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Issue 17

Warning ! Warning ! Tax Office Approaching! 

Colin Goodwin 

You'd have thought that, with the trials and tribulations of introducing the GST, and inflicting Business Activity Statements (BAS) on Australian businesses, that the Tax, Office would leave people alone for a hit. 

But wait ! There's more: Let me introduce you to the joys of the New Business Tax System (Integrity Measures) Bill 2000". This little gem became law on the 30th June 2000 and what it basically means is that - unless You are willing to be very organised, and fight the Tax Office - \'Out- small business will probably be automatically categorised as "non-commercial" (i.e. a hobby), and any expenses will have to be deferred until your business becomes "commercial". In other words, you will receive no tax relief while you are getting your business off the ground, but will only he able to claim the costs of establishing your business when you have substantial revenues and profits. 

This is a far harsher set of conditions than big business has to operate under! If you look at our bushfood industry, probably the majority of people are supporting themselves with income from some other job while their plants and businesses mature.

(Existing farmers - much as we love'em - are not yet leading the bushfood industry.) 

In the Past, the bushfood pioneers could at least claim the costs of establishing their bushfood business as a tax deduction against their total income (not just bush-food income). Now you (probably) can't! So let's look at some of the details; what does a business have to do to be judged as "commercial"? 

The Australian Tax Office considers a business as commercial if it passes one of the following tests:

 - Earns an assessable income of at least S20.000 or - 

Earns a taxable income in three of the past five years, including the current year: or

 - Uses real property excluding dwellings with a value of at least 5500,000 or

 - Uses other assets, excluding passenger vehicles, with a tax (written down) value of at least $100,000. 

Failing these tests, the business has to satisfy the Tax Commissioner that either, 

- The business failed to meet the tests due to special circumstances outside the operator's control (for example natural disasters); or

 - The business is in the start-up phase. It is with this very last point that there may be some hope. 

There are a number of primary industries (e.g. plantation forestry) where there are substantial costs up front. with profits only being realised after ten or twenty, years. IF a bushfood producer can demonstrate (in their business case) that they can reasonably expect to deliver revenues and profits in the future, then perhaps the tax office will allow early deductions. Whether, this will in fact happen will depend oil the industry and how well it engages politicians. Artists and performers tackled this problem and were able to get the mild concession that artists with non-arts income of less than $40,000 are not affected. A similar special case is noted for primary producers with assessable income from non-primary production less than $40,000. It is clear that this legislation is based on some highly undesirable prejudices. 

- It promotes passive investment and penalises active business ventures

- It maintains favourable tax concessions for big business, but penalises small entrepreneurs. 

- It absurdly assumes (contrary to everyday experience) that Australians have only a single job or career, whereas almost all Australians today have a portfoIto of paid and unpaid occupations. 

There are a couple of things worth doing to try and deal with this situation. The first is to contact your local member, and help them understand how unhappy you are at the Government's attempts to destroy your business. And the second is to contact accountant and alert them to the problem (unfortunately many accountants will be unaware of the situation), update your business case, and get ready to demonstrate to the tax office that you have (or will have) a "commercial" business and not a hobby! (For more details go to http:// www.treasury.gov.au/publications/taxationpublications/thenewbusinesstaxsystem/ factsheets/707.asp ) 

Colin Goodwin