Thursday, June 2, 2011

My blog site is moving

As of 2 June 2011, all my new blogs will be posted in the Institute’s new myCommunity section.

To follow my blog at its new location, I invite you to login to this exciting new online resource for Institute members and finance professionals.

I look forward to hearing your views on future blog posts in myCommunity.

Regards, Yasser El-Ansary.

Monday, May 30, 2011

Reducing emissions = carbon price + other tax changes

The Prime Minister’s Multi-Party Climate Change Committee will soon begin to release further details about the carbon pricing mechanism that is planned to start from July 2012. We know that the initial three to five year period of the mechanism will be based on a fixed carbon price, and a market-based fluctuating pricing mechanism will be implemented thereafter, but beyond that, a lot more detail is required before we can fully understand the whole policy initiative.

But the implementation of a price on carbon - whether fixed or fluctuating - will not achieve the desired outcomes on its own.

To complement the pricing mechanism, the federal government will need to give consideration to the role that other tax policies should play in the future as part of the big picture policy.

One area to consider could be how to provide incentives for businesses and workers to move to regional areas where new large-scale renewable infrastructure might be built. One strategy might be to provide an investment allowance or research and development concession for those businesses. This could be in combination with new zone tax offsets for workers to encourage them to move out of the cities to these locations. Bringing new businesses and workers to regional communities is a good thing at both an economic and social policy level.

If we are going to approach the climate change challenge comprehensively, then the government must put in place a big picture solution that encompasses a number of policy strategies.

Stay tuned over the next few weeks as the pressure builds in Canberra. The policy debate around the price on carbon looks set to climax soon.

Further information about the Institute’s position on carbon pricing will be available over the coming days.

Monday, May 23, 2011

Back to the trusts debate – again

The debate about whether or not family trusts should be taxed as companies is making headlines again.

Hot on the heels of the speech that Shadow Treasurer Joe Hockey delivered at the Institute’s National Tax Conference back in early April, in which he revived the debate on the taxation of trusts, it appears as though the political heat has been turned up within the Opposition. Many of you will remember this policy proposal was first raised by the Coalition in the early 2000s by then-Treasurer, Peter Costello. More recently, the Shadow Treasurer gave life to the idea again during his speech to the Institute a few weeks back. On both occasions, the policy proposal has lasted the political equivalent of about five minutes. There’s simply too much to lose by seriously considering such a dramatic shift in tax policy, especially in the primary production and small business sectors, where family trusts are commonly found.

But despite that, we should still look closely at how trusts are currently used and whether there is an alternative type of flow-through structure that provides similar legal protections and estate planning opportunities as trusts do. Overseas, the concept of limited liability companies (LLC) is more commonly found than trusts. One of the main benefits of a LLC is that it allows a high degree of flexibility because profits are taxed in the hands of members – rather than at the corporate level. One of the other benefits is that the relevant tax laws would be less complex than those currently in place for family trusts.

While I don’t believe that we need to rush off and put in place LLC structures in Australia immediately, longer-term, we should seriously consider whether alternative structures such as LLCs might have a place in our future tax system. This seems like the perfect topic for dialogue at the upcoming October Tax Forum.

What do you think?

Wednesday, May 11, 2011

Government charts its course towards a return to Budget surplus

Canberra was buzzing yesterday as the Gillard Government handed down the 2011-12 Federal Budget to an audience of stakeholder groups, influencers and media commentators.

The 2011-12 Budget has unrealistically high expectations of the commodities boom to deliver major upward revisions to tax revenues over the four year period of the forward estimates.

One component of the projections that I am cautious about is our return to surplus in 2012-13, which has been built on quite optimistic assumptions about the strength of our non-mining sectors over the next two to three years. I think there is currently some 'softness' in the manufacturing, services and retail sectors that might continue for the next two years and beyond.

Overall, the budget contained very few surprises or measures that the public were not aware of ahead of Budget night.

Some of the most interesting announcements related to:
  • Changes to the tax laws to provide incentives for private sector investment in infrastructure
  • Reforms to the way in which fringe benefits tax is applied to salary-sacrificed motor vehicles
  • The abolition of the low income tax offset for non-earned income distributed to minors.
All of these measures have policy merit in different ways and should therefore be supported.

One measure absent from the Budget was the creation of a permanent natural disaster relief fund, which is what the Institute had recommended to the government in order to alleviate the need to implement one-off taxes like the recently legislated flood levy. The government still has an opportunity to consider this advice ahead of the October tax forum.

