CPA Australia has some advice as the Australian Government finalises its May 2018 Budget.
Retaining the rights of all workers to make work-related expense claims tops the agenda on a list of CPA Australia recommendations for the May 2018 Federal Budget.
Other issues of importance include measures to foster more start-up businesses, encourage savings outside superannuation and rein in the black economy.
Paul Drum FCPA, head of policy at CPA Australia, fears a crackdown on the abuse of tax deductions for work-related travel and uniform laundering could be used to press for a total ban on taxpayers making claims for work-related expenses.
“We risk creating an underclass of people who will have even less desire to lodge an income tax return because they can’t claim any tax deductions,” he says.
CPA Australia is the only organisation in the country championing the rights of workers with regard to such work-related claims, according to Drum.
When Federal Treasurer Scott Morrison hands down his third Budget in May, Budget repair and the capacity to fund possible income tax cuts are likely to be in the spotlight. In a pre-Budget submission, CPA Australia has raised 15 issues for consideration, including the following pressing matters.
Defending work-related expense claims
With Tax Commissioner Chris Jordan examining suggestions that overclaiming deductions for work-related expenses may outstrip the cost of multinational tax avoidance, the blowtorch may soon be placed on deductions for expenses such as uniform laundering and motor vehicle claims under the cents-per-kilometre method.
Drum says CPA Australia has an “open mind” on such reports and welcomes an Australian Taxation Office (ATO) investigation as part of its efforts to ensure there is an equitable income tax system for all. “But we’ve just said, ‘Show us the numbers!’”
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His concern is that abuses in a couple of key areas could be used as “a catalyst to eliminate workers’ entitlements to any work-related expenses” at a time when the government is seeking means to fund personal income tax cuts.
Simple measures, such as reducing the threshold at which vehicle expenses can be claimed without written evidence from 5000 business kilometres per car to 2000km could reduce overclaiming while not denying the right of taxpayers to claim more if they can substantiate it.
New start-up entity for small- and medium-sized businesses
CPA Australia endorses the introduction of a new, simplified business entity for small and medium enterprises and start-ups that incorporates limited liability, allows income streaming and generates income retention in the entity.
The goal is to cut red tape and encourage more Australian business start-ups.
Under the current tax law, Drum says a typical family business has to establish a corporate trustee, a discretionary trust and a trust beneficiary to provide asset protection and give the business access to some tax concessions. This type of complexity can add to compliance costs and may discourage some from starting their own business.
A new entity could be structured so that the business needed only one tax file number and one GST registration. It would therefore also lodge just one tax return and one Business Activity Statement.
"If we’re about jobs and growth and encouraging innovation and start-ups, this is something the government could do that wouldn’t cost a lot but which would make it easier for businesses to get up and running,” Drum says.
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Encouraging savings and investments
Australians naturally inject most of their retirement savings into superannuation funds because of the tax benefits, but CPA Australia wants individuals to save more income outside of super to assist them to make major purchases such as property throughout their working life.
Almost 10 years on from a call in Ken Henry’s report, Australia’s Future Tax System Review, for a 40 per cent savings income discount for non-business related net interest income, net residential rental income capital gains, and interest expenses related to listed shares, Drum says the time has come for action. He believes such a measure could help improve housing affordability for first-home owners, in particular.
“We’ve been pushing this barrow now for the best part of a decade.”
Putting a stop to the black economy
CPA Australia is also committed to shining the light on the black economy. It wants the Australian Government to increase funding of the Tax Practitioners Board to ensure it remains an effective regulator and to assist with implementing the recommendations of the Black Economy Taskforce.
Related article: The black economy taskforce: what it means for accountants and their clients
Furthermore, at a time when the rise of digital currencies is contributing to crime and tax avoidance, it believes relevant government agencies such as the Australian Transaction Reports and Analysis Centre (AUSTRAC), the Australian Federal Police and the ATO need more investigative resources to ensure cryptocurrencies do not become an area of major tax revenue leakage.
Drum stresses that he does not see cryptocurrency exchanges as the “bad guys”, but they remain a potential “money-laundering and terrorism-financing and tax-evasion super highway”.
As they seek to challenge mainstream financial markets, it is in their interests to comply with all rules and report suspicious transactions.
"We need to ensure that we have integrity around those markets,” Drum says.
Negative gearing and housing affordability
Now is not the time to wind back or remove the ability of investors to negatively gear investments, according to CPA Australia. Acknowledging the Government’s recent suite of policy initiatives to assist housing affordability, Drum says preserving investor wealth and confidence should be top of mind for the foreseeable future.
That does not mean negative gearing is sacrosanct and should be excluded from discussions as part of holistic tax reform.
"We’re just saying so you don’t scare the horses anymore and discourage investment and start ruining people’s retirement savings and wealth, don’t make any more changes in this space at the moment.”
The Federal Budget will be released on May 8.
ATO cracks down on work-related expenses