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13 Mar 2015

Can the tax system keep pace with changing face of business?

I was having a friendly discussion with an accountant friend the other day and somehow it escalated and became a little heated!

I was making the case that the Australian Tax Office, like all branches of government and to a large extent society in general, has not kept up with modern working trends.

In fact I argued that some of our rules, laws and conventions are still more grounded in the industrial revolution rather than the technological age.

For example for a lot of people – still a large majority – working or doing business means physically attending a common location for a set number of hours each day, five days per week.

However as numerous articles, books and studies attest, the remote workplace is not only here to stay, but continues to become more and more prevalent.

This discussion started with my suggestion that I should be able to claim deductions on more of the costs of doing business my way, which is very often remotely.

As I can work from anywhere that has an internet connection, it’s not unusual for me to set myself up at a café, have lunch, a coffee or two and then a meeting where I shout coffee for whoever I’m meeting with.

Currently those expenses can only be claimed as “entertainment” costs, rather than as if the café is a legitimate workplace and everything you spend there while going about your business is an actual business expense.

Even the rules around home office expenses, which have been around for a while, have not kept up with the trend that working from home is being offered by some companies as a well-thought-out and completely acceptable employee option (even if Marissa Mayer doesn’t think it’s right for Yahoo!).

It seems that the home office concept is still thought of as being the way a freelancer, sole trader or very small business person operates, rather than something many large organisations are embracing.

As the founders of 37signals, Jason Fried and David Heinemeier Hansson espouse in their New York Times Bestseller ‘Rework’, these days you don’t need an office. In fact they recommend only setting up an office when you have ‘spare cash’.

There are just so many alternative ways to work now than there were even five years ago and of course government is notoriously slow-moving when it comes to red tape, regulations and taxation rules.

Meanwhile demographers are campaigning for separate business hubs to be developed away from the central business districts of all major cities to reduce the wasted (and frustrating) time of commuting from the population centres in outer suburbs and to establish much-needed infrastructure closer to where many workers live.

The two concepts are complementary as working from home or working remotely also reduces the commute – and associated costs to the individual and the broader community – and eases the load on the finite infrastructure downtown.

In my opinion, everyone wins when a business is able to operate effectively with remotely located staff, so why shouldn’t the owner of that business be appropriately compensated through tax deductions or maybe even tax breaks that encourage this modern way of running a business?

The advent of well-situated, well-equipped and extremely cost-effective co-working spaces is also a fairly recent phenomenon, but one which is likely to grow and take firm hold in the next few years, so that’s another thing that tax law (and other established rules and regulations) will have to adapt for.

The Hub even takes the concept of the co-working space further by building a community of like-minded, entrepreneurial people who are encouraged to intermingle and collaborate. They employ staff and organise events to facilitate networking, so people in their community have an opportunity to grow their business or even spawn a new one as a result of this “incubation”.

How do you put a value on that, or any of the working environments that has been, is being or will be created in the technological age?

The whole working remotely revolution is changing the scope of everything and while society is trying hard to keep up with the changing ways of doing business, there is little doubt that government regulators and statutory bodies are lagging behind.

Let’s face it, historically they are almost always last to any party!

Some links you may be interested in:

Rework – the New York Times Bestseller from the co-founders of 37signals

Remote – their follow-up

Regus – co-working space and more (3000 locations in 900 cities worldwide)

Hub Australia – co-working as a community, ideal for start-ups

Global Workplace Analytics – a comprehensive list of pros and cons of telecommuting

Location, Location, Location – a NY Times editorial after Marissa Mayer’s Yahoo! Edict

Can people collaborate effectively while working remotely? – an interesting perspective from Vint Cerf, co-creator of the Internet and Google Vice-President

Telecommuting will rise to include 43% of U.S. workers by 2016 – a blog from Forrester Research’s Ted Schadler summarising that company’s 2009 report

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