Revealed: How much time you are really losing to tax red tape each year

Small businesses are spending almost 500 hours a year on tax red tape according to research presented at a taxation conference in Sydney today. 

The average cost to a business of complying with these tax obligations is $28,000 a year according to the study conducted by researchers Professor Chris Evans of the University of New South Wales (UNSW) and Dr Philip Lignier of the University of Tasmania.

The study of 159 businesses shows a marked increase in red tape, with businesses spending an average of 313 hours a year on tax activities in 1995. That has now blown out to 493 hours per year.

Professor Evans, of UNSW’s Australian School of Business, told SmartCompany the federal tax system needs reform and that small business is bearing a disproportionate burden compared to big business. 

“The key message that comes out of it is that despite everything we have tried to do for small business the burden has just got worse,” Evans says.

“It has increased across the board for small business, the main reason is obviously the Goods and Services Tax, and I think everybody knew that was going to be the case, but it seems to have increased for all other taxes as well.”

Evans said special concessions to benefit small business such as the Entrepreneur’s Tax Offset – a 25% income tax reduction available to small businesses that was recently scrapped by the Federal Government – had not worked.

“The other thing the survey found is that most small businesses are either unaware of small business tax concessions designed for them or, if they were aware, did not think they were eligible for them, so there was a massive lack of awareness,” says Evans.

“Things like the Entrepreneur’s Tax Offset have not been much use to them. 

“Quite often the measures taken by government to alleviate the burden depressingly were not doing any good for small business. 

“It just has not hit the target. 

“All these things are done with the best of intentions, but probably a simpler tax system with lower rates across the board rather than special concessions would be the way to go.” 

David Gordon, partner in charge of the national advisory practice at WHK Group, says long hours spent on tax compliance is just a fact of life for business.

“Our view point really is that small business needs to understand that tax compliance is a fact of life and a cost of life,” he says. 

“If they approach it in a constructive way which says we need to do this and we need to do this properly, at the end of the day it will save them money.

“No doubt you will have to spend money on tax compliance, no doubt it is unavoidable, but if you plan the most appropriate way to spend that money you will spend less than you would each month if you try to cut corners.”