Rankings report – AUSTRALIA

Real tax reform needed in Australia

A lacklustre budget and slow government response to an inquiry into auditing has left the Australian accounting profession in an unsatisfactory hinterland where government tinkering has taken the place of robust reform. Che Golden reports


he 2021 Federal Budget was somewhat overshadowed by earlier economic measures and incentives delivered at both state and federal levels in response to the decline in key economic areas impacted by Covid-19 lockdowns and restrictions explains Mandy Findlow, associate, business services at Kreston International member firm McLean Delmo Bentleys. 

“The response to the extension of immediate deductions for depreciable capital expenditure has been mixed, with few clients seeking to increase their capex budgets beyond what they had planned simply to meet existing operational requirements,” she says. “With the cessation of wage subsidy measures such as JobKeeper, most businesses have restricted cashflow to essential acquisitions rather than expansion.”

Findlow is critical of the budget as being one that was aimed at voters on a domestic household level rather than at a business level. The key focus areas were offering further childcare subsidies, mental health initiatives, increased funding for ‘shovel ready’ infrastructure projects and, critically, aged care reform and additional home care package funding.

However, Scott Hogan-Smith, director at ECOVIS Clark Jacobs, argues that increased spending in these areas will underpin further economic development. “The introduction of a patent box regime, which is still to be fully defined but will focus on the medical and biotech industries initially, should also provide a shot in the arm to innovation,” he says. 

Matthew Green, partner at Mazars Australia, points out that while asset write-off and loss-carry back concessions included in the budget were welcomed by his clients, what Australia really needs is commitment to long-term reform to improve the sustainability and efficiency of the budget, fiscal position, and taxation systems.

“For example, continued amendments to superannuation rules erode the trust that Australians can place in this vitally important system and our politicians need to do better at ensuring a stable, efficient, effective and fair system to enable citizens to save for their retirements,” he says. 

Matthew Green, partner, Mazars Australia

The latest budget appeared "a little light" compared to past spending plans, according to Simon Calabria, director at PrimeGlobal member firm Webb Martin Consulting. “From our viewpoint, there still appears to be an appetite in the business community for real tax reform, not just tinkering around the edges,” he adds.

Sam Rotberg, director at Abacus Worldwide member firm Alexander Spencer, claims that the May budget really let down the SME sector. “It really did not have a lot to offer small to medium size businesses,” he says.” Most measures were announced last year but businesses are not inclined to spend money to obtain a tax deduction and are looking to have a buffer, especially here in Victoria as we have had a few lockdowns so a reserve to fund further lockdowns is a necessity. The only area that may help some industries is the loss carry back provisions that will allow losses made in 2021, 2022 and 2023 to be offset against profits made in 2019 and 2020.”

Likewise, reactions to the Loan Guarantee Scheme supporting SMEs by guaranteeing 50% of new loans issued have also been mixed. It was originally only meant to run until September 2020 but was extended due to the impact of Covid until June 2021.

Lorin Joyce, partner at MGI Joyce Dickson, says some clients accessed lending under the scheme but it was not an ideal solution for struggling SMEs. “Overall, it was felt that the relatively onerous lending requirements to access the scheme – and the limited funding amount available – forced businesses to look into other funding options,” he says.  

Green saw the same lack of enthusiasm amongst his client base. “The scheme has not been used by most of my clients, they have tended to focus on other stimulus measures and responses to the pandemic,” he says. “Our clients on the Gold Coast are reliant on holiday makers from Sydney and Melbourne for their basic cashflow and this is a much better source of funding than a government loan. The problem with loans is that they have to be repaid at some point.”

However, Findlow says the scheme was a huge boost to businesses who might have been otherwise ineligible for extended finance arrangements. “Many of our clients found that they were able to secure better rates than the general market under the scheme and that it enabled them to lease key equipment at a time when normal lending documentation and business performance would have made them an unattractive prospect to lenders,” she says. 

Last year, IAB reported that CPA Australia, CA ANZ and the IPA were reviewing the frameworks that regulate how tax advice is provided in Australia, but there seems to have been little improvement in this area. The pandemic appears to have proved a huge distraction to the major accounting bodies in their push for clearer and more flexible regulation in the advisory space. 

