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Australia's ongoing tax reform - Tax Forum and beyond

A new advisory body, the Business Tax Working Group (BTWG) is providing input to the government on selected tax reforms after the October 2011 national Tax Forum.

The Tax Forum saw EY participate, represented by Alf Capito, Tax Services & Tax Policy Leader Asia Pacific, with 230 other delegates and policymakers. The divergent views highlighted the political challenges in any extensive reform process, but resulted in acceleration of Australia’s tax reform processes.

The Tax Forum followed the 2009 Australia’s Future Tax System (AFTS) Review chaired by former Treasury Secretary Ken Henry, which identified long-term reform directions and made 138 recommendations.

The EY submission to the Tax Forum highlighted the need for tax reforms in the short term to support business development and restructure in a time of change, including review of tax loss rules, and examination of lower corporate tax rates.

After the Tax Forum, the Treasurer created the BTWG to report on:

  • improving the tax loss and tax rules affecting business in the ‘patchwork economy’. This report, delivered in March 2012, led to the announcement of company tax loss carryback rules operative commencing with the financial year 2012/13
  • the scope for lower Australian corporate tax rates, including consideration of the scope for introduction of an Allowance for Corporate Equity (ACE)

and asked two State Treasurers to develop a state tax reform plan for further discussion, together with some other actions.

A discussion paper for the BTWG corporate tax rate review was issued in August 2012. The BTWG will consult and must deliver this report by the end of 2012 for the government to consider. Unfortunately the Treasurer’s terms of reference for the BTWG review require that any tax reforms must be offset by increases in other business taxes so as to achieve a tax neutral outcome.

This ‘tax neutral’ approach makes the reform process sensitive, as different sectors and businesses will have varying preferences. There are challenges in reconciling divergent inputs into a reform process which maintains international competitiveness.

Businesses need to engage with the government to contribute their views in the policy development process. See our analysis on the BTWG August 2012 discussion paper and our strategic Managing tax in a changing environment (pdf, 527.2kb), on what needs to be considered in preparation for the new Australian tax reform directions.

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Possible corporate tax rate cuts in Australia

The recently released BTWG paper discusses potential lower corporate tax rates and associated funding options. Submissions should be considered to assist in identifying policy.