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Submission No. 055 Back to full list of submissions
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THE REVIEW OF BUSINESS TAXATION

"A Platform for Consultation"

Submission by The Institute of Chartered Accountants in Australia

April 1999

Index

Overview
A Focus On Small Business
Entity Taxation
Taxing Fringe Benefits
Valuation of Trading Stock and Similar Assets
Compliance Costs
Consolidations and Tax Losses
Measures Affecting Same Business Test – Chapter 28
International Tax Issues
Capital Gains Tax
Expenditure Allocation Rules
Amortisation of Goodwill or Acquired Intangible Assets
Leases and Similar Arrangements – Chapter 9
Tax Simplification – Shortening the Yellow Brick Road

Overview

Introduction – Who We Represent

The Institute of Chartered Accountants in Australia ("ICAA") welcomes the opportunity to make this submission to the Review of Business Taxation ("RBT"), in response to the second Discussion Paper, "A Platform for Discussion".

The ICAA, as the body representing Australia’s peak business and finance professionals, has some 32,000 members in public practice, commerce, academia, government and the investment community. Its members are advisers to businesses at all levels, from small and medium sized businesses to the largest global corporations. We therefore represent a wide cross-section of the business community.

The ICAA has strong links with the small and medium enterprises ("SME") sector. Chartered Accountants are the leading advisers to SMEs in Australia and accordingly our representations on taxation reform have been prepared with a strong emphasis on tax reform issues for SMEs.

As part of our contribution to the tax reform debate, in late 1997 and early 1998 the ICAA researched the views of SMEs on tax reform. Our findings reinforced the degree of concern that small business and its advisers feel in relation to the compliance burden that confronts them and the adverse impact of government regulation on the SME sector.

The Need For Simplification

As part of our submission, the ICAA reaffirms its support for simplification of Australia’s tax laws. As we noted in our submission in response to "A Strong Foundation":

"The ICAA also points out that the complexity of Australian tax law reduces the ability of Parliament to understand the laws they are called upon to pass. The ICAA believes that, because few parliamentarians have the time or support to understand tax related bills, there is little appreciation of the true impact that complex law has on those obliged to comply with it."

To ensure that this detriment to business is not perpetuated, we believe that there is a clear and urgent need to reform both the business tax process and its attendant systems. To this end, a key element in the reform of the business tax process is an integrated approach to tax design. We therefore continue to emphasise the need to ensure genuine consultation between the Revenue authorities, the business community and the tax profession in all aspects of tax design arising from business tax reform. The ICAA is ready to assist in this process.

The Need For Delayed Implementation

We understand that after the RBT reports to the Government, the Government will make its decisions and then hopes to introduce legislation to parliament by late 1999. The legislation will then not be debated by parliament until about April – May of 2000. If the implementation date is scheduled for 1 July 2000, some issues will already affect companies with substituted accounting periods commencing from, say, 1 January 2000. The timetable for implementation by 1 July 2000 is too short. Businesses will be unable to cope with the massive upheaval in so short a time. Accountants will definitely have real difficulties in managing the changes, completing the educative process, advising their clients in advance and handling the compliance load.

We submit that, if these changes are to be implemented, further time must be allowed for businesses and accountants to assimilate the changes and for accountants to advise their clients accordingly. This applies to virtually all business tax changes.

An Ongoing Consultative Framework

The ICAA recognises the need for, and strongly supports the establishment of, an ongoing consultative framework as a pivotal part of business tax reform. To do so ensures that there is an agreed, co-operative basis for going forward, especially past 30 June 1999.

As we noted in our submission in response to "A Strong Foundation", the ICAA agrees that there is a clear and urgent need to reform both the business tax process and its attendant systems. To this end, we concur that a key element in this reform is an integrated approach to tax design. However, and as previously indicated, while we support the conceptual framework as illustrated in Figure 7.1 of "A Strong Foundation", we firmly believe that to ensure greater acceptance there must be an appropriate blend of representation as between the Revenue authorities, the business community and the tax profession.

The consultation process which has been a hallmark of the RBT process up to now, especially the interaction during the many focus groups, must continue into all aspects of tax design associated with business tax reform. The momentum that has developed must be allowed to continue.

Establishment of an Advisory Board

We take this opportunity to restate that the ICAA advocates the appointment of a Board of Directors, with appropriate private sector representation and including the Commissioner of Taxation, to oversee the overall administration of the ATO.

We see this as a complementary measure to ensure that appropriate and genuine consultation continues between the Revenue authorities, the business community and tax professionals as part of the business tax process.

This provides a forum whereby the Revenue authorities are able to appreciate, and be informed as to, the pace of change in commerce, the growing complexity of modern business life and the legitimate use of corporate vehicles and structures.

Small Business Focus

Our following submission is based on our awareness of the issues for small and medium sized businesses arising from "A Platform For Consultation", as well as our members’ deep involvement in major corporates’ taxation issues. Clearly, a major issue for smaller businesses is the set of proposals under the heading of Entity Taxation. It is apparent that the entity taxation set of proposals has been formed with a view to deny the flow-through of tax-preferred income through trusts. We understand the reasons why the Government has proposed this major change, but we consider the method of dealing with the problem should have been dealt with directly instead of through this indirect method. The method proposed provides no benefit for smaller businesses and merely adds enormous complexity to existing structures and adds layer upon layer of compliance costs. Compliance costs fall most heavily on this sector of the economy.

We consider that the entity taxation proposals should be aimed at the larger and more tax-aggressive business taxpayers and will unfairly impact upon smaller businesses that are trying hard to comply with their obligations, without compensation for their efforts. For those taxpayers that are doing their very best to comply with existing very complex tax laws and very complex tax return issues, these additional complexities and costs will be quite disheartening.

We therefore propose a carve-out for smaller closely-held businesses, without tax cost to the Government, aimed at simplifying the tax system for those businesses and their accountants/advisers and minimising the compliance costs that the entity taxation system may otherwise impose upon them.

Notwithstanding our recommendation for a carve-out for smaller businesses, we support the general proposal to allow a refund for excess franking credits for resident individuals and superannuation funds. This proposal should remain. Further, our carve-out proposal is shown to be revenue neutral to government on the understanding that entity taxation is seen as merely a withholding tax.

 

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