RSM Australia

Tax Reform – Improving the Building Blocks

Tax Insights

Nothing in this world can be said to be certain, except death, taxes, and calls for tax reform. When elected in 2013, the Coalition Government promised to deliver a White Paper on tax reform during its first term, which it would use as a tax policy platform to take to the 2016 election. This followed the Henry Tax Review delivered by the Labor Government in May 2010, with the majority of its recommendations remaining untouched to date.

In the current environment, it would take a brave Government to implement meaningful tax reform, but below is the author’s personal wish-list for tax reform:

Goods & Services Tax

The GST system should be simplified by removing the broad based exemptions (e.g. food, health, education). Revenue received from an increase in the GST base could therefore be used to abolish inefficient taxes.

The GST is a political hot potato, with any increase having a greater impact on families with lower annual incomes. Personal income tax reform could help make an increase in the base more palatable to the electorate.

The increase in GST base should also result in an increase to the threshold for requirement to register for GST, which is currently $75,000. Increasing this threshold may keep some sub-contractors outside of the system, eliminating the need for costly and time consuming GST compliance.

Corporate tax

The current corporate tax rate of 30% (28.5% for “small” businesses from 1 July 2015) is high by OECD standards. A lower rate of corporate tax may encourage foreign businesses to set up branches or subsidiaries in Australia, aiding growth in local employment and demand for local services.

Trusts

Often seen as a tax avoidance mechanism, trusts serve a valid purpose for family succession planning and asset protection. Various legislative fixes and ATO announcements have curtailed the perceived tax benefits of trusts in recent years, whilst adding to the overall complexity of the system. Simplifying the taxation of trusts has been in the “too hard” basket for too many years, and it would be good to see trusts taxed in such a way that there is no tax difference for people setting up their business in a trust or a company.

Transfer Duty on Conveyances

The Federal Government’s own tax discussion paper lists State transfer duties on purchases of land or businesses as one of the most inefficient forms of taxation. It acts as a deterrent for existing property owners to sell their properties and acquire new properties, meaning properties are kept out of the market instead of being made available for purchase by new owners, or for development in older regions.

The State Coalition Government has reneged on an earlier promise to abolish transfer duty on the purchase of businesses in WA. Transfer duty can be easily avoided where the business is being run through a company, by simply buying the shares in the company instead of the underlying business. This is another reason why transfer duty should be abolished.

Payroll tax

In its current form, with the tax-free threshold and various exemptions, payroll taxes lead to employers organising their businesses in a way to try and avoid, or limit their exposure to payroll tax.

For many business owners, payroll tax is seen as a deterrent for employment, with some business’ annual liabilities exceeding the cost of hiring another staff member.

Whilst tax reform has been in a holding pattern for a number of years, it is hoped that the 2016 election will bring with it an appetite for meaningful tax reform that releases the handbrakes on many parts of the Australian economy.

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