to the Penrith City Council economic profile, there are 12,000 businesses across the Lindsay electorate Businesses currently employ 70,000 people across the Penrith local government area. By 2031, that will grow to 120,000. It is crucial that on the outskirts of Sydney, in places like Western Sydney, we are working with small business not to hinder them but to help them get to their feet. The number of small businesses in the Penrith region is expected to grow to over 120,000 by 2031.

We are attracting small businesses and entrepreneurs through a very modern approach, but we are looking to work with many partners, like Deloitte, like Western Sydney University, in the construction of what will be an innovation corridor. This is a smart high-tech corridor that will include many great organisations and, in particular, some really brilliant ideas—places like the Sydney science park, which will be home to 10,000 research positions and 12,000 jobs in biotech and technology, and of course the Sydney IQ facility at Werrington.

One of the things I find really exciting about the Sydney IQ site is the LaunchPad that Western Sydney University has inside the first building there. What is exciting about LaunchPad is that it is in the vein of your Fishburners—it is the organisation of bringing together young, smart entrepreneurs so that they can work together, feed off each other, come up with new technology and come up with new ideas. In this collaborative space, just like you see in Fishburners, they are coming up with ideas for tomorrow. In the case of some of the biggest entrepreneurs and the biggest businesses of today, like Microsoft, Facebook or any of those organisations, a lot of it started with a young, innovative guy thinking about how they could break the ceilings, break new boundaries. And that is what is really exciting about LaunchPad.

We are also working with Penrith City Council to build a commerce and education precinct, a health precinct and of course a justice precinct. According to the Penrith CBD Corporation, this legislation can represent real cost savings up-front for those small and medium enterprises requiring a change in their business structure. Due diligence and professional advice by the business owner should always be undertaken to ensure that the pathway is suitable. But the CBD Corporation goes further in saying that they are supportive in this case with the positive direction of the federal government in the realm of small business enterprise. This bill will reduce risk and complexity and make it easier for businesses to grow by allowing small businesses to change the legal structure of their business and to have the capital gains liability disregarded and deferred until eventual disposal.

Sometimes a small business will start operating within a legal structure that is not necessarily best suited to the owner's needs. This can occur because they did not receive advice or the advice was inadequate, or because the business has developed beyond the original aspirations of the owners. My grandfather started my own family's business in 1936, and of course as the business passed through the generations the needs also changed. I know that it was quite a challenge for my dad to upgrade or update the legal requirements of the business because of some of these hurdles. That is why this bill is a very good measure.

For small business owners who find that they are running a business through the wrong entity structure there can be additional administrative burdens and cashflow impediments. This bill has a cost to revenue of over $40 million in the forward estimates period and, along with other tax measures announced in last year's budget, will provide over $5 billion of support to Australia's hardworking small business owners. This is another example of the coalition government reducing the burden of unnecessary red tape on small business and aligns with the findings of the board of the tax review of impediments facing small business. The coalition government is creating the right conditions for Australian small businesses to thrive, encouraging employers to create new jobs and to make a continued significant contribution to the economic wellbeing of our nation.

I commend this bill, and I commend the work the government is doing to help small business, to encourage small business, because small business is important particularly in the outskirts and places like Lindsay where two thirds of my workforce have to compete every single day for their jobs. Small business is the key employer in places like Western Sydney. That is why we need small business to be nimble. That is why we need small business to innovate and to create. We need small business owners to not see a ceiling. We need them to blast through that ceiling to create some wonderful businesses.

I look across my area and I look at some of the businesses and entrepreneurs that have been so successful—people like Jim Aitken, who when he was a young man pumped petrol for my grandfather. He then started a business called Jim's Bins, and now he has multiple real estate businesses right across Penrith and the Blue Mountains. These are the sorts of people who are now employing masses of other people and moving our community along. They are people like the Campbells, who created Clarendon Homes. Clarendon Homes has been one of the bigger housing construction businesses across the Sydney basin—once again, started in Penrith from just a family.

Another person who has been quite successful is Tony Ferguson. A lot of people have tried the Tony Ferguson weight loss program. Tony Ferguson started as a small chemist on High Street, Penrith, and from there he had an inspiration through pharmacy and through his knowledge of health that it was not just about putting out some shakes and things like that; Tony wanted to work with people in a holistic sense. He grew far beyond his chemist on High Street. The other great thing about Tony is that he was one of the very first people to bring in late-night trading for his chemist. These are the sorts of things we need to look at.

When I talk to people like Tony Ferguson and different small business owners in my region there are concerns about generational planning—when the generation is taking over and what the ownership structures of that will necessarily be, or when there are divorces in the family. In my own family, both my father and his business partner, my uncle, had divorced, and my grandmother had a one-third share. So, there was a share between my grandmother and my dad and his brother, and when my grandmother passed on obviously that was going to affect the business structure. My dad's and my uncle's divorces were also going to affect the business structure. That is why these measures are so important. The 50 employees my dad had in his business needed to have certainty. They did not need their jobs impinged upon by changes in families; they needed to know that their jobs were secure and the business was going to be able to continue on.

