BDO’s 2018-19 pre-budget submission

18 December 2017

We refer to the invitation by the Assistant Minister to the Treasurer, the Hon Michael Sukkar, in a Media Release on 20 September 2017, to submit ideas and priorities for the 2018-19 Federal Budget. Informed by, amongst other things, the outcomes of the BDO Pre-Budget Tax Reform Survey 2017 (and surveys past), we make the recommendations1 summarised below under the following headings and elaborated upon in the Appendix, in respect of taxation priorities in the upcoming Budget period.

Category Submission Issue Page
Tax reform #1 - The Australian tax reform process needs to be reignited and there needs to be a holistic review of the tax system. 3
  #2 - The majority of the 138 recommendations from the Australia's Future Tax System Review which have not been implemented should be considered. 4
Administration #3 - Both reduced filing and pre-filling should co-exist; so people with simple tax affairs will not have to lodge tax returns and those with more complex arrangements will tick off pre-filled returns. 5
  #4 - The prolonged process of re-enacting the provisions of the Income Tax Assessment Act 1936 (ITAA 1936) into the Income Tax Assessment Act 1997 (ITAA 1997) should be expedited1. 5
Corporate Tax Cuts #5 - There should be a clear plan for the implementation of proposed large business corporate tax rate cuts in Australia.  6
Small to medium enterprises #6 - Small to medium enterprises (SMEs) should be given a ‘safe harbour’ in respect of the application of s45B ITAA 1936 where they undertake a demerger under Division 125 ITAA 1997. 6
  #7 - Small companies should be allowed the right to choose to be treated as a partnership for tax purposes. 6
  #8 - A new concept of a ‘small or medium business entity’ with some attributes of a trust i.e. flow through and access to SME concessions but not subject to trust law should be introduced. 7
Capital Gains Tax #9 - Where a beneficiary of a trust has CGT event E4 apply to it solely due to a tax timing difference, such a CGT event should be reversed when the timing difference is reversed in a similar way to the new rules for AMIT. 8
  #10 - The 50% CGT discount should be reduced using a phased approach where the longer the asset it held the greater the discount is, with 50% being the maximum discount available. 8
#11 - Changes to the income tax laws which have been the subject of prolonged review and discussion should be implemented. 8
Value shifting #12 - The value shifting rules which are too complicated should be simplified and a higher de minimis threshold should be introduced. 9
Loss integrity measures #13 - Quarantining of capital losses of companies, where such companies are prepared to forgo residual indexation of the cost base of their CGT assets, should be disallowed. 10
  #14 - The loss integrity measures in Subdivisions 165CC and 165CD ITAA 1997 should be re-examined. 10
Franking #15 - The 45 day holding rule should be revised so that it only applies to the specific situations it was meant to stop and be re-written into the ITAA 1997. 10
R&D #16 - There should be reform of R&D to address the ATO’s and AusIndustry’s tightening of eligibility for R&D claims. 11
Investment #17 - A tax discount should be introduced that applies across the board to all savings income and capital gains in conjunction with a review of both the CGT discount, CGT small business concessions and imputation system. 11
Employment Taxes #18 - The FBT should be repealed with fringe benefits assessed to employees as salary and wages instead and any such reform should be done in a way so as not to disadvantage not-for-profit entities that rely on FBT concessions. 12
Goods & Services (GST) #19 - The GST rate should be increased and its base broadened with appropriate compensation to ensure it is fair and equitable. 13
Superannuation #20 - The capping of superannuation contributions should be reviewed with the benefit of research into the effect of such capping on superannuation income stream adequacy. 13
Trusts #21 - Trust estates should be allowed to choose to be taxed as a company. 14
  #22 - Section 99B of the ITAA 1936 should be redrafted so it narrowly applies only to the mischief it is aimed at. 15
  #23 - The uncertainty surrounding the interaction between Div 7A and UPEs should be resolved by either deeming UPEs to not be Div 7A loans or allowing a ‘safe harbour’. 15

1 Disclaimer: Unless otherwise indicated, statutory references are to the Income Tax Assessment Act 1936 (ITAA 1936).  References to the ITAA 1997 are to the Income Tax Assessment Act 1997.