IPA jumps on the anti-net cash flow tax train

As tax reform and proposals continue to be a significant topic across the industry, the Institute of Public Accountants (IPA) will move towards rejecting the proposed corporate tax changes.

In submissions to the Productivity Commission, both CPA Australia and Chartered Accountants Australia and New Zealand noted they were also not in favour of the proposed cash flow tax, as it would introduce unnecessary complexity into the tax system.

IPA echoed similar sentiment towards the proposal and warned that corporate tax changes and net cash flow tax could create a significant compliance burden for smaller businesses.

Letty Chen, IPA tax and super adviser, said introducing a new net cash flow tax would be at odds with the principle of simplicity emphasised by Treasurer Jim Chalmers.

“Preparing an additional annual statement and paying a net cash flow tax liability would be a significant extra obligation for small businesses,” she said.

“If a net cash flow tax were to proceed, its reporting and payment should be integrated into the existing corporate tax return processes.”

As provided by the other two professional accounting bodies, IPA put forward its own suggestions to the government, recommending simpler alternatives that boosted investment and productivity that would have the benefit of outweighing any potential impact on revenue.

Suggestions put forward by the accounting body included reintroducing an investment allowance, permanently increasing the threshold for the small business instant-asset write off, and extending the deduction to businesses of all sizes and structures.

It was also proposed that the government provide a bonus deduction for technology-related spending similar to the previous Small Business Technology Investment Boost.

Chen noted it is crucial that the government takes these suggestions into account as “the overall benefits to the economy of increased investment and productivity should be taken into consideration when designing tax policy”.

According to IPA, the reduction of the corporate tax rate for eligible entities to 20 per cent would result in an increase to the arbitrage advantage between the top personal marginal tax rate and the corporate rate.

Chen said the revenue neutrality criterion imposed limitations on policy development and encouraged a piecemeal approach to tax reform.

“Changes to the top personal marginal rate are required to complement any changes to the company tax rate, and this points to the need for holistic tax reform,” she said.

“Net cash flow tax has a valuable policy intent, but it must be designed with simplicity in mind to avoid creating a new and disproportionate burden on the small business sector, which accounts for the vast majority of Australia’s businesses.”