There are a lot of measures in this bill that I think are really good. It is important for small business to have the nimble-footed ability to change their business structure without so many hurdles. Innovative businesses that are starting with products today will change over the future so that their business models can grow. If we want to see small-business incubators—places like Fishburners or the Launch Pad out in Western Sydney—we need to ensure that those small-business entrepreneurs can take their vision, take their dream and get to their feet, and when they get to point of getting own premises or bringing that first employee in we need to ensure that we do not get in their way.

As I said at the beginning when I quoted Sir Winston Churchill: small business is the 'sturdy horse pulling the wagon'. We may see shooting stars of wonderful entrepreneurs with brilliant ideas but, if we try to hold them back, if we try to milk them, if we try to keep them down they will never really reach the stars. If we help them, at the end of the day, it will mean more jobs for more Australians. That is why I support this bill.

Natasha Griggs (Solomon, Country Liberal Party) Share this | Link to 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.

Jane Prentice (Ryan, Liberal Party) Share this | Link to this | Hansard source

At the heart of the coalition government's policy approach is an understanding that, when you grow small business, you grow the whole economy. That is why the coalition made an election commitment to lower small business taxes, cut red tape, remove structural impediments, encourage small business finance and change the culture of government so that small businesses can grow and employ more people.

Small businesses account for 97 per cent of all Australian businesses. The small business sector employs more than 4.7 million people through more than two million business entities and makes a substantial contribution to Australia's economy, generating about one-third of our economic output, more than $340 billion of economic output every year. Helping more small businesses become profitable, sustainable and competitive will ensure they are in the best position to hire new employees, including providing more jobs for Australia's youth and older workers.

By making small business a portfolio in the Department of the Treasury with a dedicated cabinet minister, the coalition has put the sector at the centre of all government economic and financial decisions.

I welcome the Tax Laws Amendment (Small Business Restructure Roll-over) Bill 2016, which contains the final tax measure from the coalition government's Growing Jobs and Small Business package. Introducing this rollover is yet another example of the coalition government reducing the burden of unnecessary red tape on small businesses and aligns with the findings of the Board of Taxation's Review of impediments facing small business: a report to the government.

I congratulate and thank the minister for bringing this bill forward. In doing so, I would also like to thank and acknowledge the member for Dunkley, the Hon. Bruce Billson MP, for his service to Australia as a true champion for the small business sector. The member for Dunkley has played a key role in supporting Australia's small business sector in the wake of the disastrous Rudd-Gillard-Rudd years, and the legacy he leaves will enable long-term growth in our small business sector and the growth in employment that comes with it.

This parliament has already passed legislation for the 1.5 per cent small company tax cut, the unincorporated small business tax discount, the immediate deductibility of assets under $20,000 and the immediate deductibility of professional expenses measures. This bill amends taxation laws to allow small businesses to change their entity structure without incurring a capital gains tax liability at that time.

In effect, from 1 July 2016, any entity that carries on a business where the combined annual turnover of the entity and its affiliates is less than $2 million will be able to restructure and use this rollover if the underlying economic ownership of the business assets remains the same. The small business may be a sole trader, company, trust or partnership, and the transferee entity may take any of these forms. The cost to revenue for this important measure is $40 million over the forward estimates. Combined with other tax measures announced in last year's budget, this will provide more than $5 billion of direct support to hardworking small businesses. This is the biggest small business package in Australia's history.

Most Australians recognise actions and outcomes are a better measure of success and failure. At the heart of the coalition government's Growing Jobs and Small Business package are tax cuts for all small businesses with annual turnovers under $2 million. Small businesses can deduct each and every asset costing less than $20,000 that they buy until the end June 2017. Other small business measures will reduce red tape and encourage entrepreneurship. There are also measures to help employers take on unemployed job seekers and to help disengaged youth become job ready.

The coalition's tax cuts for small business have taken the tax rate to its lowest since 1967, nearly 50 years ago. This is a significant achievement. The coalition has a great story to tell about what it has already done so far for Australia's small business sector in such a short time. Through the efforts of Australia's Minister for Trade and Investment, the Hon. Andrew Robb MP, it is this coalition government that has opened up unprecedented access to global markets for Australia's businesses. By embracing innovation, boosting export opportunities and backing small businesses, we will continue to build a stronger economy with more jobs. Indeed, as the Prime Minister has pointed out, right across the board, every lever of the coalition government is pulling in the direction of growth and jobs.