 

Monday, May 2, 2011

It’s that time again; the federal budget is nearly here

There’s little over a week to go until the federal government opens up the nation’s accounts for everyone to see for yet another year. The federal budget is due to be handed down by the Deputy Prime Minister and Treasurer, the Hon. Wayne Swan MP, at 7.30pm on Tuesday 10 May in Canberra.

Expert commentary has already begun to reveal the high points of the story that is likely to be told on 10 May. The recent natural disasters across Australia will have a twofold impact on the budget: firstly, tax revenue collections will be down on expectations because many businesses will not have made the sort of profits they would have expected. Secondly, the federal government will have to meet unbudgeted costs associated with the rebuilding of lost or damaged infrastructure across various states.

As you are aware, the Prime Minister announced in January that from 1 July this year, a temporary one-year flood levy would be applied to all taxable incomes above $50,000 for the year. The levy is intended to help offset some of the infrastructure costs that will be borne by the federal government.

In the Institute’s budget submission earlier this year, we put forward the argument that we should avoid resorting to one-off tax increases to meet unplanned – but not completely unexpected – costs associated with natural disasters such as floods and bushfires. We argued the case for the creation of a permanent natural disaster relief fund, so that one-off tax increases can be avoided in the future.

We also recommended the government consider the introduction of a special investment allowance for disaster-affected businesses to encourage them to reinvest in plant and equipment damaged or lost during the natural disasters. While this would cost money, if calibrated well it could effectively pay for itself by encouraging more business activity and profits, which would lead to more taxes being paid.

There has been other speculation emerging in the last few days about what may or may not be in the budget. Two things appear likely:
  • A crackdown on the tax rules that apply to trust distributions to minors
  • Another attempt to put in place a phased means-testing of the private health insurance rebate for those earning more than $75,000 per annum.
The speculation will no doubt continue up until budget eve. But in the end, the only thing that’s certain is this: The Treasurer’s announcement on 10 May will only start the process – of course, Parliament will be required to debate and approve the proposals when it comes together in a couple of weeks’ time. We can all enjoy the political fireworks.
  
The Institute will keep you informed of all the latest information relating to the federal budget. Check our website for up-to-date information.

Monday, April 18, 2011

Time to give consumers more protection

Last Friday the Assistant Treasurer, Bill Shorten, released the Discussion Paper he referred to at our National Tax Conference last week, exploring the merits of granting professional accountants access to a form of legal privilege over the tax advice they provide to their clients.

For those of you following this policy debate, you’ll remember that in 2008 the Australian Law Reform Commission handed down a report called Client Legal Privilege in Federal Investigations, which concluded that a new form of legal privilege, tax advice privilege, should be created under statute and granted to professional accountants. Successive government ministers since the time of that report have shied away from tackling the issue and taking it forward. But fortunately, the Assistant Treasurer has decided that it’s time to dust-off the report and test the merits of the proposal.

The Discussion Paper explores the genesis of the policy proposal, and acknowledges some of the arguments both for and against implementing a new tax advice privilege.

In essence, the substance of this issue really boils down to one central policy question: should consumers have access to the same legal protections and safeguards regardless of whether they seek tax advice from a lawyer or an accountant? If the answer is yes – and I believe it is – then we must direct energy towards identifying the best way to implement a model that delivers on that policy objective.

Over the coming weeks the Institute will be working closely with its members, as well as the legal profession, to discuss the proposal and a present sensible way forward to implement the changes. Please feel free to post a comment with your thoughts or suggestions on this issue.

This could mark the beginning of one of the most significant changes to the way in which Chartered Accountants provide tax advice - and in the end, it's taxpayers who stand to gain the most.

Monday, April 11, 2011

Talking tax: professional privilege, trusts and ATO collaboration

You have probably heard about our exciting couple of days at the National Tax Conference in Melbourne last week. High profile presenters and tax experts generated quite a bit of dynamic debate and discussion!

