The state tax review is considering two radical reform proposals that would dramatically widen the state government’s tax base but would allow it to substantially cut tax rates.
The state tax review is considering two radical reform proposals that would dramatically widen the state government’s tax base but would allow it to substantially cut tax rates.
One proposal is for the introduction of a landholder regime, under which conveyance duty would be payable whenever land ownership changes, irrespective of the ownership structure.
A second, more radical, proposal is for the replacement of payroll tax, which only applies to employees, with a labour tax, which would apply to both contractors and employees.
The chair of the state tax review’s reference group, Jackson McDonald partner Jonathan Ilbery, told WA Business News the proposals were based on widely accepted principles.
“The members of the reference group agree that we should move to a system with a broad base, low rates and high thresholds,” Mr Ilbery said.
The appeal of a labour tax was that it would allow for lower tax rates and would remove some of the compliance issues that dog payroll tax, such as the definition of ‘employee like’ contractors.
Mr Ilbery acknowledged that it could create other complications and ranked it as a low probability.
“It would involve a fundamental regime change and would be inconsistent with other states,” he said. “It’s not simple but I’m keen to have a look at it.”
He believes the introduction of a landholder regime, which applies in the ACT and NT, is a more realistic proposition.
Currently the payment of conveyance duty depends on whether land is owned by an individual, a company, a trust or some other legal structure.
For companies, conveyance duty only applies when they are ‘land rich’, which means more than 60 per cent of their assets comprise land and they exceed a $1 million threshold.
Most mining companies are caught by the ‘land rich’ rules, providing a massive windfall for the state government on the back of transactions like the sale of Worsley Alumina and WMC Resources.
While the mining lobby has called for the tax base to be narrowed, Mr Ilbery said the state tax review was considering a widening of the base.
This would allow for lower rates to be introduced and would be simpler to administer.
Mr Ilbery said the tax review was keen to pursue fundamental tax reform rather than just tinkering with rates and thresholds.
He believes there is scope for reform, even after last month’s decision to abolish three taxes.
Other options being considered by the review include the indexation of tax thresholds.
If the labour tax was not adopted, Mr Ilbery said the review was keen to align WA’s payroll tax with other states.
He also said the introduction of a general anti-avoidance provision was not supported.
