Bills Digest no. 14 2006–07
Tax Laws Amendment (Repeal of Inoperative Provisions)
Bill 2006
WARNING:
This Digest was prepared for debate. It reflects the legislation as
introduced and does not canvass subsequent amendments. This Digest
does not have any official legal status. Other sources should be
consulted to determine the subsequent official status of the
Bill.
CONTENTS
Passage History
Purpose
Background
Financial Implications
Main Provisions
Concluding Comments
Endnotes
Contact Officer & Copyright Details
Passage History
Tax Laws
Amendment (Repeal of Inoperative Provisions) Bill
2006
Date introduced: 22 June 2006
House: House of
Representatives
Portfolio: Treasury
Commencement: The Act commences on Royal Assent. The commencement
and application of the Schedules are dealt with in the Main
Provisions section of this Bills Digest.
The Tax Laws Amendment (Repeal of
Inoperative Provisions) Bill 2006 (the
Bill) does more than merely repeal inoperative provisions of
tax law. It has very stringent savings measures to enable the
repealed provisions to be operational under certain circumstances.
The Bill also rewrites certain provisions of income tax law and
makes amendments of a housekeeping nature.
In the Second Reading Speech, the Treasurer elaborated further
on the break down of the repeals as between inoperative provisions
and Acts as follows.
The Bill now repeals over 4,100 pages of
inoperative law, including about 2,600 pages of income tax law.
That comes to almost a third of the income tax law and over half of
the Income Tax Assessment Act 1936. The Bill also repeals
about 1,500 pages of other Acts (including 48 sales tax statutes)
that are wholly inoperative.(1)
In consequence of the repeal of inoperative provisions and Acts,
the
Explanatory Memorandum to the Bill states, at page 3, that this
measure will reduce compliance costs for tax practitioners and
provide material benefits to practitioners and taxpayers, who have
to read, interpret and apply tax laws.(2)
This section of the Bills Digest will give a brief outline of
the problem which the measures in this Bill seek to alleviate. It
will also briefly refer to the attempts made so far to deal with
the problem in recent years.
The ever increasing complexity and growth in volume of tax law
together with the additional compliance costs which it entails has
been the subject of continuing concerns for taxpayers and tax
practitioners. The problem has been exacerbated in recent years as
each wave of tax reform has given rise to new forms of tax
minimisation practices and further tax legislation to curb such tax
minimisation practices. Each attempt to curb tax minimisation
practices has led to added complexity and volume in tax
legislation.
Mr Gary Banks, Chairman of the Productivity Commission, in an
address titled The good,
the bad and the ugly: economic perspectives on regulation in
Australia - to the Conference of Economists, Business
Symposium, in Canberra on 2 October 2003 summed up the cause and
effect of the growth in income tax regulation as follows:
The Income Tax Assessment Act often taken as a
regulatory barometer has grown particularly rapidly since its
inception. At nearly 7,000 pages, the ITAA (the 1936 and 1997
statutes together) is now nearly 60 times longer than the paltry
120 pages that did the job when it was first introduced in 1936
notwithstanding admirable recent attempts at simplification. To
take a fanciful turn, were this rate of growth to continue
unabated, I am informed that by the end of this century the paper
version of the Tax Act would amount to 830 billion pages; it would
take over 3 million years of continuous reading to assimilate and
weigh the equivalent of around 20 aircraft carriers!
There is of course a reason for the increasing
regulatory detail and complexity us. Regulations that limit choice
or impose costs on people invite evasive responses as much as
compliant ones, sometimes more so. Hence the endless quest for tax
loopholes (and the commensurate growth of tax consulting services)
and the inevitable page-lengthening defensive responses by
government. So complexity should not just be seen as something done
to us by na ve or incompetent regulators, but as part of a
strategic environment.(3)
The following paragraphs outline the reasons for the increase in
volume over the last twenty years and provide a brief background
why Australian income tax law has been provided in two Assessment
Acts since 1997. Attachments A, B and C to this Bills Digest set
out the patterns of increase in volume, by pages, of the ITAA 1936,
the ITAA 1997 and the combined ITAA 1936 and ITAA 1997 respectively
over time.(4)
It will be seen from Attachment A that there was a sharp
increase in the volume of income tax law in the ITAA 1936 after
1986, and this coincided with the legislation to implement the tax
reforms of 1985 which included the introduction of the imputation
system, the capital gains tax (CGT) regime and the fringe benefits
tax (FBT).(5)
The period after 1986 saw the progressive introduction of the
self assessment regime when the onus of reading, understanding, and
interpreting and applying tax law was placed on taxpayers and tax
practitioners. Prior to the introduction of the self assessment
regime the onus of making an assessment based on facts disclosed by
taxpayers in tax returns was on the Commissioner.
