Mitch Fifield (Victoria, Liberal Party, Assistant Minister for Social Services) Share this | Hansard source

I move:

That this bill be now read a second time.

I seek leave to have the second reading speech incorporated in Hansard.

Leave granted.

The speech read as follows—

This Bill amends various taxation laws to provide tax relief and reduce red tape for small business.

Small business is the engine room of our economy. The contribution of the hardworking women and men of small business cannot be underestimated. They account for 96 per cent of all Australian businesses. They employ over 4.5 million people and they produce over $330 billion of economic output per year.

By taking risks, small business owners grow their business, employ more people and serve their customers. They are constantly innovating and adapting to a changing business environment. However, small businesses face a higher relative regulatory burden than larger businesses. It is important that policy settings do not make owning and operating a small business harder and more costly than it has to be. We are committed to energising enterprise – not putting up road blocks.

This is why this Government has introduced the largest jobs and small business Budget package in Australia's history. This is a $5.5 billion package that will help small business invest more, grow more and employ more.

This is the third of four Bills this Government will introduce to deliver the Growing Jobs and Small Business package. The company tax cut of 1.5 per cent and accelerated depreciation for small business Bills were passed by the House and the Senate. The fourth Bill will include the Budget measure to allow small businesses to restructure without incurring a Capital Gains Tax liability. This Bill will provide a tax discount for unincorporated small businesses, allow immediate deductibility for professional expenses and expand the FBT exemption for work-related portable electronic devices.

The measures in this Bill will provide improved cash flow for small businesses. In addition to improved cash flow, providing immediate deductibility of professional expenses and expanding the FBT exemption for work-related portable electronic devices will reduce red tape for small businesses.

Small businesses tend to face proportionately higher regulatory costs than larger businesses, because of their inability to take advantage of economies of scale in understanding and complying with regulation.

Schedule 1 of this Bill will provide a 5 per cent tax discount for approximately 70 per cent of small businesses which are not incorporated, capped at $1,000 per taxpayer.

We have successfully brought legislation before the Parliament to introduce a 1.5 per cent cut in the company tax rate for small business. That measure will provide very welcome tax relief to thousands of small incorporated businesses across Australia. This Bill will extend to many more unincorporated small businesses, a broadly similar tax cut.

Owners of small businesses will receive a 5 per cent tax offset on their small business income. The tax offset will be capped at $1,000 per taxpayer, per year.

We know that Australian small businesses are made up of many different Australians. That's why we've taken this into consideration.

Currently, unincorporated business income is taxed at its owner's marginal rate of personal income tax. This feature of Australia's tax system means that a company tax cut will not benefit unincorporated businesses. All those 'tradies' who operate as sole traders, the mum and dad business partnerships and the family business operating through a trust would miss out. This Bill will ensure all small businesses are entitled to a tax cut, irrespective of how they are structured.

With a tax cut of up $1,000 for each business owner, small businesses will have more cash flow. This increased cash flow can be reinvested in the business, helping it to reach its full potential.

Schedule 2 of this Bill will provide immediate deductibility of professional expenses for small business.

Currently, there are some expenses related to starting a business that have to be depreciated at 20 per cent of the original cost over five years. Some examples of these expenses include professional advice on starting a business, such as legal advice or costs associated with raising capital, including those incurred in accessing crowd-sourced equity funding.

This Bill allows these expenses to be immediately deducted instead of depreciated over five years. The benefit here is not just to the businesses cash flow, but to their record keeping requirements. Small businesses will not have to track these expenses over five years, as previously required. They will now claim the deduction for the entire amount and get on with running their business and growing Australia's economy.

Immediate deductibility of professional expenses will be available from the start of the 2015-16 income year.

Schedule 3 also reduces red tape within the Fringe Benefits Tax system, by expanding the FBT exemption for work-related portable electronic devices.

Simplifying fringe benefits tax (or FBT) arrangements for small businesses will reduce the existing complexity in complying with current rules, and improve access for employers to work-related benefit exemptions.

Small businesses (with an aggregated turnover of less than $2 million) will be able to access a FBT exemption for all portable electronic devices that are provided for work purposes.

This exemption will be available even if multiple devices with substantially similar functions are provided by an employer to their employee for work purposes.

FBT applies to certain non-cash benefits provided by an employer to an employee. FBT is levied on the employer.

Under the FBT system, fringe benefits are not taxed at an employee's marginal tax rate, but are instead taxed at the top marginal tax rate.

FBT maintains the fairness and integrity of Australia's taxation system by taxing non-cash benefits provided by an employer to its employees. It also facilitates the inclusion of fringe benefits in an employee's income for the purposes of means testing benefits such as family tax benefits.

Currently, there is an FBT exemption for five categories of work-related items that are used primarily for the employee's employment. These categories apply to portable electronic devices; items of computer software; items of protective clothing; brief cases; and tools of the trade.

Within the portable electronic devices category, an FBT exemption can currently be provided for more than one device, provided the devices do not have substantially similar functions.

For example, a mobile phone and a laptop are not considered to have substantially similar functions (and so could each get the exemption), but a tablet and a laptop are generally considered to have substantially similar functions (and so only one would be able to get the exemption).

With the development of new products and increasing overlaps in function, it is becoming more and more difficult for employers to determine which devices can access the existing FBT exemption, and is thereby stemming the use and availability of a critical tool of the trade for small businesses — portable electronic devices.

With evolving technology being used for work purposes, the legislative provisions that allow for an FBT exemption for portable electronic devices and computer software have not kept pace.

There have been many examples of business seeking clarification from the ATO regarding whether multiple items can both be exempt in the same FBT year.

Allowing the existing FBT exemption to apply to items that have substantially similar functions as proposed will simplify the current rules and provide employers with more flexibility in the number and nature of items given to employees, by disregarding overlaps in the functions of items.

As such, simplifying this exemption is expected to lead to a reduction in compliance costs and red tape for employers.

Employers will no longer need to determine whether items such as a tablet and laptop have substantially similar functions. The benefit will potentially increase in the future as the range of items such as smartphones or smartwatches increase in use and function.

It is estimated that around 30,000 businesses will initially benefit from this measure.

This reinforces the Government's position that the tax system should not impede innovations by companies hoping to grow and employ people.

To this end, removing and simplifying the FBT portable electronic devices exemption will provide proportionately greater benefits to small business.

The 2014 Board of Taxation report, Review of Tax Impediments Facing Small Businesses, noted that small business stakeholders frequently raised Fringe Benefits Tax as an area of concern, suggesting that it imposes a significant and disproportionately high regulatory burden on small business.

The Government has listened to the concerns of small business owners and employees, and is committed to making it easier to do business in Australia.

It is estimated that there will be compliance cost savings associated with the measures contained in this Schedule, which will commence from the beginning of the next FBT year on 1 April 2016.

As I've said, this Bill, coupled with other initiatives announced by the Government in the 2015-16 Budget, encourages small businesses to provide their staff with all the necessary tools to grow and build their business, and to have a go.

We are committed to ensuring Australia is the best place to start and grow a small business.

Full details of the measures are contained in the explanatory memoranda.

Debate adjourned.

Ordered that the resumption of the debate be made an order of the day for a later hour.