The Board of Taxation is a non-statutory advisory body charged with contributing a business and broader community perspective to improving the design of taxation laws and their operation.
Ideas for better tax regulation
Superannuation and income tax - moving to an EET model
Superannuation is the primary retirement savings vehicle for the majority of Australians, so it is appropriate that tax concessions are used as a policy lever to provide an incentive, encourage desired behaviour and compensate individuals for locking their savings away in the superannuation system. However, there has been considerable public debate in recent times about the quantum, distribution and equity of the tax concessions provided to superannuation. Further, successive governments have made changes to the taxation treatment of the superannuation regime to shore up flagging revenue. The frequent rule changes undermine public confidence in the system, which will have a negative impact on Australia’s long-term savings. (Consider for example the federal government's 2016 Federal budget announcements). As the system matures, it is appropriate to consider shifting some of the tax burden from the contributions phase to the benefits phase, albeit with a long transition phase. Ideally, the most equitable retirement savings system would tax income in the hands of the individual when it is actually received. That is, contributions would be tax exempt, fund earnings would be tax exempt or concessionally taxed, and benefits would be taxed. What is known as the EET model (exempt, exempt, taxed) is the most common taxation model used in the majority of OECD countries. Australia is unique in taxing retirement savings at all three points. We propose the Federal Government consider what it would take to shift to an EET system, modelling the economic, social and revenue impacts of a transition to such a system - including any implications for the age pension and the public purse in general..
A new small business entity
The 2015 Re:think paper discussed the virtues of a US ‘S-Corp’ type entity for SMEs in Australia. CPA Australia is of the view that it would be appropriate for a new type of entity be introduced into our tax regime that would have some of the features similar to that of a S-Corp, such as limited liability and streaming/ flow through of income to beneficiaries, but importantly it would also need the additional feature of being able to retain income that would be subject to income tax at non-punitive rate. The thinking behind this is that at present a typical and relatively ordinary commercial family business structure would involve: 1. a corporate trustee 2. a discretionary trust, and 3. discretionary beneficiaries including a corporate beneficiary. The introduction of a new entity that has the features of limited liability, allows income streaming like a discretionary trust, allows income retention and is taxed at the prevailing company tax rate – would potentially eliminate the need for three entities, reducing the entity structures required in this example from three to one. The idea of a new SME entity should not be confused with the proposal from Review of Business Tax of ‘taxing all trusts as companies’ over a decade ago. The Board of Taxation’s review of the so-called entity tax regime appropriately put that proposal to rest. That proposal remains inappropriate when one consider the myriad of different types of trusts with differing objects (such as child maintenance trusts) and the perverse outcomes that would result from such a measure. Certainly the introduction of a new entity may add to complexity. However it may be one small step that enables a tidy-up of much of the complexity small businesses continually face relating reinvestment of business profits in a business and the private company loan/ deemed dividend rules, amongst other things.
Encouraging savings and investment
Australia's current tax system penalises taxpayers on income derived from savings outside the superannuation system. Given the tax-preferred status of superannuation, it has become the preferred savings vehicle for most Australians. This is beneficial for retirement savings, but does little to recognise the necessity for individuals to save income outside of super to afford major capital purchases during their working lives. If income derived from savings was taxed at a rate that was lower than an individual’s marginal personal tax rate, this would encourage greater savings and investment outside of the super regime also. Such an initiative may also provide an opportunity to reduce or even remove the CGT discount currently available to individuals. Further, it would also make the gearing - particularly negative gearing -of investments less economically attractive - but at the same time still encourage investment in housing, and help improve housing stock. See Recommendation 14 of the Henry Report - that proposed that there should be a 40 per cent savings income discount available to individuals for non-business related net interest income, net residential rental income (including related interest expenses), capital gains (and losses); and interest expenses related to listed shares held by individuals as non-business investments.
Meetings & events
- 24 Jun 2016 - Board of Taxation Meeting in Sydney
- 20 May 2016 - Board of Taxation Meeting in Canberra
- 8 Apr 2016 - Board of Taxation Meeting in Brisbane
The Corporate Tax Association encourages its members to adopt the Tax Transparency Code.1 1
G100 supports adoption of the Board-developed Tax Transparency Code by Australian businesses - group100.com.au/wp-content/upl…4 0
The Tax Transparency Code released: taxboard.gov.au/consultation/v… Currently most advanced and comprehensive tax transparency measure in the world.8 0