Accountants voice their concerns ahead of polling day
Small business is on the lips of many politicians as we approach tomorrow’s polling day, but accountants too have been hauled into the political debate.
Dealing with small business trigger points has been a priority for the major political parties over the past few months, with both sides of the bench delivering big promises.
Accountants too have been hauled into the political debate, with Labor proposing to cap the deductibility of accountants’ fees. Bill Shorten went so far as to liken the deductibility of tax agents’ fees to a “rort”, firing up the profession and sending them into a lobbying spree.
With only one day to go until Australians hit the polls, we ask accountants nationwide which policies are predicted to have the biggest impact on their practices and what the main concerns for their small business clients are.
If you’re a small business and want to have your voice heard, fill out our short survey.
Simone Palfreyman, principal, Palfreyman Chartered Accountant
The majority of my small business clients are very concerned about the election. Most of these clients operate through trust structures, so the proposed 30 per cent tax on distributions has the potential to significantly affect them. These clients are not big businesses, but are rather ‘mum and dad’ style enterprises who work hard and are not out to cheat the system. The trust tax will potentially put them in a worse situation than if they operated through a partnership. Tax planning will be required to minimise the effect, but the proposed cap deduction for tax advice will mean that many small businesses will make decisions without seeking advice.
The removal of franking credit refunds is also a major issue for my small business clients. Many clients use companies within their group structure and also invest in public companies as part of their portfolio. Those clients generally intend to access franking credits in the future to assist their retirement. The removal of credits would reduce their cash flow and significantly reduce their standard of living in retirement.
Of the election policies announced, in my view the proposed 30 per cent tax on trust distributions and removal of franking credit refunds will have the biggest impact on accountants. These changes would affect business clients, SMSF and individuals alike. If Labor is elected, clients will need significant advice and tax planning to reduce the effects of these changes.
Of concern is the proposal to cap deductions on tax advice at $3,000. Not only will accountants suffer financially, but many clients will make decisions without seeking advice. The long-term effects of this could be extreme.
Kylie Parker, director, Lotus Accounting
The small business owners I have spoken to are currently being faced by a slowdown in their businesses as people wait for the outcome of the election. There is a reduction in supply of property for sale, hiring new employees and uncertainty around what the financial market conditions will look like in the short term. Unfortunately, I don’t believe most small business owners realise the negative impact some of Labor’s proposed tax changes will have on them. They leave tax compliance, rightly or wrongly, for their accountant or tax advisers to sort out.
Should the Liberal government be re-elected it will largely be business as usual, if Labor are elected then we will be facing additional compliance in relation to self-managed superannuation funds, trusts, non-resident CGT issues, negative gearing changes, a 25 per cent CGT reduction on assets held greater than 12 months, which will result in accountants advising clients to review and potentially restructure their business and investment holdings.
The proposed change in capping deductibility of accountants’ fees to $3,000 is in my opinion a vote grab. If Labor were serious about this, they would just have the ATO focus on reviewing those tax returns with ridiculously large deductions.
I personally want healthcare, climate change and a social security safety net as priorities, however I don’t believe these policies are anything more than politically divisive rhetoric and unfortunately the majority of Australians know next to nothing about our tax system.
Keith Marshall, director, Preston Corporate Accounting
Labor has come out and proposed fundamental tax changes. I guess they are now copping the heat and small business has a lot of concerns. They are worried about how they will tackle trust distributions next year, whether these will be backdated. It changes the landscape for taxing, the imputation system that we have is really unique to Australia and the concern is that Labor is proposing a fundamental change with a very short implementation time.
These changes will change the way we, accountants, do our job. Part of that is a threat to the accounting industry if you take away particular strategies. We have a complex tax system and when you make such fundamental changes it takes off the plate of accountants. The talk about limiting the tax deduction for accountants is a problem.
Capital gains tax too, my concern is that the housing market is already quite low and if you start decreasing the tax benefits for people selling investment properties, what will it to do to peoples’ housing prices? I’ve really heard nothing about what the Liberal Party is proposing to change. If you ask the average person on the street, no one really seems to know.
Lielette Calleja, director, All That Counts
This is going to be an election that will see many accountants watch with angst should Labor take the reins.
Speaking with some of my clients they are concerned with Labor’s proposal to introduce a standard minimum 30 per cent tax rate for discretionary/family trust distributions. Many of these Australian business owners employ their fair share of people and make themselves a humble living, nothing extravagant in comparison to the long hours they spend working in and on their business. To remove the benefit of being able to distribute profits at a lesser tax rate to family members will be disheartening for the small business economy.
The biggest policy change that will have a direct impact on the accounting profession is putting a cap on managing tax affairs for individuals of $3,000 per year. Although my firm doesn’t provide income tax services, I believe this will have an indirect effect on the industry as a whole.
Many of our clients operate under a trust and partnership with complex individual returns that simply cannot be serviced under a threshold of $3,000. The question remains, will accountants shift some of those costs to a company entity or will they provide a service or structure to the capped value, leaving individuals exposed?
Mitchell Moroney, director, Moroney & Associates
The main concern for many of my clients leading into the election this Saturday is how is each party going to support small business? Western Australia has experienced a long period of economic decline over the past decade and many clients are struggling to keep their head above water. Most of my clients are small businesses, mum and dad operators, it is my fear that many don’t fully understand the impact of each party’s policies. If Liberals are successful, business will essentially be as usual. However, if Labor are successful this will have massive ramifications that many have not considered. The policies which I am referring to are making franking credits non-refundable; and trusts to have a minimum tax rate 30 per cent.
We have all heard it in the news lately, franking credits! Labor wants to axe them, Liberal is business as usual. But what does it mean? Will it only effect the top end of town? The reality is this policy will hit all Australians and hit low and middle earners hardest.
Labor has also stated that if elected it will tax all trust income at a minimum of 30 per cent, whereas under the current policy trusts are taxed at the beneficiaries marginal rate e.g. 19 per cent, 32.5 per cent etc. Labor will have you believe this policy is directed at the wealthy individuals who use trusts to minimise their income; this is a lie. Although it will hit wealthy individuals, most would have a marginal rate higher than 30 per cent (if you earn over $37,000), the reality is most small businesses operate as family trusts; the local baker, plumber or green grocer. I would safely say more than 75 per cent of my small business clients operate through trusts.