Highlights from the two days included:
  • A speech by Assistant Treasurer Bill Shorten, where he announced that the federal government is to release a discussion paper on professional privilege for accountants. This is an issue that we at the Institute have been advocating for some time, and it was great to see Minister Shorten acknowledging the role that professional accountants play in the community
  • Shadow Treasuer Joe Hockey’s lunchtime address, where he generated a lot of controversy amongst delegates and in the media by bringing up the  taxation of trusts.  He also discussed how he would simplify the tax system
  • Commissioner of Taxation Michael D’Ascenzo’s presentation, where he launched the ATO publication, Good Governance and Promoter Penalty Laws Guide, co-developed and designed with the ATO’s peak consultation forum, the National Tax Liaison Group, of which the Institute is an active member. The Commissioner talked about the importance of collaboration and how much he appreciated the Institute’s role in working with the ATO.
It was a great forum to hear from influential speakers about the big issues in the tax world, particularly in the lead-up to the federal government’s tax forum. More information about the sessions, including video recordings, will be available on the Institute website.

I’d love to hear your feedback or thoughts on some of the issues that came up!

Monday, April 4, 2011

Another big week lies ahead in the tax world

Tax reform has been a big issue on the public agenda over the last month, following government announcements on the carbon tax, mining tax, national tax forum and the review of GST funding.

With that in mind, the Institute's inaugural annual tax conference, appropriately titled, ‘the Big 1’, couldn’t have come at a better time. It starts this coming Wednesday, 6 April in Melbourne.

The conference runs for two days and features speakers ranging from Assistant Treasurer Bill Shorten, Shadow Treasurer Joe Hockey, through to Tax Commissioner Michael D'Ascenzo and former High Court judge Michael Kirby.

With so many different initiatives underway right now in the tax arena, the conference presents a unique opportunity to debate and discover the tax reform priorities of conference speakers and delegates. Some of the areas that will be discussed include:
  • The development of a tax reform blueprint for Australia, which is back on the agenda following the recent announcement by the Federal Treasurer of details on the national tax forum to be held in early October this year
  • The next steps in the introduction of the proposed new resource tax arrangements. The formation of a new Implementation Group (which I am fortunate to be a part of), and the commitment by the government to adopt all 94 recommendations from the Policy Transition Group, means the momentum is certainly about to gather pace again in this area.
These recent developments, as well as a raft of others, will be comprehensively debated at the tax conference by a wide cross section of experts. It's going to be fantastic to watch and participate in.

If you haven't registered to attend the National Tax Conference yet, visit www.charteredaccountants.com.au/NTC to find out more. In the meantime, you can follow the latest updates at twitter.com/Chartered_Accts by referencing #taxconf.

Monday, March 21, 2011

New thinking: link carbon pricing to tax reform

Late last week, Professor Ross Garnaut released Paper Number 6 as part of his 2011 update review into climate change.

In this paper, Professor Garnaut discusses a number of issues that link climate change policy to the need for major tax reform in Australia. There are a few points made in his report that resonated with me.

Firstly, he points to the fact that the implementation of a carbon price in Australia will, inevitably, have short-term negative effects on economic growth and real wages. He says that ‘judicious’ use of the revenues generated from the carbon price could help to offset many of those short-term negative effects on the economy. Specifically, he suggests that half of the anticipated $11.5bn in revenue generated in 2012-13 should be used to fund cuts to personal income tax rates and provide incentives for people to return to the workforce. I believe that these ideas are appropriate, and entirely consistent with those set out by Dr Ken Henry is his landmark Future Tax System Review.

Secondly, Professor Garnaut criticises the current concessional fringe benefits tax rates that apply to motor vehicles. These rules essentially provide a direct incentive to reduce tax liabilities by travelling greater distances in a 12 month period. This runs counter-productive to the broader policy efforts by the government to encourage environmentally responsible behaviours. This is a point that we, at the Institute, have been making for a number of years.

We are yet to see a specific response from the federal government to Professor Garnaut’s recommendations around the need for tax reform. However, his arguments provide further evidence of the need to urgently commence a broad-based discussion about the make-up of Australia’s future tax system. The government’s national tax forum, now to be held in October this year, will be the opportune time for this conversation to take place.

Monday, March 14, 2011

Tax time: deal or no deal?

Since the federal government announced the first major step towards simplification of Australia’s complex personal income tax return system last week, there has been a lot of talk about how the changes will impact the Australian public.
 
The initiative follows last year’s announcement by the Treasurer that from 1 July 2012, individual taxpayers will be entitled to claim an automatic deduction of $500 (rising to $1000 in the following financial year) for work-related expenses and costs of managing tax affairs.
 
