In identifying the issues, which include negative gearing and dividend imputation, the report said all tax questions should be considered further as part of the tax white paper process.
The report identified Australia’s tax and regulatory settings as having a distorting effect on the flow of funding to the real economy. However, Michael Croker, CAANZ’s tax leader – Australia, warned much debate is needed before any serious tax reform is undertaken.
“It is vitally important to the quality of the looming tax reform debate that these observations are seen in their proper context: part of a broader policy discussion and not an endorsement of piecemeal tax changes,” Mr Croker said.
The areas of taxation nominated by the report as in need of government consideration are: differentiated tax treatment of savings; negative gearing and capital gains tax; dividend imputation; interest withholding tax (IWT); the Research and Development (R&D) Tax Incentive; tax treatment of Venture Capital Limited Partnerships (VCLPs); tax treatment of funds management vehicles; tax treatment of superannuation: tax concessions; tax treatment of superannuation: differentiated tax rates on earnings; tax treatment of legacy products; duties on insurance; tax treatment of non-operating holding companies (NOHCs); and the goods and services tax (GST).
Mr Croker highlighted dividend imputation reform as one consideration of the FSI that will need substantial debate before any real change can occur.
While the report notes that “the case for retaining dividend imputation is less clear than in the past”, Mr Croker warned “any attempt to wean Australians off franking credits will be a particularly hard sell because, directly or indirectly through superannuation, we all own shares yielding franking credits”.
Mr Croker also highlighted unintended effects that must be considered if change to dividend imputation is to be seriously discussed.
“Imputation also makes paying company tax in Australia more attractive for companies with Australian shareholders, and the regime has influenced the investment strategies of superannuation trustees and fund managers for 27 years.
“Any government which decides to move away from imputation will need a well-considered strategy on transitional measures. A lower company tax rate would indeed reduce the distortionary impact of imputation as the report indicates, but the greater prize from a rate cut is maintaining Australia’s competitive status as an attractive place to invest and create jobs,” Mr Croker said.
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