Making tax simple
At Xero we champion the small business.
Recently the New Zealand Institute of Chartered Accountants and Tax Management New Zealand released a discussion document Simplifying the Taxation of Small Business in New Zealand. The recommendations and issues this covers are very interesting, and the stance is quite different to the status quo. And I must say as a Chartered Accountant I think they’ve done a good job of simplifying things.
The document suggests small businesses suffer under a weight of compliance requirements, which is virtually the same requirement for big business. Inevitably the cost of compliance is not only too high but an unreasonable burden for small businesses.
Having helped lots of people who have owner managed businesses I know this to be true and I‘m hugely supportive of any initiative that makes compliance less onerous.
It seems the document’s purpose is to be a “constructive think piece to raise awareness and promote thought and discussion on some fresh approaches to tackling the ever wearisome tax compliance burden for small business.”
It further states:
“The purpose of this paper is to help determine whether there is a mood with both policy makers and small business owners to tackle tax compliance costs: because we believe our proposals could help cut income tax costs for small businesses by approximately a quarter to a third.”
Two very interesting suggestions
1. For micro-businesses (with earning under $60,000 with no employees), a flat 15% tax is paid on turnover including ACC levies. The business is not required to make careful deductions for expenses, which are generally 50% of the revenue.
2. For a small business (turnover less than $1.2 million and registered for GST) the suggestion is treat all business structure types (Companies, Partnerships and Trusts) as if they were sole traders, removing dividends and salaries to owners and removing the requirement to keep an imputation credit account. Income tax is paid with GST and there is no requirement to pay provisional tax. (Yippeeee!!)
This does not mean a small business will pay less tax, in fact the proposals suggest about the same tax would still be paid. What it does mean, is that it would make it much simpler to calculate income tax for small businesses. This would help the accounting community to move to the business coach type model we have always wanted, as opposed to being tax calculators and minimisers.
The potential impact on the NZ small business community is massive. Some 90% of all businesses in NZ employ fewer than five people and 60% of all NZ businesses are owner operators employing nobody else.
The writers have asked for feedback and have included a number of specific questions at the back of the document. For those of you inclined I strongly suggest you take a look.