The second period of sharp growth in volume of income tax
legislation and the ITAA 1936 in particular, as can be seen from
Attachment A, is the period June 1997 to date.
There was an expectation that on the introduction of the
Income Tax Assessment Act 1997 (ITAA 1997) in 1997 that it
would progressively take in the rewritten sections of the ITAA
1936, and that in consequence the ITAA 1936 would shrink in volume
at the same time.
However, this has not taken place and it can mainly be
attributed to the fact that some of the provisions that implemented
the reforms to income tax law in the
A New Tax System package proposed in 1998 were included in
the ITAA 1936.(6) This was followed by the ITAA 1936
containing many provisions to implement the New Business Tax System
in the report A
Tax System Redesigned of the Ralph Review from
1999.(7)
Attachment B shows that the ITAA 1997 grew in volume between
1997 and 1999. The increase in volume of the ITAA 1997 can be
attributed to taking in the rewrites of parts of the ITAA 1936 and
the balance of the legislation required for the implementation of
the A New Tax System and the New Business Tax System.
Some of the significant attempts to meet the concerns of
taxpayers and tax practitioners arising from the growth in volume
as well as complexity of income tax law will be briefly referred to
below.
The Joint Committee of Public Accounts in its report titled
'An Assessment of Tax: A Report of an Inquiry into the
Australian Taxation Office' Report No. 326, AGPS, Canberra, p.
91, recommended (Recommendation 22) that the Government should set
up a task force to rewrite the income tax law. In addition,
Recommendation 23 required the Government commit sufficient
resources to the task force as will allow it to complete a priority
simplification redraft within two years and the full simplification
of the Act within five years.(8)
In response the Government set up the Tax Law Improvement
Project (TLIP) on 17 December 1993.
The approach to rewriting the new tax law is well described in
an Information Paper titled Building
the New Tax Law in the website of the Office of
Parliamentary Counsel. This Information Paper adds that it was
intended to be a three year project, funded from 1 July 1994.
(9)This Information Paper also gives the rationale for
the progressive replacement of the ITAA 1936, in several stages
over the project s life.(10)
The first instalment of a major package of bills by TLIP were
the Income Tax Assessment Bill 1995 when it was introduced by the
previous Labor Government on 30 November 1995 together with the
Income Tax (Transitional Provisions) Bill 1995 and the Income Tax
(Consequential Amendments) Bill 1995. This package of bills was
intended to a new income tax law which would progressively replace
the ITAA 1936. These bills lapsed when Parliament was prorogued on
29 January 1996.
The present Government introduced the following bills on 19 June
1996, which were broadly the same as those introduced by the
previous Government, although they did contain some changes:
- Income Tax Assessment Bill 1996 (enacted as the Income Tax
Assessment Act 1997 (ITAA 1997))
- Income Tax (Transitional Provisions) Bill 1996 (enacted as the
Income Tax Transitional Provisions) Act 1997
- Income Tax (Consequential Amendments) Bill 1996 (enacted as the
Income Tax (Consequential Amendments) Act 1997
The Bills received Royal Assent on 18 April 1997 and have had
effect since the 1997-1998.
The Explanatory Memorandum to the package of bills introduced on
19 June 1996 indicated in Chapter 1 that the Income Tax Assessment
Bill 1996 is the first instalment in the rewrite of the Income
Tax Assessment Act 1936 (ITAA 1936).(11)
Progressive enactment of the new
law
The income tax law is considered too large to
rewrite and enact in a single stage. The Income Tax Assessment Bill
1996 is founded on the basis that the old law will be rewritten and
replaced progressively.
