Start with FBT if you want to remove red tape
An overhaul of the fringe benefits tax (FBT) is warranted and overdue, says the Institute of Public Accountants (IPA).
"Look no further than FBT if the Government wants to make some inroads to its commitment to reducing regulatory red tape," said IPA senior tax advisor, Tony Greco.
"FBT has the unenviable title of having the highest compliance cost of any tax. It places a significant compliance burden on small business operators.
"The complexity of the FBT system applies to all small business employer groups, including the not-for-profit sector. We are talking about a lot of entities trying to navigate a quagmire of rules to safely negotiate ways to comply with these tax rules.
"The IPA believes that shifting FBT from employers to employees would provide a more equitable solution to many of the current problems. Taxing fringe benefits at the employee level has the potential to deliver greater neutrality in the treatment of cash and non-cash remuneration while reducing the compliance costs for both employers and employees.
"The Henry review supports such a proposal to simplify the current rules and provide for more transparency.
"There are also a number of anomalies in the FBT rules which have been allowed to exist for too long and should be addressed by any responsible government. "The use of uncapped access to FBT exemptions for restaurant meals and the hire of entertainment facilities for private purposes are highly discriminatory and need to be immediately reined in on equity grounds".
"The exploitation of these uncapped concessions offends the principle of fairness. For example, allowing someone to salary sacrifice a $40,000 wedding from pre-tax income to avoid a significant amount of tax is difficult to justify.
"If the incidence of FBT is transferred to employees, then an alternative mechanism for funding FBT tax concessions will need to be considered. The funding alternatives proposed by the Not-for-Profit Sector Tax Concession Working Group have merit as they offer more transparent incentives for attracting and retaining talent in the not-for-profit sector.
These alternatives need to be considered in the interests of simplicity, fairness and transparency," said Mr Greco.
The IPA has made this recommendation as part of its pre-Budget submission. Further details can be found at the IPA website.