The Board of Taxation has published its report on exploring the potential to align accounting and tax systems following a self-initiated project in 2016 aimed at reducing the compliance and administrative burden on taxpayers that produce financial statements.
Some of the advantages recognised by the board include a reduction in compliance costs for companies, and compliance benefits of leveraging off the typically rigorous financial auditing process.
However, the board does not believe a broad-level alignment will be possible, given the disparate purposes of the tax and accounting systems, noting that it would severely restrict the capacity of policy makers to drive objectives other than alignment / simplicity; compromise the integrity of both the tax and accounting systems by trying to achieve competing objectives through a single system; and require a significant departure from the current basis of Australia’s corporate tax system.
Speaking to Accountants Daily, the Tax Institute’s senior tax counsel, Professor Robert Deutsch said that previous discussions to bring tax and accounting treatments on the same page have similarly fallen to the wayside.
“I certainly agree that it is not feasible but I wouldn’t necessarily agree that it is not desirable,” said Professor Deutsch.
“If there was a way in ensuring that companies could prepare one set of accounts that would determine, for example, their profits which would align with the amount that they have to pay tax on, that would save an awful lot of effort, time and money but the problem is we’re never going to get there in my view.”
Instead, the board believes it is appropriate to consider areas for greater alignment between tax and accounting on a case-by-case basis to identify situations where greater alignment could be warranted and could be achieved in a simple and targeted fashion.
It has also called on the ATO, Treasury, and the AASB to communicate and co-ordinate for future tax policy development and tax law design processes which involve both tax laws and accounting standards.
“There are areas where we could look at a better alignment. The example of deductions in a business context is one where they might be able to look at it and come up with some rules that for tax and accounting purposes could be acceptable and could bring them into alignment but it might be in relation to particular types of deductions rather than deductions in general,” said Professor Deutsch.
“I think there is room for trying to find specific areas where a better alignment can be reached [but] the idea of bringing it broadly into alignment in the global sense is just in my view, a pipe dream.”