How it will happen
It is proposed to enact the rewritten law in
annual instalments. The first instalment comprises the Bills in
this package, in particular the Income Tax Assessment Bill 1996. It
is to apply first for the 1996-97 income year.
From the commencement of this package of Bills
until the completion of the rewrite, the income tax law will be
spread over two Assessment Acts the Income Tax Assessment Act
1936 and the proposed Income Tax assessment Act
1997.
As each instalment of the rewritten law starts to
apply, the corresponding provisions in the 1936 Act will cease. The
proposed new Act will grow progressively and the operative
provisions in the 1936 Act will correspondingly shrink. When the
final instalment of the rewritten law starts to apply, the 1936 Act
will have no ongoing operation.
The Income Tax Assessment Bill 1996 was amended to
make it applicable from the year 1997-98.
A
user s view of what was achieved by the first instalment of
Bills produced by the efforts of TLIP is set out
below.(12)
The Tax Law Improvement Project (TLIP), whose main
objective was to rewrite the 1936 Act in a more readable,
simplified manner, has pursued this objective through the following
measures:
The use of plain English that does not get bogged
down in the legal formality of the 1936 Act.
The use of the word 'you' throughout the Act which
makes the Act easier to read as well as cutting down considerably
the size of the Act.
The implementation of a new numbering system,
which is far simpler to follow.
The use of 'method statements' that assist in
illustrating how to make certain decisions. These statements are
often accompanied by tables and diagrams which make the
interpretation of the Act much easier.
The provision of a Dictionary to define key terms
(in Section 995).
The reduction in reliance on the 'Commissioner's
discretion'.
Doubts were expressed by commentators in 1997 as to whether the
Income Tax Assessment Act 1936 (ITAA 1936) would ever be
replaced by a single Income Tax Assessment Act with some taking the
view that TLIP should have worked towards achieving the outcome of
replacing the ITAA 1996 in one big bang approach.
Paul Martin for example wrote the following:
The method of implementation of the new Act has
been the subject of considerable debate. Some critics have
suggested that the 'big bang' method would have been the best
option, whereby the Act would have been rewritten in full before
being released.
Instead, the Act is being released in stages so
that each tax year a new part of the Act takes effect.
In the transitional period, until this process is
complete, there will undoubtedly be complications and much paper
chasing.
To start with we have:-
The Income Tax Assessment Act 1997
Income Tax (Consequential Amendments) Act 1997
Income Tax (Transitional Provisions) Act 1997
The Tax Law Improvement Act 1997
Whether the collection of new Acts ever fully
replaces the 1936 Act is in itself debatable. Section 1-3 of the
1997 Act states that, if the rewritten Act expresses the same idea
in a different form of words, the ideas are not to be taken
differently. In other words, any interpretation of the new Act will
require some consideration of what was previously
intended!(13)
Section 1-3 of the ITAA 1997 remains the umbilical cord that
appears to have given the provisions of the ITAA 1936 that were
rewritten into the ITAA 1997 a life of their own. When it comes to
the interpretation of income tax law, as long as section 1-3
remains in place in the ITAA 1997, the old provisions of the ITAA
1936 may not be taken as repealed.
It must be mentioned that section 15AC of the Acts
Interpretation Act 1901 too would appear to have the produced
the same result. Section 15AC states that where an Act has
expressed an idea in a particular form of words and a later Act
appears to have expressed the same idea in a different form of
words for the purpose of using a clearer style, the ideas shall not
be taken to be different merely because different forms of words
were used.
Thus in interpreting the provisions of the ITAA 1997 in the
future, the question may arise whether an idea in that Act was the
same as the idea in the ITAA 1936.
TLIP undertook further rewrites
in the Tax Law Improvement Act 1997 (TLIA 1997) and the
Tax Law Improvement Act (No. 1) 1998. The rewrites dealt
mainly with exempt income provisions and the major part of the
capital gains provisions respectively.
However, the program of rewrites was overtaken by other areas of
tax reform.
The first was the need to shift emphasis in 1998 to the package
of bills that became necessary for the implementation of the
proposals in the A New Tax System. This included the
replacement of the wholesale sales tax (WST) with the goods and
services tax (GST). The second was the package of bills needed to
implement the recommendations of the Ralph Review of Business
Taxation from 1999. These two sets of bills placed a severe strain
on tax instructing and drafting resources and left few resources
for the rewriting of the income tax laws as planned earlier.
