CPA calls on Board of Taxation to simplify tax compliance

Duplicative international reporting regimes imposed significant compliance burdens on large businesses, CPA said. New obligations including country-by-country reporting, reasonable tax position schedules, international dealings schedules and transfer pricing documentation, imposed “considerable costs” on businesses, the industry body warned.

“The combined effect of these disclosure obligations imposes considerable cost in terms of resources and time, with duplication and excessive granularity that appear to exceed international norms,” the submission read.

“Businesses are often required to repackage the same data in multiple formats, with varying levels of aggregation, different timeframes and differing materiality thresholds.”

To address this, CPA Australia called on regulators to streamline reporting requirements to the minimum level required to confirm or justify tax being remitted to the ATO. It also suggested a risk-based audit approach, rather than “mandating excessive initial disclosure.”

Similarly, duplication in specific tax integrity provisions such as hybrid mismatch rules, thin capitalisation and debt deduction creation rules led to compliance headaches. CPA Australia urged the government to consider altering domestic frameworks to minimise duplication with global minimum tax rules.

“The proliferation of integrity rules has resulted in multiple measures targeting the same perceived base erosion risks. With the implementation of Pillar Two, Australia should reassess the ongoing need for certain domestic rules that now duplicate global minimum tax outcomes,” the submission read.

Finally, CPA Australia raised the fringe benefits tax (FBT) regime as a top issue for both small and large Australian businesses, calling it “one of the most administratively burdensome components of the tax system.”

The requirement to identify, categorise and value employee benefits imposed overly onerous reporting obligations on firms, the submission noted. CPA called for fixes to simplify compliance, including FBT grouping provisions and standard-value methods for low-risk benefits.

Family trust elections (FTE) rules were also a key concern for small businesses, CPA Australia noted. It said that current FTEs were excessively rigid and could not be amended to reflect intergenerational change, genuine administrative errors or unforeseen events, such as the death of a test individual.

The industry body has previously made the case to reform Australia’s FTE rules, which they said could be a “complex trap” for families and land significant, unexpected tax bills. 

Better cross-agency coordination amongst regulators would also reduce compliance headaches for small businesses, CPA Australia said. It said that current interactions were ‘inconsistent’ and allowed issues to persist for years without resolution.

As a general message to regulators, the industry body added that small, frequent rule changes hampered productivity for all businesses. It also called for a transparent and risk-based compliance approach, which would alleviate compliance burdens for compliant taxpayers.

“Stability and predictability are major drivers of red tape reductions. Genuine red tape reduction requires stable rules, simpler systems and fewer reporting touchpoints, rather than new layers designed to “streamline” but which in practice increase administrative load,” the submission read.

While outside the scope of the Board of Taxation’s review, CPA Australia also said that policymakers should take a broad, structural view to reform if they truly wanted to boost productivity and reduce red tape.

“Australia has a genuine opportunity to simplify its tax system, if the government is willing to take a broader structural view rather than making only incremental changes,” CPA Australia’s tax lead Jenny Wong wrote to the Board of Taxation. 

“A combination of a broader consumption base (via the Goods and Services Tax), flatter income tax settings, fewer thresholds and simpler superannuation administration would reduce red tape and improve confidence in the system.”