CPA Australia’s 19 recommendations across five subject areas cover tax, savings and investment, regulation, education and the environment.
Read the full submission (PDF) or view the highlights below.
Tax, savings and investment
It says Australia can encourage saving and investment by reducing the tax on individual’s savings.
It proposes a 40 per cent savings income discount for individuals – on their net interest income from activities not related to a business. This discount would also apply to net residential rental income, so it would apply to rents from property, as well as bank interest.
Australia’s tax system penalises taxpayers who earn income from savings outside of the superannuation system, says CPA Australia.
Giving superannuation tax preferred status has boosted retirement savings but people also have to save outside super.
CPA Australia says if income from savings were taxed at a rate that was lower than an individual’s marginal personal tax rate, this would encourage greater savings and investment. It may also encourage investment in assets other than only the family home or residential property more broadly.
Capital gains tax on the family home
CPA Australia strongly recommends that the Government revisit its proposal to remove the Capital Gains Tax (CGT) main residence exemption (MRE) for non-residents, saying “the retrospective nature of this proposal is draconian and inconsistent with fair and reasonable policy design”.
It proposes the Government amend the Treasury Laws Amendment (Reducing Pressure on Housing Affordability No. 2) Bill 2018 by removing the retrospective removal of the CGT main residence exemption for non-residents.
“There are several options to make the proposed change more equitable,” says the submission.
“Our preference is to allow a partial exemption for the number of days the taxpayer was a resident and lived in the dwelling as their MRE (being similar to the mechanism in section 115-115 of the ITAA (1997) which allows a pro-rating of the residency days for CGT discount purposes).”
Failing that, the Government should extend the end of the transition period to 30 June 2020 at the earliest in recognition of the delay in the passage of the Bill.
CPA Australia argues against winding back or removing taxpayers’ ability to negatively gear investments.
It calls for a post-implementation review of the government’s housing affordability announcements from the 2017-18 budget to determine the impact of these measures.
The submission says it is important that investor confidence is not further eroded by additional policy changes.
Cutting red tape
CPA Australia says the Government should move funding for the Australian Securities and Investments Commission (ASIC) from a full cost recovery model to a partial cost recovery model, and also reinstate funding that was previously cut.
The reasons for this position are primarily due to:
- the fees may have negative implications for consumers as it may encourage further market concentration, particularly in financial advisory services and amongst self-managed superannuation fund (SMSF) auditors. Market concentration limits competition, which in turn can lead to increased prices. For example, the charges are such that it may discourage new entrants into regulated activities.
- the fees may motivate behaviours not in the public interest. For example, charging SMSF auditors cancellation of registration fees ($899) may discourage inactive auditors or those not maintaining necessary levels of competency from cancelling their registration and create increased costs for ASIC in deregistering them through enforcement action.
- the full cost recovery funding model for ASIC does not recognise that the entire community benefits from a well-functioning, efficient capital market that operates with integrity, encourages competition and is accessible to the vast majority of people.
- the full cost recovery funding model may create a perception that ASIC is reliant for funding on those they regulate. The risk of ASIC being perceived to be ‘captured’ by the sector may further undermine the community’s trust and confidence in ASIC.
Funding the Tax Practitioners Board
The submission urges the Government not to introduce a full cost recovery model to the Tax Practitioners Board (TPB).
CPA Australia notes the Australian Taxation Office (ATO) is undertaking several large projects, such as its tax agent visitation program, to improve the integrity of some tax practitioners. These projects are likely to lead to an increase in the number of tax practitioners being referred to the Tax Practitioners Board (TPB) by the ATO.
Given that a well-functioning and regulated profession is critical to the tax system and is therefore of benefit to the broader community, such an increase in funding should primarily come direct from taxpayers, it says.
“Further, we are strongly opposed to the application of a full cost recovery model on the TPB. The primary function of the TPB is to regulate tax practitioners to protect consumers – it is therefore consumers that primarily benefit from the work of the TPB; and so, the public should continue to be the main source of funding.”
Remove fees on all ASIC searches
CPA Australia advocates that the fee on all searches of the ASIC registry be removed. Allowing anyone to conduct a cost-free search of ASIC’s company registry has the following benefits:
- improving the probability of business success as ready and free access to financial and other information about suppliers, customers and other entities should assist businesses make more informed decisions about with whom they should interact
- reducing the risk of exposure to entities and persons that may have a history of illegal phoenix activity.
Education and financial literacy
The submission calls for funding of a review of the adequacy of existing financial literacy programs, including looking at how to improve access to affordable financial advice.
The Royal Commission into Misconduct in the Banking, Insurance and Financial Services Industry highlights the need to improve the overall financial literacy of Australians.
As part of its overall assessment of the Royal Commission’s final report, the Government should consider whether the programs and support it has in place to improve financial literacy are adequate and appropriately targeted at those who may need the most support.
The Budget provides an opportunity for the government to earmark funding to improve and extend existing financial literacy programs and fund new programs.
Part of such a review should consider how to improve access to affordable independent financial advice for people who may have low levels of financial literacy.
Helping small business
CPA Australia continues to call for the $25,000 instant asset write off for small business should be permanent.
“The annual extension of the instant asset write-off creates uncertainty for small business, particularly where the amendment to the law is passed after its commencement date. Making it a permanent feature of the system would cut that uncertainty.”
Funding charities and not-for-profits
The submission calls for more funding for the Australian Charities and Not for Profit Commission (ACNC).
CPA Australia believes the ACNC is not appropriately funded to effectively undertake its important regulatory mandate, including regulating not-for-profits and a national regulatory regime for fundraising by the sector
“Given the contribution the not-for-profit sector makes to the economy and society (the revenue the charities sector alone generates is the equivalent of 8 per cent of Australia’s GDP and the sector employs more than 1.3 million people) we believe it important that funding for the ACNC be extended so that it can effectively regulate that sector in addition to the charities sector.”
Environment and climate change
CPA Australia calls for the Government to reinstate funding to the Global Climate Fund, at least equal to the $200 million already committed and allocate $10 billion in funding for the Clean Energy Finance Corporation (CEFC) over the next five years
It is important for the Government to recommit to providing additional funding to the Global Climate Fund (GCF) as a crucial element of Australia’s assistance to developing countries that are taking action to adapt and mitigate for the effects of climate change.
“In stating this, we acknowledge criticisms of the governance shortcomings of the GCF, most notably a working paper from the World Resources Institute (WRI) Setting the stage for the Green Climate Fund’s first replenishment (September 2018).”
However, given the key role the GCF can play in assisting developing nations take action on climate change, CPA Australia recommends that Australia reinstate its funding to the GCF to at least equal to the initial 2016-2020 contribution of $200 million.
Further, Australian energy policy must be given certainty, most particularly the extension for a further five years of the $2 billion per annum applied to the CEFC. This will enable investment in a sustained stream of technological innovation in electricity supply in Australia.