In the context of continuing taxpayer and tax practitioner
concerns on the complexity and volume of tax law, on 24
November 2003, the Treasurer called for a review of the
self-assessment system to examine whether the right balance has
been struck between protecting the rights of individual taxpayers
and protecting the revenue for the benefit of the whole Australian
community. The review was expected to identify whether there were
refinements to the present arrangements that would reduce the level
of uncertainty for taxpayers, reduce compliance costs and enhance
the timeliness of ATO audits and amendments to
assessments.(14)
In paragraph 7.9, of the
report of the review, it was suggested that the repeal of
inoperative provisions may be one of the options that Treasury
should pursue to make tax law easily accessible to individuals and
small business with very simple affairs.(15)
7.9
Volume of the tax law
Many submissions identified the volume of income
tax law as an issue. However elegantly written, well laid out or
helpfully structured, the sheer volume of information in tax laws
can be a barrier to their usefulness. While it is true that few
taxpayers ever need to deal with more than a few provisions of the
law, nevertheless those parts are scattered throughout the Acts,
amongst more obscure and sometimes inoperative material.
The Board of Taxation is currently in the process
of identifying the inoperative provisions in the income tax law and
will report its recommendations to Government. These
recommendations could potentially include repealing some
inoperative provisions.
Another approach suggested is to collect the
relevant operative provisions for individuals and small business
into a separate Part. That is, it may be possible to place all of
the material required by large numbers of taxpayers with simple
affairs together in one spot. This could reduce the number of
provisions these taxpayers and their advisers need to be aware of
and understand in order to fulfil their obligations under self
assessment.
Recommendation 7.3 of the report required the Treasury to
examine the possibility of reducing the volume of law that needs to
be accessed by individuals and small businesses with very simple
affairs.
The measures in the Bill indicated that the Government gave
priority to the repealing of inoperative provision and Acts as a
first step to reduce the volume of income tax law.
The steps taken by the Board of Taxation (the Board) since 2004
to rationalise the ITAA 1936 and the ITAA 1997 by selecting
inoperative provisions and Acts for repeal are set out in
paragraphs 1.1 to 1.15 on pages 5 to 7 of the Explanatory
Memorandum. It also states that the Treasury and the Australian
Taxation Office (ATO) independently reviewed the inoperative
provisions identified by the Board. For ease of reference the
contents of these paragraphs are set in Attachment D.
The Government s acceptance
of the Board s recommendation to repeal inoperative provisions,
subject to further consultation, was announced by the Treasurer in
Press Release No. 102 of 24 November 2005.(16) On 4
April 2006, the Treasurer released draft legislation for the repeal
of inoperative provisions with his
Press Release No. 018.(17)
The Explanatory Memorandum to the Bill states at page 3 that the
financial impact of the measures is nil.
The benchmark of identifying inoperative provisions and Acts is
stated in the Explanatory Memorandum to the Bill as follows at page
3:(18)
'An inoperative provision or Act is one which no longer applies
to taxpayers, either because it has no effect after a date in the
past or because all the transactions it did affect have now
concluded.'
It is not within the scope of this Bills Digest, to comment
whether this benchmark has been met by the repeals covered by each
of the items in Schedules 1 to 5.
This is a task that has not even been attempted by the Explanatory
Memorandum to the Bill.
However, some examples of the effect of the repeals of
inoperative provisions will be considered in this section of the
Bills Digest.
Further, the effectiveness of the repeal will be judged against
the savings provisions in Schedule 6 as well as
the Part III of the Acts Interpretation Act
1901.
Item 1 of Schedule 1 provides
that the provisions and parts of provisions specified in the
Schedule are repealed.
There are 317 other items in Schedule 1 which
repeal inoperative provisions or parts of provisions in the ten
Acts listed in Schedule 1.
Item 153 of Schedule 1 which
repeals Parts IIIAA and IIIA of the ITAA 1936, deal with franking
of dividends and capital gains respectively.