While most businesses in Australia have their own experience of unnecessary hardship under Labor and their union bosses, let me just recall the macroeconomic indicators. According to global rankings by the World Economic Forum, Australia slipped badly on key competitive measures under Labor. For example, burden of government regulation went from 68th to 128th and the total tax rate went from 83rd to 109th. At a local level, Australia's small business owners will not easily forget the revolving door of six small business ministers in as many years under the Rudd-Gillard-Rudd regime, when Labor tied the economy up in a mountain of red and green tape with the introduction of an additional 20,000 new or amended regulations in just six years.

Labor's consistent response for the small business sector was a never-ending conversation while their union bosses kept their foot on the throat of the small business sector. Under Labor, the number of small businesses was in decline, with the small business share of private sector employment dropping from 53 per cent to well under 50 per cent. The share of small business employment as a proportion of private sector jobs was flatlining, or worse.

After six years of Labor we knew we had to reverse the decline in small business employment by partnering with small business people to support the sector to grow and prosper. As the Prime Minister said, it is a testament to the breadth and depth of the real world experience of our parties, the Liberal and National parties, that we have so many people who have worked in small business and owned small businesses.

This government knows that more small businesses means more jobs. That is why the coalition government will 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. It is why schedule 1 of this bill allows small businesses to change the legal structure of their business and have the capital gains tax liability disregarded and deferred until eventual disposal. This is because sometimes a small business will start operating within a legal structure that is not necessarily the best model in the longer term, perhaps because they did not receive the appropriate advice, or because the business developed beyond the original aspirations of its owners.

For small business owners who find that they are running a business through the wrong entity structure, there can be additional administrative burdens and cash-flow impediments. To remedy this problem, a small business owner could choose to restructure their business, but this would require the owner to pay capital gains tax on the assets of the business, even if there was no change in ownership. This aspect of the tax law means that small businesses are effectively locked into the structure they choose at the start of their operations which can turn out to be administratively inefficient.

The Restaurant and Catering Industry Association said the ability to change legal structure without incurring a capital gains liability will represent a significant reduction in red tape for small hospitality operators. They said: 'Restructuring hospitality businesses almost always requires assets to be transferred from one entity to another, attracting significant income tax liabilities, impacting cash-flow and available capital. This discourages expansion, meaning some businesses remain inefficiently small, reducing productivity and dampening additional employment opportunities'.

The National Insurance Brokers Association also welcomed the reforms we are considering today, because there is an ongoing level of merger and acquisition activity in the insurance broking sector. That is why, from July this year, small business owners who find they are using a legal structure that no longer suits their business needs will be able to restructure more easily. This bill will allow small businesses to roll over assets from one entity to another without requiring the payment of capital gains tax if the economic ownership of the assets remains unchanged.

Regardless of the specific type of small business, small business owners considering a restructure can get advice and assistance from the Australian Taxation Office, or by consulting a tax professional.

Before I close, I would like to congratulate Kate Carnell AO on her appointment as the inaugural Australian Small Business and Family Enterprise Ombudsman. Kate has been an active and passionate advocate for small business and is ideally suited to this role. Indeed, this role fulfils our election commitment to establish an independent ombudsman with real powers to act as a Commonwealth advocate for small businesses and family enterprises. A key aspect of this role is making sure that the Australian government and its agencies are fully informed about the needs and aspirations of smaller enterprises, and ensuring these interests are front of mind in policy development, program design and procurement.

Boosting productivity and reducing the burden of regulation is crucial to ensuring Australian businesses, entrepreneurs and workers are better off, while also helping drive down the cost of products and services for both producers and consumers.

I thank the minister for bringing this bill forward today. There has never been a better time to start and grow a business anywhere in Australia and, from here, compete for customers located anywhere in the world. I commend this bill to the House.

Angus Taylor (Hume, Liberal Party) Share this | Link to this | Hansard source

First of all I would like to thank those members who have contributed to this debate. It has been said that small business is the engine room of Australia's economy. As small business accounts for more than 97 per cent of all Australian businesses and employs more than 4.7 million workers, who could possibly argue with that proposition?

At last year's budget the government announced a $5.5 billion package of measures to support jobs and small business, and of course the measure contained in this bill is the final tax measure to be legislated. This bill amends the tax law to allow small businesses to restructure their business without incurring a capital gains tax liability at that time.

Small businesses that find themselves within a business structure that does not suit their growing needs will now be able to change to a different structure without having to consider the capital gains consequences. This ability to restructure will be available from 1 July 2016. I commend this bill to the House.

Rob Mitchell (McEwen, Australian Labor Party) Share this | Link to this | Hansard source

The original question was that this bill be now read a second time. To this the honourable member for Fraser has moved as an amendment that all words after ‘That’ be omitted with a view to substituting other words. The question now is that the amendment be agreed to.

Question negatived.

Original question agreed to.

Bill read a second time.