6 ways to cut tax red tape, according to Pitcher Partners

In a submission to the Board of Taxation’s red tape review, Pitcher Partners suggested six reform areas to ease compliance burdens on middle-market Australian businesses.

The six proposals mostly focused on trust taxation, a complex area that has raised alarm bells amongst tax professionals amid an ATO crackdown, which has resulted in unexpected tax bills in the millions for some wealthy groups.

Pitcher Partner said their proposed reforms were designed to increase certainty for taxpayers in the middle market and support productivity.

First, it urged regulators to fix family trust elections (FTEs) by providing additional flexibility to taxpayers. This included a four-year review period for family trust distribution tax (FTDT) liabilities, discretion for honest mistakes and an allowance for taxpayers to rely on ATO records of elections.

CPA Australia tax lead Jenny Wong previously warned that family trust elections were overly inflexible and poorly reflected modern family structures.

“They can’t easily be amended to reflect intergenerational change, genuine administrative error or unforeseen events like the death of a test individual. Yet, the ATO’s systems, including the tax agent portal, don’t consistently record past elections, meaning even diligent advisers can be blindsided,” Wong told Accounting Times’ sister brand, Accountants Daily.

Pitcher Partners also urged regulators to allow family groups operating through multiple discretionary trusts to lodge one tax return, streamlining their compliance burdens.

Its other pitches included clarifying bare trust treatment by introducing a rule to ignore bare trusts for tax, and reducing trust resettlement risks by clarifying rules such that minor changes could be made to trust deeds without tax risks.

Its submission noted that any time a trust deed was amended, taxpayers had to consider whether the trust relationship had changed in a way that triggered CGT liabilities. Pitcher Partners said this often necessitated legal expertise, drawing additional costs to confirm whether minor amendments triggered unintended tax consequences.

Finally, Pitcher Partners called on the government to harmonise core tax settings for companies and trusts, which the firm said would minimise compliance costs related to Division 7A. It also suggested allowing accounting numbers, such as accounting profit and loss items, to be used for tax purposes to simplify return preparation.

The full list of Pitcher Partners’ pitches included:

1. Fix family trust elections
2. Allow family group consolidation
3. Clarify bare trust treatment
4. Reduce trust resettlement risks
5. Align trust and company tax rules
6. Allow use of accounting numbers for tax