“If anything, what we are seeing is a contraction of practitioners being multi-disciplined due to the increases in regulation, costs and continuing professional development requirements,” says Findlow.

“In particular, the increased regulatory and educational requirements now being imposed for financial planning advisors are having the effect of driving some long-term financial planners out of the business altogether, shrinking an already limited market of independent financial advisors.”

Findlow claims those practitioners who are not already part of a larger, full-service business are finding themselves forced to focus on their key competency to the detriment of being able to advise their clients on a range of complementary issues. “From clients’ perspectives, there is a growing frustration at not being able to receive holistic advice from their trusted advisor and a reluctance to deal with multiple professionals to manage their affairs,” she says.

“The inability of the trusted advisor to provide advice and guidance at a basic level – as opposed to more strictly regulated strategic advice – has the consequence of deterring some clients from getting the advice they need, or being able to procure the right advice at an affordable cost.”

Simon Calabria, director, PrimeGlobal member firm Webb Martin Consulting

From the perspective of MGI Joyce Dickson, the single biggest issue relates to providing advice in respect of retirement to clients, specifically in relation to their Self Managed Superannuation Funds (SMSFs).

“When the accountants’ exemption was removed in 2016 it placed accountants in an impractical situation where, as trusted advisers, they were expected by their clients to be able to provide advice relating to SMSFs but could not unless they held an AFSL,” says Joyce. “The costs and regulation around these licences and authorisations have both increased rather than improved. This has led to many advisers ceasing to be licenced to provide the advice, which means access and cost of this advice to clients has increased.”

Joyce says clients are still confused as to why their accountant can give them tax and strategic advice on all business and investment structures but not provide advice regarding their SMSF.  “The professional bodies need to address this issue and work out a solution,” he says.

However, Calabria did point out that there appears to have been an increased focus by the Tax Practitioner Board (TPB) in reviewing and sanctioning inappropriate behaviour, whether by parties unregistered to provide tax advice or by rogue advisers. “The TPB released an exposure draft regarding tax advisers obtaining proof of identity requirements for client verification,” he says. “This appears to be consistent with similar initiatives in other jurisdictions to combat anti-money laundering and counter terrorism rules.”

“There is ongoing tension between the various different parties that are able to provide tax advice - lawyers, registered tax agents - and others allowed to provide tax advice via an exemption (e.g. financial advisers),” he continues. “To a lesser extent there is also the need to ensure that registered tax agents that are not also lawyers do not inadvertently venture into providing legal advice.”

While it is not clear if Covid has been the cause of the delay, the Australian government has not responded to the final report to the Parliamentary Joint Committee on Corporations and Financial Services (PJC) Inquiry into the regulation of audit, which was published in November 2020.

It reaffirmed all 10 recommendations from the interim report issued in February 2020. While waiting on that response, the Financial Reporting Council (FRC), Australian Securities and Investments Commission (ASIC), Australian Accounting Standards Board (AASB), Auditing and Assurance Standards Board (AUASB) and Accounting Professional & Ethical Standards Board (APESB) have been meeting and liaising on preparations should certain recommendations be accepted by the government. 

According to Meng Leong, senior manager, accounting and advisory at Crowe Australasia, these preparations include the FRC (in partnership with ASIC), overseeing consultation, development and introduction under Australian standards of fee disclosure requirements in relation to audit and non-audit services.

They also require that the FRC oversees the revision and implementation of Australian standards to require audited entities to disclose auditor tenure in annual financial reports and oversees the effectiveness of reporting requirements relating to fraud and going concern.

 “Most of the PJC’s recommended reforms will result in greater transparency and improved perceptions of audit quality, rather than a fundamental change in how audits are conducted,” says Leong. 

Lorin Joyce, partner, MGI Joyce Dickson

The PJC’s recommended reforms will also have the unfortunate effect of slowing down audit and lead to staff shortages, according to Green.

“Requiring companies to certify their internal control frameworks and have those frameworks audited will increase the time required for company audits in Australia and is likely to exacerbate the shortage of audit staff that already exists,” he says. 

Green also feels the PJC missed an opportunity by not recommending the implementation of joint-audits for the largest companies listed on the ASX.  “We find that joint audit mandates improve audit market stability by ensuring stronger competition for the Big Four auditors and helping to mitigate audit risk at a market level.”