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When trust taxation, residency, Division 7A, and FBT issues even have accountants confused, it shows wholesale changes are needed, according to William Buck’s head of tax.
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Top adviser calls for end to tax system tinkering in federal budget
29 April 2024
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Australia’s tax system has become “unfit for purpose” due to politicians constantly tinkering the provisions every federal budget, creating complexity instead of substantive reform, a leading adviser says.
Todd Want, head of tax at accounting firm William Buck, said confusion over trust distributions, residency issues, Division 7A loans, depreciation amounts, and FBT showed the government needed to commit to a comprehensive review of the tax system.
“The tax law is not getting smaller,” he said.
“If there is an issue, new legislation just gets added on top of the existing legislation. Band-Aids keep getting added rather than saying: ‘Enough is enough, we need to stop putting Band-Aids on, let’s go back to scratch.’”
The call for wholesale changes to the tax system echoes those made by The Tax Institute – of which Want is also president – as well as CA ANZ and the Institute of Financial Professionals in budget submissions at the start of the year.
Independent teal MPs Zoe Daniel and Kate Chaney have also called on the government “to put everything on the table” in a review of the system akin to the Henry review in 2010.
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Despite building pressure, Treasurer Jim Chalmers has insisted on taking an approach with “modest but meaningful” changes in “bite-sized chunks”.
But Want said: “That’s not tax reform.
“That’s not something we should be trumpeting each year in a federal budget. We should be going much bolder. The tax system is not fit for purpose for the next years, as we have a lot more of the population ageing and reaching that point where there’s less proportion of people working.”
He added that “tinkering around the edges seems to have been the theme for many, many years now” and had failed to relieve red tape faced by businesses who were now spending “huge amounts” of money and headspace dealing with tax compliance.
The small asset instant tax write-off scheme, for example, had been changed several times in recent years, he said. In the 2022–23 budget, amendments were announced to dial back the threshold from $150,00 during the pandemic to $20,000.
But the bill has since been tweaked again to increase the threshold to $30,00 and now currently sits stalled in Parliament with around two months left until the scheme will revert to $1,000.
“You’ve got a situation where something that shouldn’t be particularly controversial for small businesses isn’t sorted nearly 10 months through the financial year. It makes it very difficult for decision making,” he said.
“If we can’t get that sorted, it shows that there’s something fundamentally wrong with our tax system.”
Other headache-inducing aspects of the tax system included FBT, where “the costs of compliance are so extensive relative to the amount of tax collected”, trust distributions, and related party loans under Division 7A.
Want said outdated laws around individuals’ tax residency had also become “disproportionately complicated and not fit for purpose”, written “in a different era”.
“You’ve got people having to spend thousands and thousands of dollars to work out whether they’re a tax resident or not. Why is it so complicated? Individuals earn salary and wage income, they’re not multinational businesses running operations around the world,” he said.
Tax advisers have also become bogged down by their clients’ compliance issues when they would rather be assisting them with growing their business.
“Those issues are far, far more interesting,” he said. “It feels like you’re adding a lot more value for clients. That’s where advisers would rather be, rather than dealing with disproportionately complex compliance issues.
“Simplification would allow business owners to get on with what they do best – run their businesses and ensure there is a vibrant and sustainable economy.”
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