In other words, the government is making a ‘deal or no deal’ offer to taxpayers: claim $500 without needing to keep any receipts, or claim a different amount if you want to maintain documentation to support your claim. From a policy perspective, it’s one of those rare ‘win-win’ scenarios for individual taxpayers and is a good first step towards the simplification of tax compliance.
 
For some tax agents, this sort of simplification would be considered a win as well. Freeing up resources from focussing on straightforward tax returns enables more time to work with clients who have more complex business affairs and therefore require high value-add advice.
 
In order for this simplification idea to be effective, however, there needs to be a significant take-up of the offer. The question is whether or not $500 (or even $1000) will be enough to entice people to take the deal. Data suggests that individuals claim an average of around $2,000 every year for work-related expenses. When budget conditions allow, I think the government will need to make the offer much more attractive in order to ensure a significant take-up across the population.
 
While the standard deduction is a good first step, I predict that in the next few years the Australian Tax Office (ATO) will be capable of taking a giant leap forward around simplifying compliance further. For taxpayers with straightforward affairs, I would like to see a one-page tax return from the ATO, pre-populated with information already received from third parties, (such as employers, banks and companies). Taxpayers would simply sign the form, send it back, and wait for their refund.
 
Don’t think that this sort of idea is a distant dream – simpler tax returns are just around the corner.

Find out more about this issue from Assistant Treasurer Bill Shorten at the Institute's National Tax Conference in April.

Friday, February 25, 2011

Let’s not get bogged down in an old debate

Debate has raged for some weeks now about the 'opportunity cost' of the federal government striking a deal last year with the big mining companies over the design of the proposed new minerals resource rent tax (MRRT). Recent reports have suggested that the amount of revenue ‘lost’ could be as high as $100bn over 10 years.

While this sort of analysis makes quite an emphatic statement about the revenue that would have been collected had the original policy design been implemented, the fact of the matter is that it’s a waste of time to keep discussing hypothetical projections about the original policy design – that debate has already run its course.

An almost unanimous chorus of opinion last year concluded that the government's policy design for the original resource super profits tax (RSPT) was flawed, and that significant policy changes would need to be made if the new tax arrangements were to be fair and justifiable on policy grounds.

During the height of the mining tax debate last year, the Institute was one of the lone voices that said the original RSPT would deliver significantly higher revenues than what the government was forecasting at the time.

How did we know that?

Policy history in Australia suggests that the Treasury Department typically underestimates the potential revenue to be collected from new tax imposts: capital gains tax, fringe benefits tax and GST are recent examples. The RSPT was always likely to follow suit; and the MRRT may yet prove to be the same as well.

Recent figures released about the foregone revenue in fact reaffirm the veracity of the concerns raised last year - that the original RSPT was simply too big an impost on the Australian resources sector.

In my mind, I think it's reasonable to secure a better return to the community from the country's natural mineral wealth, but I don’t think it’s reasonable to extract mountains of cash from normal commercial businesses that take calculated risks in return for premium profits.

That said, this debate about revenues is for the history books.

Focusing on the future, I hope the government takes steps soon to release a White Paper explaining the detailed policy principles for the new tax, so that businesses and their advisers can begin to understand the inner workings of how the new laws will operate.

An announcement by the government is anticipated in the very near future. Stay tuned!

Friday, February 11, 2011

A watershed moment for policymaking

It is no government secret that all too often, big policy decisions are made behind closed doors and rolled out to an unsuspecting sector of the economy when the political timing is right.

But in a welcome change of gears, the financial advisory services industry will not have to run after the ‘bus’ of legislative reform.  This week, representatives of the accounting profession and financial planning industry came together with policymakers in federal government to broker an agreement on how financial planners who provide taxation advice will be regulated going forward.

In a watershed moment for policymaking in financial advisory services, the Assistant Treasurer and Minister for Financial Services and Superannuation, the Hon Bill Shorten MP, facilitated the agreement of a set of principles governing the regulation of financial planners who provide tax advice as part of financial planning services.

The new principles place consumer protection as the centrepiece of the design of the new regime.

The agreed principles spell out that ASIC would be the key agency for interacting with financial planners and consumers in relation to tax advice provided as part of financial planning services.  This would minimise duplication and red tape. However, ASIC would be supported by a strong and collaborative arrangement with the Tax Practitioners Board to utilise expertise (tax and finance), and ensure that consistent approaches to regulation can be implemented as far as possible.

