Friday, 11 April 2014

Cutting the tax red tape

Consultation in full swing

One of the things I did not appreciate until I became president was how much involvement I would have in signing off on submissions and participating in consultations with the Tax Office and with Treasury in relation to new legislation.

Recently I spent half a day consulting on a measure that is designed to protect taxpayers who relied upon measures that had been announced but which will now not be enacted as a result of the Assistant Treasurer’s announcement in December last year. I expect that by the time you are reading this column the draft legislation will have been released for public comment. I have also been involved in a consultation about a potential new law that would give the Commissioner power to alter the operation of the tax law to remedy outcomes that are unintended or anomalous. This measure is at a very early stage of gestation – the government has not yet considered whether it would be prepared to propose such a law. Subject to seeing the proposed law, The Tax Institute is willing to support it provided it can only be exercised in favour of taxpayers.

Tax red tape

Another issue on which The Tax Institute has been consulting is the government’s campaign to reduce red tape. This consultation has provided a good opportunity for member input, as I explain further below. On 19 March 2014 the government introduced its first tranche of red tape repeal bills including the Omnibus Repeal Day (Autumn 2014) Bill 2014. The Bill proposed four redundant tax measures for repeal.

I welcome the government’s efforts to cut red tape and hope that regulation in the tax system continues to be a focus of these efforts. Given the complexity of our tax system, there are myriad opportunities for reform, ranging from specific policy changes to administrative changes. These include duplication of information requests, inefficient forms of election and streamlining opportunities to name just a few.

We approached our members over the Christmas/New Year period for suggestions as to areas in the tax system where the deregulation initiative could start to be targeted.

The suggestions we have received so far are:
  • many returns and associated ATO forms cannot yet be lodged electronically and/or cannot be downloaded electronically;
  • duplication of reporting obligations for closely held trusts such as the requirement to prepare a TFN report and TB statements;
  • various improvements to compliance with the transfer pricing rules contained in Div 815 of the Income Tax Assessment Act 1997 (Cth) are required;
  • level of loan documentation required to comply with Div 7A is burdensome;
  • for deregulating taxation of individuals:
    • the definition of Income Test should be standardised instead of having different income tests for different purposes; and
    • allow a personal services entity (PSE) to pay a PAYG instalment amount calculated by the ATO, rather than the PSE having to determine the amount of the PAYG instalment;
  • taxable payments reporting in the building and construction industry through the “Taxable Payments Annual Report” serves to increase compliance costs on already compliant taxpayers;
  • the method for calculating foreign exchange gains and losses for small entities transacting with non-resident entities in the same group needs to be simplified; and
  • complexity of small business CGT concessions makes it difficult for taxpayers to confirm whether they qualify for a concession under these rules.
We will continue to look for opportunities for reducing regulation and the compliance burden of the Australian tax and transfer system. We will use the various options open to us, such as liaising with the deregulation division in Treasury and through our regular consultation activities with the ATO, to assist the government with this initiative.

When amending tax laws, consultation is key as the need for deregulation should be balanced with the need for genuine tax reform. A focus on wholesale tax reform would lead to a more efficient tax system that would deliver benefits over the long run.

Michael Flynn CTA is President of the National Council at The Tax Institute.

The Tax Institute is 
Australia's leading professional association in tax. Its 13,000 members include tax agents, accountants and lawyers as well as tax practitioners in corporations, government and academia.