au iconAU



Aussie tax system 'built for 1950s'

Industry commentators have roundly criticised the government’s approach to reforms of the corporate tax system, saying that the current tax system is unsustainable.

Aussie tax system 'built for 1950s'
smsfadviser logo

The IPA’s senior tax adviser Tony Greco says the time to review and introduce changes is long overdue considering how the current tax system was built for a different time.

“Our tax system has been built for a different set of circumstances, it was built for the 1950s; it is a taxing effort more than consumption,” said Mr Greco.

“The answer is yes we should be doing it and as much as I’d like to say yes, there doesn’t appear to be any appetite for wholesale tax changes.

“More for political reasons than anything else, we’ve got a circuit breaker in that our politicians aren’t willing to go there when most commentators in our profession have said it is well overdue.”

While the Enterprise Tax Plan, introduced to cut the corporate tax rate to 25 per cent across companies regardless of their annual threshold, has good intentions, it will see teething problems because of its tiered approach over 10 years, according to BDO tax partner Marcus Leonard.

The plan has seen a reduced rate of 28.5 per cent for companies under the $2 million threshold in the 2015-16 year before increasing to $10 million for a further reduced rate of 27.5 per cent in 2016-17, with the threshold set to increase to $25 million and $50 million subsequently and then to all corporate entities by 2026-27.

“It’s not ideal to have different rates for different companies, it just creates a bigger complexity,” said Mr Leonard.

“You got to look back at the policy of why you had a corporate rate reduction and if it’s to increase, stimulate investment, then you got to ask where is this investment coming from and if you want investment from overseas, then you got to open the platform for everyone.

“I’m not sure why the policy was to do different thresholds because if you look at the other reduced rates of tax we have in the market such as the managed investment trust regime where they have reduced withholding from a normal 30 per cent to 15 per cent - that’s been targeted for international investors- so why have you allowed certain parts of the market or industry to get concessional rates as opposed to other areas?,” he added.

“If you have a trust structure we’ll give you a reduced rate but if you have a company we won’t so what it does is create an imbalance between two types of entities and there shouldn’t be a preference over one to the other.”

Subscribe to Public Accountant

Receive the latest news, opinion and features directly to your inbox