Part IIIAA dealing ceased to have application after 1 July 2002
and therefore satisfied a criterion of the benchmark for inclusion
as an inoperative provision in this Bill. Part IIIA ceased to have
application working out net capital gains and net capital losses
for assessments for the 1998-99 year of income or later years. Part
IIIA therefore satisfies a criterion of the benchmark for inclusion
as an inoperative provision in this Bill.
As an example, given the limits to the scope of this Bills
Digest, it is proposed to consider only the impact of the repeal of
Part IIIAA in the following section.
The effect of the repeal of Part IIIAA is examined by
considering the case of company Greg Ltd mentioned in Example 1 in
item 7 of Part 2 of Schedule 6 of
the Bill. Here the Commissioner undertakes an audit of Greg Ltd
after the repeal of Part 111AA and concludes that Greg Ltd
fraudulently overfranked dividends it paid during the 1998-99
franking year. In consequence Greg Ltd had a franking account
deficit for that franking year. The Commissioner can amend the
assessment under former section 160ARN in the repealed Part 111AA
of the ITAA 1936 to collect the franking deficit tax and a penalty
by way of additional tax because of the savings provisions in
item 7 of Part 2.
Item 7 of Part 2 provides that
even though an Act is repealed or amended by this Act, the repeal
or amendment is disregarded for the purpose of doing any of the
following under any Act or legislative instrument (within the
meaning of the Legislative Instruments Act 2003):
(a) making or amending an assessment (including under a
provision that is itself repealed or amended);
(b) exercising any right or power, performing any obligation or
duty or doing any other thing (including under a provision that is
itself repealed or amended).
Thus, the Commissioner can make an amended assessment under
repealed subsection 160ARN (3) at any time where the Commissioner
is of the opinion that the under assessment is due to fraud or
evasion, because of item 7 of Part
2 of Schedule 6.
Greg Ltd, if dissatisfied with the franking assessment made by
the Commissioner may because of item 7 of
Part 2 of Schedule 6 object
against it under repealed and saved section 160ART.
This example illustrate that Part IIIAA of the ITAA 1936, which
will be repealed as inoperative under the measures in the Bill, may
have an application well into the future.
Items 1 and 2 in
Column 1 of the table in proposed section
2 of the Bill provide that Schedule 1
commences on the day on which this Act receives the Royal
Assent.
Under item 1 of Part 1 of
Schedule 6, the repeals and amendments made by
Schedule 1 apply:
(a) in so far as they affect assessments to assessments for the
2006-07 income year and later income years, and
(b) otherwise to acts done, or omitted to be done, or states of
affairs existing, after the commencement of the repeals and
amendments.
Schedule 6 also deals with the saving and
transitional provisions relating to the repeals and amendments
proposed in Schedules 1 to 5 of
this Bill. The application of the repeals made by Schedule
1 is therefore subject to the savings and transitional
provisions in Schedule 6 which are considered
below.
Schedule 2 has two Parts which contain
consequential amendments arising from the proposed repeal of
provisions and parts of provisions by Schedule 1.
As will be seen below it includes amendments of a housekeeping
nature and rewrites as well.
Part 1 contains 1016 items which effect
consequential to 41 Acts.
Item 288 of Schedule 1 repeals
the heading of Division 1 of Part IIA of the Taxation
Administration Act 1953.
The present heading of Part IIA of the Taxation
Administration Act 1953 is PART IIA - CHARGES AND PENALTIES
FOR FAILING TO MEET OBLIGATIONS . Item 930 of
Part 1 of Schedule 2 changes the
heading to Part 11A The general interest charge .
Part 2 of Schedule 2 contains
47 items which amend 15 Acts, in consequence of the repeal of the
present heading of Division 1 of Part 11A of the Taxation
Administration Act 1953.
This is an example of an amendment, which is of a housekeeping
nature, rather than being an inoperative provision or Act that is
being repealed.
The Bill includes a number of rewrites of tax law provisions.
The Explanatory Memorandum to the Bill in paragraphs 2.90 to 2.93
on pages 27 and 28 explains that the rewrites fall into two
types.
The first type of rewrite relates to a continuing provision
which relies on a calculation, concept or term created by a
repealed provision. In such a case a consequential amendment is
required to include it in the current legislation. When making the
required amendment a rewrite is undertaken in the Bill.
