Commentary from Greg Travers, Tax Director
The Federal Government’s announcement on which unlegislated tax measures will proceed will be welcome news for Australian private businesses, but only if it is the first step in a much more comprehensive program.
Taking a position on these unlegislated measures was the easy part for the Government – now genuine action is needed.
This sets up 2014 as a critical year in demonstrating commitment of this Government to reforming the tax system and ensuring Australia is genuinely open for business.
Based on their experiences of working with over 3,000 private businesses, here’s five actions that William Buck, would like to see from the Government in 2014:
- Introduce legislation to deal with the unlegislated measures during the first session of Parliament in 2014. This will put to rest issues that have been the cause of much uncertainty in the tax system for many years.
- Act on trust reform. Under our tax system as it currently stands, trusts perform a key function for private businesses. It has been clear for years that the taxation of trusts was problematic but the actions to date by various Governments have been little more than band-aids. Numerous consultation processes have produced suggestions but genuine reform of the taxation of trusts has been elusive. It’s not an easy issue, but it is one that has a significant impact on private businesses and needs to be dealt with as a priority.
- Support start-up businesses and entrepreneurship more generally. Tax policy can play an instrumental role in encouraging (or hampering) start-up businesses and entrepreneurship. We would encourage the Government to identify the core tax issues that impact on start-up businesses and entrepreneurship and act to reform these areas. The use of employee share schemes and “sweat equity” arrangements is one such issue where the previous Government consulted but no action has been taken.
- Act to improve the international elements of the tax system. It is disappointing that the Government has chosen not to proceed with the controlled foreign company (CFC) reforms. These rules are intended to perform an ‘anti-avoidance’ function, however, with changes in the way international business is conducted, these avoidance provisions are impacting on genuine business transactions in particular in the services and property sectors.
Other aspects of the international elements of the tax system can result in the owners of private businesses suffering an effective 55% (or higher) tax rate on profits they make from overseas operations. If we want Australian businesses to compete internationally, the tax system should support this, not hinder it. Base erosion and profit shifting may be issues that need international cooperation to be effectively addressed, but other international tax issues are well within the control of the Australian government to resolve.
- Think big on longer-term tax reform for privately owned businesses. Tax reform needs to be more than just fixing the broken parts of the tax system. Genuine tax reform requires different thinking.
The Australian tax system is by and large a’ ‘one size fits most’ system. There are limited concessions targeted at micro and small businesses and some measures that are restricted to only the largest of taxpayers. But essentially, an Australian private business navigates the same complex tax system as a large multi-national. This imposes a disproportionately larger compliance cost on Australian private businesses. If we are truly open for businesses, then the Government, including via tax policy, would support not disadvantage Australian business. It’s time for a genuine re-think on our approach to the taxation of private businesses.
FOR MORE INFORMATION:
Ph: (02) 8263 4000