What to expect for tax in 2018

Besides the much anticipated superannuation changes that kicked in on 1 July 2017, there have been a number of other changes that have divided the accounting industry, while 2018 is set to bring about a slew of tweaks that will keep accountants on their toes.

Institute of Public Accountants senior tax adviser Tony Greco says that despite a number of changes on the cards, a comprehensive tax reform is certainly not about to happen soon.

“The big thing that’s not happening and doesn’t seem to be happening is in the political environment — no one seems brave enough to want to go down that path as far as 2017, we’re not seeing any massive changes and that’s a growing trend going into 2018, that the appetite for any structural, major, significant reforms are not part of the future of work programme,” Mr Greco said.

“We still have the issue of our tax system not being fit for purpose so we hang onto the idea that at some stage we will see tax reform resurrected — it was started by Henry and then was parked, the Abbott government committed to a white paper and that was parked, and Turnbull hasn’t reinvigorated any of that.

“There’s been so much work already done but we need a brave politician to sell it and that’s where it falls over. There’s not a brave politician out there that will sell the merits of a significantly fit-for-purpose tax system that will bring in enough money to deal with the structural imbalances that we currently experience,” he added.

“I suppose that’s the utopia and then we move from the utopia and ask what’s more realistic to happen in the short term.”

Industry wish lists

One of the short-term measures that the IPA will be lobbying for in the coming year will be to extend the $20,000 instant asset write-off past 30 June 2018.

In October, Minister for Small Business Michael McCormack revealed that up to 300,000 small businesses had taken advantage of the concession in 2015-16, with the average amount claimed doubling from the previous year.

However, the threshold for the instant asset write-off will revert back to $1,000, should the government decide not to extend the concession. “The instant asset write-off is one thing that might go from one extreme to the other,” said Mr Greco.

“We know there’s a financial impost that it generates but you don’t want it to go back to $1,000. We haven’t put a dollar figure on it but our position is a lot more than the $1,000 and if Parliament does nothing, it will revert back to $1,000.”

Single touch payroll (STP) will be another big-ticket item for the IPA as it begins its rollout for businesses over 20 employees from 1 July 2018.

Businesses with less than 20 employees can expect to be hit with STP come 1 July 2019, a scenario the IPA is anticipating to have wide reaching effects on compliance.

“We’re looking at 700,000 employers that fit that group and then you have to dissect that and work out how many are on a digital platform and you get up to 100,000 who aren’t even engaged on a digital platform so the impact on those will be massive to think every time they run a pay, they have to communicate some information across,” said Mr Greco.

“We’re asking the government to think about a way to reduce the compliance costs because you’re basically asking them to do something extra, there are very little benefits to them, so we are asking for some assistance, especially for the micros, who employ less than five people.”

The government’s handling of changes relating to the corporate tax rate has been roundly slammed by industry experts, with Mr Greco calling it “bad policy from the start” and the Tax Institute senior tax counsel Professor Bob Deutsch using it as an example of “how not to develop policy”.

While the intention to reduce the corporate tax rate down to 25 per cent may have been good at heart, Augmentors principal Peter Adams believes it cannot work with a substantially higher individual tax rate.

“You can’t sensibly reduce your company tax rate to 25 per cent when you still have an individual tax rate at 47 per cent because all that does is incentivise people to migrate structures into a corporate vehicle and that facilitates Division 7A,” said Mr Adams.

“The more you drop the company tax rate and don’t shift the individual tax rate correspondingly, you’re always going to engender these types of structures and strategies that you want to avoid because it’s a breach of the law but people will tend to migrate towards those structures because there’s such a huge disparity.

“That’s just a recipe for disaster because what that throws on the ATO is now a tax detection burden that they’ve now got to fulfil because there would be a propensity to arbitrage that huge disparity in rates.”

Looking ahead

Mr Adams says that while it may be hard to accurately predict potential changes, warnings and notices from the tax office should give accountants a taste of what is to come.

According to Mr Adams, the taxation framework of trusts will be high on the agenda for amendment over the next 12 to 18 months.

“Over the last decade or two, most small businesses have been advised by their accountants to operate their business through trust structures so there will be an impact there because of the proliferation of businesses that are using tax structures,” Mr Adams said.

“At the moment we don’t have an exposure draft bill but Treasury has already made proposals as potential models for the government to adopt.

“Tax practitioners have to be conscious of this so they can shape the affairs of their clients and be proactive. The changes aren’t necessarily adverse in terms of tax impact but it may affect things like changing your trust deeds, which could have an administrative cost.”

Similarly, Mr Adams predicts a crackdown by the ATO on fringe benefits tax (FBT) on SMEs.

“They’ve always focused on FBT for the larger business because they have significant fringe benefits, multitude of cars, etc.,” he added.

“But what they’ve found in the small business sector that there is also more non-compliance as far as FBT goes.

“You’ve got mums and dads that own a company but are also employees of the company and they get cars and they never seem to pick it up as a taxable fringe benefit for the company so the ATO views that as a significant area of non-compliance.”

Other earmarked areas include individual tax compliance, a topic highlighted by ATO commissioner Chris Jordan earlier this year when he told the National Press Club the tax office would be scrutinising work-related deductions.

Upgrading tools

While accountants will be hoping that Treasurer Scott Morrison keeps to his word to not revisit changes to superannuation, the event-based reporting regime is set to roll out on 1 July 2018.

BT Financial Group national manager for SMSF strategy Neil Sparks said such changes meant the switch to real-time software was inevitable.

“We know that event-based reporting measures are still being finalised and whatever model is adopted come 1 July 2018, SMSFs are going to be subject to closer oversight from the regulator,” Mr Sparks said.

“The move to a cloud-based solution is inevitable, particularly when you consider future reporting requirements around transfer balance caps (TBCs) and mandatory electronic pension reporting.

“To ensure practices are future-proofed, they will need to replace paper-based transactions and processes wherever possible and maximise the benefits of data feeds, such as the automation of transaction reconciliation and provision of fund information in real-time to trustees, accountants, advisers and the regulator,” he added.

“People are tech savvy and they want the same level of visibility and timeliness with their SMSF and investments that they get with their internet banking and social media.”

Staying ahead of the game

With tax changes inevitable, Mr Greco believes it is more crucial than ever for accountants to be on top of their game to prevent potential backlash from clients.

Pointing to big four firm Deloitte which is facing legal action at the time of writing over alleged incorrect tax advice to a technology entrepreneur, Mr Greco warned that suburban accountants had to tread carefully when dealing with complex laws and tax changes.

“There are so many things they have to be on top of, I think it’s more of the reverse question where are they in control of interpreting the tax laws to meet their circumstances,” said Mr Greco.

“Accountants have to be competent in what they’re doing, that’s just one of the ethical professional standards of all accountants. One thing they can’t do is adopt the “she’ll be right” attitude. It’s no different to any other profession.”