Thus, for example, the definitions of employee and employer in
section 16(4AA) of the ITAA 1936 rely at present on the meaning of
the terms given in section 221A of the ITAA 1936. Item
163 of Schedule 1 repeals Divisions 1AAA
to 6A of Part VI which includes section 221A.
Items 152 and 153 of
Schedule 2, in consequence, provide new rewritten
definitions of employee and employer respectively to be inserted
into section 16(4AA) of the ITAA 1936.
The second type of rewrite relates to the case of some
significant provisions in the ITAA 1936 which have been inoperative
for some time except for one or more sections or subsections which
are still operative. The Bill repeals the entire provision and
rewrites the sections or subsections which were operative into
either the ITAA 1997 or into a different place in the ITAA
1936.
Thus, for example, section 51, except for subsections 51(8) and
(9), the general deductions provision under the ITAA 1936, has been
inoperative from the 1997-98 year of income. Subsections 51(8) and
(9) deny deductions for the late lodgement amount of the
superannuation supervisory levy and the superannuation guarantee
charge respectively under section 8-1 of the ITAA 1997.
Item 65 of Schedule 1 repeals
section 51 of the ITAA 1936, including subsections 51(8) and (9). A
note to item 65 adds that remade versions of
subsections 51(8) and (9) which are repealed are included in the
ITAA 1997 by item 663 of Schedule 2.
Item 663 of Schedule 2 inserts
section 26-90 into Division 26 of the ITAA 1997 and is more
specific than subsection 51(8) which it replaces. Section 26-90
disallows so much of a levy imposed by the Superannuation (Self
Managed Superannuation Funds) Supervisory Levy Imposition Act
1991 as represents the late lodgement amount.
Item 663 of Schedule 2 also
inserts 26-95 into Division 26 of the ITAA 1997 to disallow a
deduction for the superannuation guarantee charge imposed by the
Superannuation Guarantee Charge Act 1992. Section 26-95 is
very similar to the terms of subsection 51(9) which it
substitutes.
Division 26 of the ITAA 1997 sets out some amounts that cannot
be deducted or cannot be deducted in full, and is the appropriate
Division for inserting these amendments in the process of the
gradual consolidation of the ITAA 1936 and the ITAA 1997. The
reader is referred to the other rewrites undertaken in
Schedule 2 of this Bill in paragraphs 2.90 to
2.148 on pages 27 to 37 of the Explanatory Memorandum to the
Bill.
Items 1 and 2 in
Column 1 of the table in proposed section
2 of the Bill provide that Schedule 2
commences on the day on which this Act receives the Royal
Assent.
Under item 1 of Part 1 of
Schedule 6, the repeals and amendments made by
Schedule 2:
(a) in so far as they affect assessments to assessments
for the 2006-07 income year and later income years, and
(b) otherwise to acts done, or omitted to be done, or states of
affairs existing, after the commencement of the repeals and
amendments.
Schedule 6 also deals with the saving and
transitional provisions relating to the repeals and amendments
proposed in Schedules 1 to 5 of
this Bill. The application of the repeals made by Schedule
2 is therefore subject to the savings and transitional
provisions in Schedule 6 which are considered
below.
Item 1 of Schedule 3 provides
for the repeal of 20 provisions in four Acts. The Explanatory
Memorandum at paragraph 3.5 on page 39 states that these provisions
become inoperative by the chosen benchmark at different times. It
adds at paragraph 3.8 at page 40 that 1 January 2008 was chosen
because it is the first day after the end of the 2006-07 income
year for taxpayers with late balancing accounting periods. Also,
the last of the future inoperative provisions becomes inoperative
during that income year.
As indicated by the title to Schedule 3 the
repeals take effect on 1 January 2008.
Item 3 in Column 1 of the
table in proposed section 2 of the Bill also
states that Schedule 3 commences on 1 January
2008.
Under item 4 of Part 1 of
Schedule 6, the repeals and amendments made by
Schedule 3 apply:
(c) in so far as they affect assessments to assessments for the
2007-08 income year and later income years, and
(d) otherwise to acts done, or omitted to be done, or states of
affairs existing, after the commencement of the repeals and
amendments.