This is a welcome milestone on a policy issue that has been lingering for well over 12 months, when financial planners were excluded from new rules introduced to regulate all tax advisory services and deliver consistent consumer protection measures to Australians who rely on that advice.

The details of this model are still being developed so changes are not yet applicable, but what is clear now is that the government will ultimately require planners to comply with specific competency standards in relation to the provision of tax advice; something that to this point, has not been a key feature of the existing Australian Financial Services licencing regime.

The Institute will continue to talk to the government throughout this ongoing process in the lead-up to the release of Exposure Draft legislation for public consultation in the next few months.

Overall, this is a very good outcome that prioritises the interests of consumers above other interests - precisely what you should do when you look to make important public policies changes such as this.

More information can be found on the Institute's website.

Friday, February 4, 2011

Easing the burden of natural disasters

Australia has seen its fair share of natural disasters this summer. Following the devastation caused by the flooding across Australia and Cyclone Yasi in northern Queensland, it is important for affected communities to rebuild and recover as soon as possible. The government’s responsibility is to assist individuals and businesses in this process.

A good way to speed up the recovery of communities is the introduction of an investment allowance for businesses impacted by the floods or the cyclone. This kind of incentive would encourage people to rebuild their businesses quickly and subsequently, rebuild the economy. The success of previous temporary investment allowances, such as the one used in 2009 during the global financial downturn, suggests this type of financial incentive is effective in kick-starting business activity when the economy needs it most.

For the long term, in light of this year’s natural disasters, and those in previous years (such as bushfires and storms), it is important that the government puts a plan in place to manage the unfortunate and unexpected (though not unpredictable) costs that natural disasters bring.

If the government sets aside funding (through cutting costs or delaying projects), Australia can be better prepared to rebuild and recover quickly, whatever nature may bring.

See our 2011-12 Federal Budget submission for more.

Thursday, January 27, 2011

Increasing taxes: still not the answer...

As I unfortunately predicted in my blog last week, the federal government has proposed the introduction of a flood levy on taxpayers to cover the costs of rebuilding ravaged infrastructure in flood affected communities, in an effort to keep its promise to return the budget to surplus by 2012-13.

As I alluded to last week, the most effective way to meet Australia’s increased spending requirements is to defer the date of returning the budget to surplus – it is important to have a real-time sense of perspective about budget deficits and public debt. When successive governments have been trying to reduce the tax burden on Australians over the last decade, the last thing we need is a new levy.

Australia’s financial and risk management strategy should involve controlling expenditure and having the capacity to fund unexpected events or emergencies. While the flood crisis was an unexpected natural disaster on a massive scale, it was not unpredictable.

The question Australians need to ask themselves is: what can we do to ensure this country is able to deal with crises of this scale in the future? Will the flood levy set a precedent for future ‘one-off’ taxes?

The Institute has also published a media release on this issue.

Thursday, January 20, 2011

Forget about tax increases – send in the ‘razor gang’ instead

As the full extent of the recent flood crisis across Australia begins to emerge, attention is turning to the extent and cost of the long-term devastation and ruin.

Estimates vary, but even conservative economists are suggesting that the floods could dampen Australia’s GDP growth by a full percentage point in the year ahead. If that’s correct, it would have a significant impact on tax revenue collections because the profits of many businesses will be negatively impacted in the short-term. On top of that, it is estimated that the floods could cost the government a minimum of $5 billion over the next three or four years. Some are even suggesting the final number could be as much as $20 billion.

In light of this new and unexpected financial burden, calls are increasing for the federal government to revisit its plan to return the budget to surplus in the 2012-13 fiscal year, and to push that timetable out so that the immediate focus remains on rebuilding communities and public infrastructure. Some knee-jerk responses that have already been put forward include increasing the current 1.5% Medicare levy. While that may be an easy option for the government, I don’t think that’s the right policy answer.

I suggest a more prudent approach would be to review all of the major federal government agencies’ spending programs with the objective of finding efficiency gains and expenditure cuts. When this kind of exercise is conducted properly, big dollar savings can always be found, and that will go a long way to plugging the financial hole.

Sending in the ‘razor gang’ to find cost savings is always very difficult to do, but in challenging times like these, it’s the right answer. Following the personal loss and devastation facing communities across the country, the last thing Australia needs is to increase the tax burden on taxpayers at a time when we are trying to move in the exact opposite direction.