Rushed tax changes have produced 'avoidable errors’: CPA Australia

The reform proposed major changes to Australia's tax system, including replacing the 50 per cent CGT discount with CPI indexation, limiting negative gearing to new builds, introducing a $250 Working Australians Tax Offset, and creating a $1,000 standard deduction for work-related expenses.

As previously reported, there are concerns that the government's tax reform package, intended to simplify the tax system, could instead create greater uncertainty and complexity by introducing key changes in stages, leaving major elements unresolved and making it harder for taxpayers and investors to understand their future tax obligations.

CPA Australia tax lead Jenny Wong said that while the organisation supported well-designed tax reform, the bill was technically deficient and fell short of the standard required for legislation of such magnitude.

“This is not a case of resistance to reform – it is a case of reform that could be done better,” Wong said.

“The Bill has been introduced without an exposure draft, without a consultation paper, and without formal stakeholder engagement and the cracks are showing.”

Stakeholders were given just 11 days to respond to legislation affecting millions of Australians, while the committee had only 24 days to report – a time frame that Wong said was not fit for purpose for reforms of such magnitude and complexity and had resulted in avoidable errors that proper consultation could have identified.

“That time frame is simply not fit for purpose for reforms of this magnitude and complexity. This rushed process has produced avoidable errors that could have been caught through proper consultation,” she said.

CPA Australia’s submission to the Senate Economics Legislation Committee included new estimates that showed the reforms would impose substantial costs on Australian taxpayers.

Ongoing annual compliance costs are estimated to range between $295 million and $542 million, while one-off transitional costs, largely driven by the requirement for millions of Australians to establish market values for CGT assets from 30 June 2027, are expected to be between $675 million and $825 million.

Regarding whether the reforms risked impacting everyday taxpayers more heavily than the wealthy investors they are aimed at, Wong said: “For large investors with sophisticated advisers, the compliance cost is a relatively small proportion of the gains at stake, and the tax at risk. They have access to specialist advice, technology, and the resources to commission formal valuations well in advance”.

“For smaller investors like retirees with a share portfolio, the mum-and-dad property investor, the small business owner with a single investment property, the compliance cost represents a much larger fraction of their gain.”

When it comes to Australia’s start-up landscape, in which many founders rely heavily on reinvested earnings, Wong said the impact on these small businesses would be quite significant.

“Small business owners and start-up founders would be hit harder under the proposed CGT changes because replacing the 50 per cent CGT discount with indexation heavily penalises small business founders who built their business value from zero, as indexation provides almost no tax relief when the initial asset cost base is nominal.”

“Business owners must also determine the exact market value of their goodwill, intellectual property, and equipment on 30 June 2027, which will require valuations. This is costly”.

The issues identified were not insurmountable, but would require time and thorough consultation to address, she said.

“We are not here to block reform. We are here to make it work.”

“These are fixable problems, but they need time and proper consultation to get the details right”.