Schedule 6 also deals with the saving and
transitional provisions relating to the repeals and amendments
proposed in Schedules 1 to 5 of
this Bill. The application of the repeals made by Schedule
3 is therefore subject to the savings and transitional
provisions in Schedule 6 which are considered
below.
There are 12 items in Schedule
4 which make consequential amendments to three Acts
relating to Schedule 3 repeals.
Item 3 in Column 1 of the
table in proposed section 2 of the Bill states
that Schedule 4 commences on 1 January 2008.
Under item 4 of Part 1 of
Schedule 6, the repeals and amendments made by
Schedule 4 apply:
(e) in so far as they affect assessments to assessments for the
2007-08 income year and later income years, and
(f) otherwise to acts done, or omitted to be done, or states of
affairs existing, after the commencement of the repeals and
amendments.
Schedule 6 also deals with the saving and
transitional provisions relating to the repeals and amendments
proposed in Schedules 1 to 5 of
this Bill. The application of the repeals made by Schedule
4 is therefore subject to the savings and transitional
provisions in Schedule 6 which are considered
below.
Item 1 of Part 1 of
Schedule 5 repeals 69 Acts. The Acts repealed
include 48 Acts relating to sales tax which ceased to apply from 1
July 2000 on the introduction of the goods and services tax
(GST).
Part 2 has 178 amendments that are
consequential to those amendments made in Part 1
of Schedule 5.
Item 4 in Column 1 of the
table in proposed section 2 of the Bill states
that Schedule 5 commences on the day on which the
Act receives the Royal Assent.
Item 5 of Schedule 6 provides
that the repeals and amendments made by Schedule 5
apply to acts done or omitted to be done, or states of affairs
existing, after the commencement of the amendments.
Schedule 6 also deals with the saving and
transitional provisions relating to the repeals and amendments
proposed in Schedules 1 to 5 of
this Bill. The application of the repeals made by Schedule
5 is therefore subject to the savings and transitional
provisions in Schedule 6 which are considered
below.
The application, saving and transitional provisions relating to
Schedules 1 to 5 are set out in
Schedule 6 to the Bill.
Item 1 of Part 1 of
Schedule 6 provides that except as mentioned in
items 2 and 3, the repeals and
amendments made by Schedules 1 and
2 apply:
(a) so far as they affect assessments to
assessments for the 2006-07 income year and all later income years;
and
(b) otherwise to acts done or omitted to be done,
or states of affairs existing, after the commencement of the
repeals and amendments.
Item 4 of Part 1 of
Schedule 6 provides that the repeals and
amendments made by Schedules 3 and
4 apply:
(a) so far as they affect assessments to
assessments for the 2007-08 income year and all later income years;
and
(b) otherwise to acts done or omitted to be done,
or states of affairs existing, after the commencement of the
repeals and amendments.
The object of the general savings provisions in Part
2 of Schedule 6 is stated in item
6 as follows:
The object of this Part is to ensure that despite
the repeals and amendments made by this Act, the full legal and
administrative consequences of:
(a) any act done or omitted to be done, or
(b) any state of affairs existing, or
(c) any period ending,
before such repeal or amendment applies, can
continue to arise and be carried out, directly or indirectly
through an indefinite number of steps, even if some or all of those
steps are taken after the repeal or amendment applies.
Part III of the Acts Interpretation Act 1901 (AIA 1901)
deals with the repeal and expiration of Acts and section 8
clarifies the effect of repeals generally. Item 11
provides that Schedule 6 does not limit the
operation of the AIA 1901. The Explanatory Memorandum to the Bill
at paragraph 2.46 on page 16 explains that the general savings
provisions in Schedule 6 go further than that
provided by section 8 of the AIA 1901 as follows.
The main general savings provision also preserves powers,
duties, rights and obligations in relation to the time before the
repeal or amendment. If a right or obligation already existed
before the repeal or amendment, section 8 of the Acts
Interpretation Act 1901 would probably already preserve it.
However, the main general savings provision goes further.
It would therefore appear that the object of the general savings
provisions in Schedule 6 is that they are intended
to act in conjunction with section 8 of the AIA 1901 to preserve
the operation of the repealed provisions and Acts in the particular
circumstances that they are tax provisions which have revenue
implications.
