Business tax reform is red tape ‘for no good reason’

“The accountants are under more and more scrutiny from the Tax Practitioners Board,” he told Accountants Daily.

“We’re almost being treated like the bad guys in the tax system because we help clients manage their tax affairs. Yet everywhere accountants turn, there's more compliance and more red tape they have to do just to make sure they can do the job for their client.”

He also highlighted that accountants may have to charge additional fees for the extra work they have to do for their clients, which means the business owner has to bear the burden of the extra cost.

The controversial legislation to replace the 50 per cent CGT discount with cost base indexation and implement a 30 per cent minimum tax on capital gains passed both houses in June this year.

From 1 July 2027, the 50 per cent CGT discount will be replaced by a discount based on inflation, while small businesses with a turnover of up to $10 million can still access the 50 per cent extra CGT discount.

The new arrangements will only apply to CGT accrued from 1 July 2027, when they are realised.

In August, Treasury released consultation on the second tranche of the CGT changes, which included the apportionment methodology. Under the proposal, taxpayers can either obtain a valuation at their own expense or use the apportionment method contained in the draft legislation.

“Under the proposed CGT changes, businesses will need to know the value of their business at 30 June 2027,” Monaghan explained to Accountants Daily.

“Any gain between when they purchase the business to that date will have a discount of 50 per cent locked in. You don’t have to worry about that until you eventually sell the business. Any bit of gain that increases after that date is taxed a different way with your high tax rate, effectively without a 50 per cent discount.”

He continued that this would mean businesses would need to find a valuer or obtain a valuation from their accountant as at 30 June 2027 because there may be a short supply of valuers to undertake the valuations.

“It’s red tape because it’s something that’s not related to what a business owner does running their business,” Monaghan said.

“It’s an extra thing a business owner needs to think about, plan for, understand, and receive advice on. These are extra hurdles imposed by the government that weren’t there before and they’re going to become a headache for small businesses. It’s going to impose extra costs and headaches on small businesses even if they're doing the right thing, as they work with their tax agent and business valuer just to comply with the government’s requirements.”

Monaghan suggested that as more businesses seek valuations, it is an opportunity for accountants to upskill in this area and use tools to carry out those valuations for their small business clients, particularly as there could be a shortage of professional business valuers.

“There are not enough business valuers to go around. Accountants who don’t do valuations regularly should think about upskilling so they can support their clients during this period,” he said.

“Accountants are going to need to step up but they need to be doing their valuations in a way that complies with the laws.”

Accountants would need to comply with the International Valuation Standards and the APES 225 Valuation Services professional standard issued by the Accounting Professional and Ethics Standards Board to demonstrate competence as a business valuer.

Monaghan outlined three key skills accountants would need to carry out robust valuations. The first is understanding, analysing, and adjusting the numbers for the purposes of the valuation. The second requirement is to understand how businesses bought and sold “in the real world”.

“It's not enough just to calculate the value of a business. You need to understand what people would pay for that business,” Monaghan said.

The third component would be to understand the professional standards accountants need to follow to ensure that the report is defendable and that the valuer themselves cannot be accused of being negligent or incompetent.

Monaghan also commented on the “sheer” uncertainty brought about by the tax reforms, draft legislation, tranches, and tweaks.

He said this would cause long term disruption for accountants and business clients as the government, tax agents, and the ATO find unintended consequences of the changing legislation.

“Even if we learn the rules proposed today, they could change by the time the client has to implement those changes,” he said.

“The government has dug themselves a hole they’re trying to get out of to some extent. A lot of this could have been solved in much easier ways to close the loopholes and achieve their goals.”