Tax Institute recommends tax deductions for childcare costs as key for SMEs in its 2013 budget submission

State tax reform, a new small business entity and tax deductions for childcare are just a few of the ideas the Tax Institute has put to the federal government in its budget submission paper.

The submission is set to be the first of many as business entities put forward their views on how the government should deal with business in the upcoming budget, especially as Treasury is eager to find savings in areas such as superannuation.

Robert Jeremenko, tax counsel at the Tax Institute, told SmartCompany the government needs to ease tax regulation for small business – especially for SMEs.

“The big items we’ve prioritised here are a few state tax reforms, but there’s an opportunity here for states to work together and have a sustainable tax base.”

One key proposal is to make childcare costs fully tax deductible, as opposed to the current 30% rebate. Jeremenko says in order to have more women in the workplace, and to provide consistency to small business, such a scheme should be considered.

“This is one that touches many families, and childcare affordability is influenced by a range of factors,” he says.

The submission argues childcare assistance is a key area “in which reform is necessary”, and says deductions require study from the perspective of both feasibility and increasing productivity.

“There are highly performing, highly productive women in the workforce and they need to be encouraged,” Jeremenko says.

Another key proposal is to create a type of small business entity. Jeremenko says there are plenty of ways for a business to classify itself, whether it is as a company or a trust – he suggests a small business entity would be a good fit.

“Such a thing could pick up the best bits from all of those structures for a small business. It’s not a perfect situation, but we’re floating the idea that it’s possible with some future work.”

Another area of interest is superannuation, especially as reports continue to suggest the government will be targeting self-managed superannuation funds for extra funds. The Tax Institute says the government should also address “the low level and inflexibility of contributions caps”.

“While certain taxpayers on the top individual marginal tax rate may not suffer a punitive outcome from a liability for excess concessional contributions tax at the top marginal tax rate, the cost borne by taxpayers on lower individual marginal tax rates is significantly out of proportion with the cost to the system of excess contributions,” the submission reads.

The submission also argued contribution caps be increased for those under 50, with increases staggered over a number of years, while it also argues greater flexibility for taxpayers to “carry over” the part of the contributions cap that remains unused.

But Jeremenko says the super system requires reform, otherwise workers – and entrepreneurs – will lose confidence in the system.

“If people lose confidence completely, they will decide to put their money elsewhere,” he says.