Monday, 22 February 2016
Tax Laws Amendment (Small Business Restructure Roll-over) Bill 2016; Second Reading
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.