The biggest job is left to the Australian Tax Office (ATO), which deals with all tax matters including superannuation, excise and the Higher Education Loan Programme (formerly HECS). Its Taxpayers’ Charter outlines expectations of taxpayers, requiring us to be truthful and cooperative in dealings with the ATO, keep records in accordance with the law, take reasonable care in preparing tax documents, lodge punctual tax returns, and pay taxes by the due date. Penalties, including prosecution, may apply for any impropriety so understanding your tax obligations is important. Furthermore, learning how to identify potential advantages, as well as traps, puts you in a better position to make strategic tax choices.

For small business owners, the stakes are even higher. So it is important to learn the basics of tax planning and understand how tax obligations are affected by things like business structures, accounting and recordkeeping methods, income types, deductions, capital and operating costs.

Ultimately, the ATO’s tax laws should support a revenue system that upholds social and economic policy and funds community services. However, the end of the financial year has again been loaded with demands for tax reform, particularly by business groups. Even federal cabinet experienced some unrest, following Malcolm Turnbull’s report, entitled “Taxation Reform in Australia: Some Alternatives and Indicative Costings”, which was released last August.

In an effort to control the tax debate just prior to the Budget announcement, Treasurer Peter Costello released the International Comparison of Australia’s Taxes report, on 12 April this year. The benchmarking study was led by Peter Hendy (Australian Chamber of Commerce & Industry) and Dick Warburton (Chairman, Australian Board of Taxation).

The study purported to compare Australia’s tax system against those of OECD and selected Asian countries. While the findings of the report determined Australia as having the eighth lowest tax in the developed world and a comparatively low GST rate, they also indicated that taxes on property transactions, levied by state governments, are the highest.

According to the report, Australia’s corporate sector is overtaxed in comparison to other countries. Furthermore, Australia’s tax treatment of losses, depreciation and amortisation of goodwill could be viewed as putting Australian companies at a competitive disadvantage in today’s global market. While the 2006/07 federal budget provides some relief, with tax cuts for small business and generous depreciation rates, little has been done to remedy our increasing skills shortage and decelerated export growth.

In relation to personal income, high marginal tax rates could explain why many Australians working overseas are reluctant to return and may arguably put skilled migrant numbers at risk of decline. This year’s budget has made some concessions with rate reductions, but these are aimed mainly at the top end. On a social level, high marginal tax is particularly crippling to low income earners on family benefits and other welfare.

Perhaps these are the concerns driving the government’s recent provisions for offsets on medical expenses and child care tax. One of the intentions of the Tax Laws Amendment Act 2005 (Cth) is to help families reduce their costs for approved child care, with a 30% rebate that can be claimed in this year’s income tax returns. The Budget has also increased access to child care and extended large family supplements.

Are these and the new Budget provisions enough? The case for greater strategic reform of Australia’s personal and corporate tax regimes continues to mount. In the meantime, the best we can do as individuals is to understand our obligations and make sure we comply with current law.

More information

From the LIV Bookshop
Concise Income Tax, by Julie Cassidy, $59.95;
Income Tax & GST Strategies Manual, Deutsch & Orow, $103.

Useful Web links
For all your tax information visit the Australian Taxation Office www.ato.gov.au
For an overview and details of the 2006/7 budget go to www.budget.gov.au.