BDO has called for holistic tax reform ahead of the government’s productivity roundtable, including the simplification of trust taxation laws and reforms to housing taxes.

In its submission to the government’s upcoming economic roundtable, BDO has called for a swathe of tax reforms, including broadening and raising GST, scrapping stamp duty and payroll tax, and indexing income tax thresholds.

The submission also called for reforms to Australia’s CGT discount and negative gearing settings, to incentivise more productive investments and boost the owner-occupier rate.

It argued that tax incentives could boost the supply of housing and therefore productivity across the economy by preventing more money from being funnelled into “unproductive” assets such as existing housing.

“The increase in housing costs is due predominantly to insufficient new housing being built over this period, however one of the important effects of this is that a large majority of the increase in housing costs is being funnelled into the unproductive increase in the value of the existing housing stock,” the submission read.

“The taxation system has the potential to assist in increasing the supply of housing by restricting negative gearing for residential properties to newly built properties.”

By limiting negative gearing for residential properties to new builds, BDO said property investors would be incentivised to boost housing supply instead of investing money in “unproductive existing residential property investments.”

It also proposed that Australia’s CGT discount could be replaced with CGT cost base indexing, a move it said could boost the proportion of owner-occupied dwellings.

It argued that much had changed since the CGT discount first replaced cost base indexing in the late 1990s. First, technological advances would make modern cost-based indexing calculations simpler, reducing compliance constraints.

Furthermore, the CGT discount was introduced during the volatile and high-inflation environment of the 1980s and 1990s. Inflation was unlikely to persistently “reach the high rates of the 1980s and 1990s” in the future, given the RBA’s 2–3 per cent inflation target, rendering the 50 per cent CGT discount overly generous.

“The CGT discount at 50 per cent would feel to be fairly generous, given we're in a relatively low inflation environment,” Tim Sandow, BDO corporate and international tax partner and president of The Tax Institute, told Accounting Times.

“And so whether that's reducing the discount to a lower rate, or whether it's moving back to a CGT indexation type model, which we used to have, that might be a fairer application.”

Sandow acknowledged that housing tax reforms such as changes to negative gearing and capital gains tax discounts created “winners and losers,” underscoring the importance of holistic tax reform.

“We need to unpack what the key drivers are behind housing policy and creating more housing and housing affordability. And it's a really complex web.”

“You also have to look at what happens at a state level, and the impact of stamp duty, and … how that plays into housing affordability. I also think that there's a review of individual tax rates as well, because if you think about somebody who's saving to buy a house, then often that person may also have HELP debts, and so we really need to be looking at this holistically.”

Sandow added that holistic tax reform could help address imbalances in the way Australia taxes different types of income – for example, salaries versus investments.

“At the moment, the system does tend to favour investment-type income, whether that's through the CGT discounts, negative gearing, or ... the way that money is taxed when it goes in and eventually when it comes out of super,” he said.

“I think there is a need to rebalance the mix.”

BDO’s submission also homed in on trust taxation law, which it said was overly complex and no longer fit for purpose.

It called for section 100A, section 99B and division 7A of the Income Tax Assessment Act 1936 to be rewritten and clarified to help tax practitioners understand and comply with the rules.

“[Sections] 100A and 99B have been around forever, and it's really clear now, with all the litigation that we've had over the last couple of years and the ATO position papers, that there's a lot of uncertainty about how those rules apply, and particularly about how everything interacts,” Sandow said.

“I think there's a time to step back and say, these rules have been written years and years and years ago. They're not fit for purpose. In 2025, what are these rules actually trying to achieve?”

It warned that the complexity of the rules made it difficult for tax practitioners to adhere to them.

“It is BDO’s experience that many taxpayers and tax advisers either overlook Division 7A or apply the rules incorrectly due to their complexity,” the submission noted.

Sandow added that the new Tax Agent Services Act 2009 (TASA) rules heightened the stakes for tax practitioners trying to navigate complex trust taxation laws.

“We're all trying to do our best to comply with the law, and if you overlay that with the rules that we saw being introduced the last two years around TASA and breach reporting, there's such a big risk for us now getting things wrong.”

“The focus seems to have been all about us getting things wrong, without any emphasis on how we make the system simpler to comply with.”