08 May 2007 
 
Another step in the right direction - But more required  
 
The Institute of Chartered Accountants in Australia welcomes the Government's 2007-08 Federal Budget, which delivers significant improvements to both personal and business taxes. However, tax reform is an on-going process and the Institute believes that more is required to improve Australia's taxation system. 
 
Personal Tax 
 
Tax Counsel for the Institute, Ali Noroozi said a number of the measures including the lifting of the threshold at which the 30% personal tax rate apply and the increase in the Low Income Tax Offset should have a positive effect on Effective Marginal Tax Rate (EMTR) inequities.  
 
Such inequities result from the combined effect of moving to a higher tax rate and the loss of welfare payments as a taxpayer's income increases. In certain cases, this could lead to effective marginal tax rates in excess of 60% applying to the additional income earned. 
 
"The Institute has long advocated managing effective marginal tax rate inequities and believes that it will provide more incentive for low-income earners to enter the work force or do additional work," Mr Noroozi said.  
 
Further measures, aimed at expanding the Australian work force, include significant improvements to childcare assistance. 
 
"Other personal tax changes include the further increase in the thresholds at which the two top marginal tax rates apply. These changes will apply from 1 July 2008 and should assist in making Australia more internationally competitive," Mr Noroozi said. 
 
 
Business Tax 
 
The Budget also contains some significant business tax measures such as improvements to the company loss recoupment rules. This includes the removal of the $100 million income ceiling on the same business test effective from 1 July 2005. 
 
"The Institute has strongly lobbied against this ceiling since it was introduced in 2005. The removal of this cap will reduce distortion in the tax system and allow companies to better utilise their prior year losses. It will particularly assist early stage technology companies, infrastructure design, construction and operating companies, exploration and mining companies, distressed companies seeking investment as well continuing shareholders in companies where the majority ownership has changed," Mr Noroozi said. 
 
"The Government could have gone further in reforming the loss recoupment rules. For example, in addition to the ability to carry forward losses, rules could have been introduced allowing loss carry back as advocated by the Institute as well as the Warburton-Hendy report of last year," he said. 
 
Another positive measure is some much-needed amendments to the tax consolidation regime to ensure that it operates as Parliament intended. The Institute has been seeking some of these amendments for some time. 
 
"However, this is on the back of other consolidation announcements, some going back to 2005, that have not become law. The challenge now is to ensure that relevant Government Departments are sufficiently resourced and that they work efficiently to translate these announcements into draft legislation expeditiously and introduced into Parliament," Mr Noroozi said. 
 
The Budget contains a number of other positive measures including recommendations put forward by the Institute however the Institute believes there are still a number of outstanding issues that require further reform. Other issues that might have been addressed include: 

• Allowing amortisation of goodwill,
 

• Provision of CGT taper relief for business assets held for the medium to long term; and
 

• Tax relief in the form of tax credit to domestic shareholders for unfranked dividends paid out of foreign source income.

• American Institute of Certified Public Accountants (AICPA);
 

• Canadian Institute of Chartered Accountants (CICA);
 

• Hong Kong Institute of Certified Public Accountants (HKICPA);
 

• Institute of Chartered Accountants of England and Wales (ICAEW);
 

• Institute of Chartered Accountants of Ireland (ICAI);
 

• Institute of Chartered Accountants of Scotland (ICAS);
 

• New Zealand Institute of Chartered Accountants (NZICA); and
 

• South African Institute of Chartered Accountants (SAICA).