|Submission No. 25||Back to full list of submissions|
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TAX LAW IN ONE PAGE
These rules apply to all enterprises, including Companies, Trusts, Partnerships, and Sole Practitioners.
All enterprises will be taxed on an annual basis, with the year from July 1 to June 30. Postal and electronic transfers at the end of the financial year will be deemed to have occurred on the working day following the day on which the cheque was posted, providing the cheque is honoured. The financial year in which the transfer is recorded must be the same for both payee and payer.
All transfers in kind are to be translated to equivalent monetary value at market (arm’s length) rates, and included in returns for payer and payee at the same value, and same year. Transfers between related parties must be at market (arm’s length) rates. Where a payment is made to a third party for goods or services to the benefit of an employee (or another person), a transfer must be included to add the cost of the benefit to the employee’s salary.
All money received is taxable as Income.
4.1 Money received on condition that it be repaid at some time in the future, is taxable in the year the money is repaid or in the year the debt forgiven.
4.2 All other money received is taxable in the year it is received.
5. All money paid out is deductable from taxable Income.
5.1 Money paid for assets used to produce goods and/or services is deductable in equal instalments over the predicted remaining useful life of the asset (depreciation).
5.1.1 Assets which have an indeterminate life, such as land, works of art, collectables, and antiquities, shall be depreciated over 50 years.
5.1.2 Assets costing less than $5,000 each may be considered to have a life of one year, and so fully deducted in the year of purchase.
5.1.3 When assets subject to depreciation are sold, the remaining un-claimed purchase cost will be included as a deduction in the year of sale.
5.2 Money paid on condition that it be returned at some time in the future is deductable in the year in which it is repaid or in which the debt forgiven.
5.3 All other money paid out is deductable in the year in which the payment is made.
6. Where money is paid to a person or enterprise, and there is an expectation that tax will be due on that money, and there exists no other assurance that that tax will be paid, the payer must retain the estimated tax payable, and forward it to the
Taxation Commissioner within 90 days.
7. Tax is payable at the following rates:-
Superannuation Funds: 15%
Overseas corporations: 11% (withholding tax rate)
Natural persons: Include income with personal
income to calculate tax payable.
8. Tax must be paid within 3 months of the end of the financial year in which it is due. If tax is paid early or late, interest at Reserve Bank rates is payable.
9. If no tax is due in a particular year because Deductions exceeded Income, the Deductions may be carried forward by the Enterprise. If the Enterprise is dissolved, remaining Deductions may be sold at market value, like any other asset.
10. The Taxation Commissioner may make Regulations to provide "deemed to comply" procedures to simplify compliance with the law.
11. Existing Enterprises may change immediately or continue with the existing system for a maximum of five years.
Explanation of "TAX LAW IN ONE PAGE"
The Tax Law of Australia is extremely complex, and does not encourage sound business practice. Expert assistance is required to ensure compliance. This expert assistance would be better directed to assisting the business operator in aspects more directly related to on-going prosperity.
This paper sets out one possible means of reducing business tax to a very simple set of rules. It does this by considering only the transactions actually completed in the financial year. Generally, it allows deductions earlier than at present, and deferral of income not actually received. This means the year of introduction will result in reduced tax collection, but following years should see a move back to current levels of revenue.
APPLICATION (Clause 1)
The rules apply only to "non-persons". Once the money moves to the hands of an individual (usually as wages, interest, or dividends), there are no further deductions applicable, apart from the common existing deductions for minor expenses. Where an individual carries out a business where application of these rules is of benefit, an "enterprise" must be set up.
TIMING (Clause 2)
All enterprises are to be taxed on the same financial year, so that deferral by transfer between entities with different year-end dates is not possible. It is expected there will be a lot of activity at year’s end, as cash is paid out to ensure income is not taxed unnecessarily.
TRANSFERS IN KIND (Clause 3)
This is a standard process for dealing with bartering, and transfers not at arms length. It also covers fringe benefits to employees, which will now be included in the employee’s taxable income.
INCOME (Clause 4)
Every dollar received in the financial year is taxable in that year’s Return, except for loans and share capital. They say that there are only two certainties in life - death and taxes. The great uncertainly with both is exactly when each will happen! This proposal removes the uncertainty with taxes - tax is due now!
DEDUCTIONS (Clause 5)
In the same way that Income appears in the year the money was received, Deductions will normally appear in the year the money is paid out.
The exceptions are items of a capital nature, which are depreciated over the working life of the asset, and share capital and loans (where a contra to the Income rule is needed). Nominal deductions are allowed for enduring assets (such as land). Collectables are included here, but with the provision that they are used to provide goods and/or services, as otherwise they would have been purchased for the benefit of an employee and so considered to be a benefit to the employee, and covered by the fringe benefits provisions.
Note that dividends to shareholders are a deductable expense to the Company, and fully taxable in the hands of the shareholder - a much more sensible and direct means that the current Dividend Imputation rules. (Dividend Imputation is no longer useful when the tax will be collected in the recipient’s hands in the same year.)
PAYE DEDUCTIONS, DIVIDEND WITHHOLDING TAX etc. (Clause 6)
Existing systems of PAYE Tax, Prescribed Payments, and Dividend Withholding Tax will continue to exist as before, but now the rules will be much simplified. The existing rules could be reissued as "deemed to comply" regulations. If there is a problem with the paperwork on minor payments, reference back to the basic rule should sort out the problem allowing immediate payment in full if a Tax File Number has been provided.
TAX RATES (Clause 7)
These are as at present. Trusts that do not wish to pay tax must ensure all remaining income is distributed in June.
TIMING OF PAYMENTS (Clause 8)
Every Company’s books should be completed within three months leaving accountants to advise on proper business practice for the remaining 9 months of the year.
TAX LOSSES (Clause 9)
Losses can be carried forward within an organisation. At wind-up they can be sold at market rates. The market rate will end up close to the actual value of the loss!
OTHER LAWS (Clause 10)
This Clause is to simply establish the preeminance of the new rules.
TRANSITIONAL ARRANGEMENTS (Clause 11)
Existing corporations will have five years to make the transition to the new system. This leaves ample time to rearrange affairs and to consume existing Franking Credits.