Moving forward with bite-sized tax reform

Despite the reluctance of the government to embrace holistic tax reform, digestible changes, including the simplification of small business concessions and the taxation of trusts, should still be considered to improve the tax system, says BDO Tax Technical National Leader Lance Cunningham.

“Tax reform is not just about tax cuts, it entails a rational identification of how all aspects of the tax system interact with each other without causing much distortion to the economy,” said Mr Cunningham.

“While holistic tax reform still ranks as a high priority for us, there are some modest changes that the government can get over the line to create a simpler, more efficient, and fairer tax system that will have direct benefits to the economy and community.”

“One area that should be addressed include current tax concessions for small businesses that are just too complex. For example, the small business CGT provisions are one of the most complex pieces of tax legislation and it is very difficult for small business and some of their advisers to understand and follow them correctly without specialist help.”

“As a start, the various small business thresholds should be aligned again.”

The taxation of trusts could also be reviewed to bring it into the 21^st century.

“The current rules around taxing trusts and their beneficiaries are some of the most complicated and outdated rules in the tax Acts,” said Mr Cunningham.

“This is mainly because of awkward interactions between trust law and tax law. These interactions need to be reviewed and the tax law changed to simplify the taxing of trusts and their beneficiaries.”

“Trust reform is something past governments have looked at but some trust taxation changes in recent years have in fact complicated the tax system even more.”

Other relatively easier changes could include progressing and implementing tax law changes that have been the subject of prolonged review and discussion for years.

These include the review of Controlled Foreign Company rules (CFC), the Division 7A rewrite, the public release and implementation of the review of CGT rollovers, and reform of individual and corporate tax residency rules.

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Jotham Lian
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E; Jotham.Lian@bdo.com.au
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