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Budget – Opportunities for rate changes and simplification

Publication date: 02 May 17 | Source: THE TAX INSTITUTE

Date: 2 May 2017

The Budget provides an opportunity for the Government to address Australia’s comparatively high company and personal tax rates. The rates need to be reduced so that they are competitive and equitable. 

Rate Reductions 

The Tax Institute has consistently called for a cut to the company tax rate and we urge the Government to follow through with their plan to ensure all companies, not just smaller businesses get a tax cut.Cutting the company tax rate should attract foreign capital into Australia and make Australia internationally competitive. 

Simplifying and reducing personal tax rates urgently needs attention. Australians are currently facing the prospect of the highest personal tax rate nudging 50%. That is unacceptable. We need to find a solution to bring the personal tax rates down. 

Work related deductions 

Deductions for work related expenses are likely to be considered in the upcoming Budget. These expenses have increased substantially over recent years and have now blown out to approximately $22 billion in the 2015/16 income tax year. 

Work related deductions are enormous and the system is complex. 

One option would be to remove all work related deductions and reduce the marginal tax rates. According to The Tax Institute’s Senior Tax Counsel Professor Robert Deutsch, “removing work related deductions would simplify the system and provide enormous savings to Government which could then be productively used to substantially bring down personal tax rates”. 

Another option is allowing a standard deduction for work related expenses. The introduction of a standard deduction would make it simpler for employees to comply with their tax obligations. 

Either removing work related deductions or providing a standard deduction will simplify the system and reduce compliance costs for taxpayers. There may be other options that should be considered but either option is preferable to no change at all.  

Stapled structures 

The Tax Institute acknowledges the Treasurer’s media release regarding stapled structures. The Tax Institute regards the review of stapled structures as a priority activity given the uncertain circumstances that currently surround the tax treatment of stapled structures. The uncertainty can have detrimental effects on investment decisions. The tax incentives currently available to investors in stapled structures are an important factor for attracting sufficient capital investment for vital infrastructure projects in Australia.  Any Government proposal to deal with stapled structures needs to ensure that appropriate incentives are retained in the Australian tax system to attract such capital. 

A reduction in the company tax rate to an internationally competitive rate would assist in dealing with the issues regarding stapled structures.   

CGT / Negative gearing 

While negative gearing has resurged as an area where tax concessions could be tightened, a policy response, if there is one, should not be considered in isolation from other factors. Whether the CGT discount should be maintained should also be in the mix. 

A thoroughly considered policy response is preferable. Addressing the perceived influence of tax concessions from negative gearing on investing in capital assets will need to be traded off against the complexity that is likely to emerge by taking away these concessions, especially if only removed for some classes of assets and not others. 

ENDS

 

For more information, please contact:

Professor Robert Deutsch, The Tax Institute: 02 8223 0011

Stephanie Conway, Media Relations Contact: 02 8223 0011

 

The Tax Institute is Australia’s leading professional association and educator in tax. Its 12,000 members include tax agents, accountants and lawyers as well as tax practitioners in corporations, government and academia. The Tax Institute supports the tax profession through education and professional development and works to continually improve tax law and its administration.