Small businesses are important drivers of the Australian economy but face higher tax compliance costs than larger businesses. Innovation in small businesses carries both risks and rewards, as companies engaged in innovation are more likely to grow their employee numbers but investing in innovation is also risky. The tax system can discourage innovation if not properly designed to support risk-taking. The document discusses legal structures for small businesses, tax compliance costs that vary by business size, and how both innovation and small businesses can be supported through appropriate tax system measures.