The taxing issues risk and reform

With Australian tax reform comes significant tax risk for business. Glenn Williams and Stef Mason* explain how to effectively manage risk in this rapidly changing tax environment.

The process of tax reform in Australia has begun. In its wake, business churns with change and uncertainty. With the changing tax environment come significant strategic and compliance issues for corporate Australia. Extensive changes in the law, impending implementation dates, unclear statutory obligations and the increasing difficulty in attracting and retaining quality staff combine to create a tax environment fraught with risk. Compounding these issues is the move towards real-time tax reporting. The introduction of the PAYG system will see companies reporting their tax position monthly or quarterly instead of annually. In addition, tax changes to FBT, depreciation, tax effect accounting standards and the introduction of GST will add to the administrative burden of compliance, even with updated and integrated tax systems and processes. The Corporate Tax Function Survey Report by Ernst & Young in December indicates 42 per cent of Australian in-house tax functions do not expect to be able to handle the additional workload caused by tax reform. These under-resourced tax functions expose companies to the risk of breaching compliance obligations and the consequent financial penalties.

Beyond compliance, Australian tax reform has a far-reaching impact on all business models, processes and systems. Tax law changes present risks to existing business strategies. Without a sound knowledge of the tax changes, divestment, structuring and financing opportunities may be put at significant risk. Company directors need to be aware of these tax risks and strategically manage them in order to meet their fiduciary duties and protect shareholder interests. The leading practice in tax risk management is to create a tailored, business-oriented approach. This involves developing and assessing strategic options based on the identified appropriate level of risk for each organisation. The current lack of certainty about tax law compounds the level of business analysis required to effectively balance tax risks and maximise business value. Ernst & Young offers specialist tax expertise and can assist senior management to identify that appropriate level of tax risk and develop a strategic approach to total risk management. This cost-effective framework uses a proven methodology to integrate tax into all business processes and systems and effectively measure and monitor critical tax areas to minimise tax risk.

There are three main approaches to manage the tax function and its associated risks. Firstly, it can be delegated to the financial and accounting teams in-house. Another option is to employ a dedicated in-house tax function. Both of these options need to ensure tax is integrated into the business and accounting processes. If this integration doesn't exist, extensive corporate knowledge may be lost with the current high turnover rate of tax specialists. The third option, being embraced by leading businesses in Australia and worldwide, is to outsource the compliance tax function. This international trend is driven by a combination of the focus on core business and efficiency gains. Coupled with the current tax environment in Australia, it is an attractive option. Outsourcing the compliance tax function minimises tax risk, offers access to tax expertise and may reduce costs. Ernst & Young provides active and effective management of compliance affairs by bringing together a skilled workforce, specialist knowledge, leveraging critical mass and the tools to deliver effective tax outcomes. In addition, Ernst & Young has proven technology solutions such as Ernst & Young Tax Integrator 2020 and FBT Organiser 2020 and is embracing web-enabled technology to improve compliance and consulting services.

To minimise corporate tax risk and achieve maximum value, companies need to strategically assess their appropriate risk profile, integrate tax into their wider business and commit to resourcing their tax solutions. In that way, organisations will achieve optimal tax outcomes and add value to their business.

Glenn Williams and Stef Mason are business unit directors of Business Tax Management Solutions with Ernst & Young. 

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The purpose of this database is to provide a full-text record of all articles that have appeared in the CDJ since February 1997. It is aimed to assist in the research and reference process. The database has a full-text index and will enable articles to be easily retrieved.It should be noted that information contained in this database is in pre-publication format only - IT IS NOT THE FINAL PRINTED VERSION OF THE CDJ - therefore there might be slight discrepancies between the contents of this database and the printed CDJ.