Compliance burden to increase under PAYG instalment reform

Large companies' tax compliance costs will be significantly higher under proposed changes to the tax system that require big tax-payers to submit monthly Pay As You Go (PAYG) instalments, says the Financial Services Council (FSC).

The Government released a consultation paper last October that reformed the timing of large companies' PAYG instalments from quarterly to monthly.

In a submission to Treasury, the FSC said members had advised that increasing the frequency of instalments would create an additional compliance burden due to the differences in large companies between the tax consolidated group and the accounting consolidated group.

Extensive eliminations would be required to the accounting income to ensure the correct tax instalment was reported, according to FSC.

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It requested PAYG instalments for large taxpayers remain quarterly, with the quarterly instalment income used as the basis for the next two months' payments.

"This solution would provide the Government with the tax revenue in a timely fashion, whilst reducing the compliance costs for our members," it said.

The FSC also questioned what would happen if a company went into a loss situation.

"If, say, four monthly instalments are paid and then losses start to accrue, will the Government refund excess instalments prior to the lodgement of the Income Tax Return?" it said.

It supported a broader view of the PAYG instalment calculation process to reduce complexity and administrative burdens, saying the system had been changed very little since its establishment in 1999.

"We suggest that companies be provided an alternative, simplified methodology of calculating their PAYG instalment amounts that leverages off other existing accounting and reporting processes," it said.

"One possible alternative would be to base the monthly tax instalments as 1/12th of a company's prior year tax liability, adjusted for inflation or market trends (this could be based on ‘industry codes')," the submission said.

"The amounts paid could then be "trued-up" at each key reporting period (eg, half-yearly), when full "tax effect accounting" processes (reflecting tax timing adjustments) are normally undertaken."