by Leicester Gouwland
Now that a tax on capital gains has been ruled out we should focus on other Tax Working Group recommendations, which have not received significant attention.
Some of these other recommendations are business-friendly and should receive support, particularly around compliance.
The Tax Working Group has recommended changes to:
• Provisional tax
• Deductibility of professional fees
• Fringe benefit tax and entertainment
Raising the provisional tax threshold from $2,500 to $5,000 would remove taxpayers who earn under $15,000 a year from untaxed sources from having to pay tax from up to four times, to only once a year. It will mean those taxpayers will have to plan their cash flow accordingly, however business owners are used to that.
Currently when a business incurs legal fees, if the amount is under $10,000 a year there is an automatic tax deduction without the need to determine whether the legal work involves what is called capital (and is generally not tax deductible).
This threshold is helpful where businesses require little legal assistance. However, for a number of businesses, legal fees are a larger cost, and the effort required to determine the tax deductibility of the types of work can be difficult.
The recommendation to raise the threshold from $10,000 would reduce the effort and cost involved in complying, as would applying this threshold to other professional fees.
Fringe benefit tax is probably the most hated tax as it is often seen as unfair. The recommendation to simplify the regime would be welcomed, however no details were suggested.
Increasing the thresholds, and removing medical insurance from being a fringe benefit would be a great start, and may encourage more employers to subsidise medical insurance for their employees.
An extension of this thinking would be to make medical insurance tax deductible for everyone.
The 'tax' on entertainment is also on the list of most hated, because why should any normal business expenditure not be fully tax deductible?
Often businesses do not claim for deductible expenditure of this nature because they are unsure of the rules, or do not want to pay someone else to figure it out for them.
Simplifying the rules would be very welcome, and having a threshold either by value or as a percentage of turnover would be a good start.
Scrapping the 'tax' altogether would be an even better idea, so businesses can just get on with, well business.
My suggestions to reduce compliance but which were not recommended by the Tax Working Group would be to allow tax deductions on an incurred basis for Accident Compensation Levies and employee obligations, such as holiday pay.
Currently these accruals are only tax deductible when paid (subject to a 63-day rule for holiday pay).
Why should businesses have to fund the government by having to pay tax earlier than they should, particularly where business has to pay tax on income they have not yet received, but is brought to account for tax purposes?
Overall the business compliance recommendations from the Tax Working Group are excellent and the Government should take action on these.
But they should also consider rectifying the many other compliance issues that are costing businesses both time and money.
Leicester Gouwland is a partner at Findex, an Australasian consultancy.