Not Quite Crafty

Mr Rudd, Mr Swan I think you have missed the point.

07 May 2010 1 Comment

by notquitecrafty in Tax Tags: Henry tax review, Income Tax, Superannuation, Tax

Do you think you saw fabulous and amazing tax reform introduced last Sunday?

I certainly didn’t. I saw a big new tax, fiddling around the edges with various rates and an attempt by the government to make tax agents lives more complex. Certainly not reform and certainly not simplification.

Mr Rudd and Mr Swan have been telling us all that the Henry review is the first major review of the Australian tax system since the 70s and will bring in major reform. I don’t know much about tax in the 70s, but certainly since then I can list numerous major changes – capital gains tax in 1985, fringe benefits tax in 1986, Tax Law Improvement Program in 1997 and GST in 2000. Plus numerous fiddles around the edges by just about every government to sit in parliament house.

I started working in the tax area in 1992, studied tax law in 1992 at uni and did further professional tax studies in 1994 and 1995. At that time we had one major tax act to learn – the 1936 act. In 1997 we were told tax was being simplified and tax law was being rewritten. Hence, the 1997 act. Problem is no one has ever bothered to finish this project and so we now have to use both acts when doing tax research and providing advice to clients. Throw in several other acts that we use on a regular basis – FBT act, GST act, SGC legislation, SIS act – and the law that tax agents use has become a very very heavy set of books (thank you internet that we no longer have to own all of this on paper).

I am feeling very frustrated at the governments response. I prepare personal income tax returns and I was so hoping that the government would abolish the need for our clients with simple matters to lodge returns. Yes, it would drop our business, but it would be in a very minor way as most of my clients actually have more complex tax matters. I don’t like having to charge a client $253 for a basic return with a payment summary, with no deductions, but that is our base fee. I would love to be able to tell these people to not worry about lodging!

This morning I heard an ACT senator saying on radio that the new big mining tax is going to pay for the increase in the super guarantee rate. Rubbish! That will be paid for by employers, and some small businesses will struggle. For those of us unlucky enough to be on a total package, that extra 3% will be taken from our take home pay and so we personally will be funding that increase in super. And that super will be untouchable until we are in our 60′s – no matter that we have kids braces to pay for or mortgages to meet.

Changing the tax rate for small businesses to 28% – well that will only benefit clients who operate their small businesses through companies and are not operating a personal services business in that company. And what happens when these clients tip over into being a large business from one year to the next – there will be some very difficult explanations to clients coming up, not to mention trying to keep track of their franking accounts (where we keep track of the tax paid on company profits which can then be attached to dividends to give shareholders access to these tax credits).

There are some good things in the announcement, such as the government effectively rebating the tax paid on super contributions for low income earners, and allowing the over 50s with low super balances to make extra contributions, but I would think that Mr Henry would not be too happy with the governments response to his review.

Whether this is the tip of the iceberg I guess we have to wait & see. But major tax reform – definitely not happening anytime soon in Australia!!