COSBOA, Tax Institute, Round Table To Discuss Small Business Definition: Legal Matters

COSBOA calls for clarification on definition of small business

By Michelle Hammond
Friday, 27 April 2012

The Council of Small Business of Australia and The Tax Institute will hold a round table in May, with the aim of clarifying the definition of small business for tax purposes and legal matters.


“With all the attention the small business community is receiving, from government and from all political parties, we are finding the need to better define small business,” COSBOA executive director Peter Strong says.


“To that end, COSBOA and The Tax Institute are holding a round table, on May 1st, with senior representatives from government and from industry to discuss this issue.”


According to Strong, the notion that a small business is a person appears to have been forgotten.


“Over the last two decades… most processes and policies have been designed for big businesses and, as a result, a lot of small business people have struggled,” Strong says.


“But how do we define a small business in a way that can be easily regulated by government agencies? Do we use turnover, number of employees, assets or some other means?”


“This is important for the purposes of taxation, workplace relations, OH&S processes, competition policy, contract law, local government issues and the like.”


In addition to clarifying this definition, Strong says the round table will also discuss how to stop “rorters” from big business trying to use the small business definition to “get an unfair leg up”.


“This has been one of the problems for regulators, and has resulted in more paperwork than we can deal with an in attempt to eradicate the rorts,” he says.


Strong highlights some of the inconsistencies surrounding the definition of small business:


1. Australian Bureau of Statistics


Source: Key statistics of Australian small business, published by the Department of Innovation, Industry, Science and Research.

  • A micro business is defined as a small business with zero to four employees.    
  • A small business is defined as an actively trading business with zero to 19 employees.    
  • A medium-sized business is defined as an actively trading business with 20-199 employees. 
  • A large business is defined as an actively trading business with 200 or more employees.  

Actively trading businesses have an ABN and are actively remitting in respect of a GST role (or are businesses that are monitored directly by the ABS and are determined to be “active”).

The employment size ranges are based on “headcount” rather than a measure of full-time equivalent persons.


A distinction can also be made between employing and non-employing businesses, where employing businesses have an active Income Tax Withholding role.


2. Tax


For tax purposes, a business generally qualifies for the small business entity concessions if it is a “small business entity” for the year in question. I.e. if the entity carries on a business, and the business has an aggregated turnover of less than $2 million.


For this purpose, “turnover” includes all GST-exclusive gross income earned in the ordinary course of business for the income year.


The “aggregated turnover” is the sum of the entity’s turnover and the annual turnover of any entity the primary entity is connected with or that is an affiliate of the primary entity at any time during that income year.


Entities that do not satisfy this test may still be able to access the small business CGT concessions if the entity has (aggregated) net assets of $6 million or less.


3. Fair Work and industrial relations


For the purposes of Fair Work, “small business” is defined as a business with fewer than 15 employees based on a simple headcount.


According to a fact sheet on Fair Work published by the Department of Education, Employment and Workplace Relations:


These arrangements recognise the special circumstances of small business owners. They do not have human resource management departments, they cannot afford to lose time and they cannot readily redeploy employees into other positions or workplaces.


Compared with larger businesses, small business owners benefit from:

  1. A doubling of the minimum employment period from six to 12 months, during which time employees cannot take a claim for unfair dismissal.
  2. A short and simple Fair Dismissal Code which, if followed by the small business owner, will ensure a dismissal is not unfair.
  3. In addition, there is a specialist information and assistance unit established within the Office of the Fair Work Ombudsman to give small and medium-sized employers assistance and advice if they are considering dismissal.

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