The Explanatory Memorandum at page 3 states categorically that
the financial impact is nil. This assurance can only be given if
the general and specific savings provisions in the Act in
conjunction with the provisions in Part III of the AIA 1901
preserve the operations of the repealed provisions and Acts in a
way that the Commissioner is able to administer those repealed
provisions and Acts as though they had never been repealed by this
Act. It should, at the same time, preserve the rights and
obligations of taxpayers who might be affected by the Commissioner
s application of the repealed provisions and Acts.
Support for this view of the operation of the savings provisions
in Schedule 6 is found in paragraph 2.47 on page
16 of the Explanatory Memorandum.
It extends to powers and duties as well as to rights and
obligations. That is intended to make sure that the whole of a
repealed provision s previous operation can be preserved where
necessary.
In other words the general savings provisions are directed at
preventing an unintended windfall tax amnesty benefiting those who
had not been compliant with the repealed provisions and Acts in the
past.
Item 7 of Part 2 of
Schedule 6 provides that even though an Act is
repealed or amended by this Act, the repeal or amendment is
disregarded for the purpose of doing any of the following under any
Act or legislative instrument (within the meaning of the
Legislative Instruments Act 2003):
(a) making or amending an assessment (including under a
provision that is itself repealed or amended);
(b) exercising any right or power, performing any obligation or
duty or doing any other thing (including under a provision that is
itself repealed or amended).
Item 7 provides two examples of the making and
amending of assessments and doing other things in relation to past
matters.
Example 1 relates to the repeal of Part 111AA where the
Commissioner at the conclusion of an audit of Greg Ltd undertaken
after its repeal finds that Greg Ltd fraudulently overfranked
dividends it paid during the 1998-99 franking year The Commissioner
can amend the assessment under former section 160ARN in the
repealed Part 111AA of the ITAA 1936 to collect the franking
deficit tax and impose a penalty by way of additional tax because
of the savings provisions in item 7 of
Part 2. This example was considered in greater
detail in the Main Provisions section of the Bills Digest dealing
with the repeals and amendments in Schedule 1 Inoperative
provisions repealed on Royal Assent.
Example 2 is about Duffy Property Ltd which in the 1997-98
income year withheld amounts from employees wages and failed to
notify and remit those amounts under Division 1AAA and 2 of Part VI
of the ITAA 1997. The Commissioner, on the conclusion of an audit
of Duffy Property Ltd, undertaken after the repeal by item
163 of Schedule 1 of Division 1AAA to 6A
of Part VI, is authorised to estimate the liability under repealed
section 222AGA in Part VI because of item 7.
Further, the Commissioner is authorised under section 220AAZA in
Part VI, despite its repeal, to recover the amount of the estimate
again because of item 7.
Item 8 of Schedule 6 is the
second general savings provision. It is intended to preserve the
effect of an assessment made either before or after the repeal or
amendment of a provision. It does this by disregarding the repeal
or amendment in relation to such assessments.
The third general savings provision by item 9
of Schedule 6 relates to the period in respect of
the payment of a liability for the general interest charge or
failure to notify penalty or late reconciliation statement penalty
or interest, is due and which has not begun or has begun but not
ended when the provision under which the liability arose is
repealed or amended. The saving preserves the operation of the
repealed or amended provisions in relation to those past debts.
The Explanatory Memorandum states in paragraph 2.55 on page 20
that the fourth general savings provision in item
10 of Schedule 6 is included as a
precaution against the possibility that a repealed provision was an
element in the operation of another provision that is still
operative. The saving in item 10 disregards the
repeal of an Act or a provision of an Act so far as it affects the
operation of any Act or legislative instrument within the meaning
of the Legislative Instruments Act 2003.
Items 12 to 15 of Part
3 of Schedule 6 provides savings
provisions particular to specific provisions that are repealed by
Schedule 1.
The reader is referred to paragraphs 2.57 to 2,61 on pages 20
and 21 of the Explanatory Memorandum for details of these specific
savings provisions.
The examples in the general savings provisions in Part 2
of Schedule 6 considered above illustrate that where there
has been fraud and tax evasion, the Commissioner is authorised to
disregard the repeals and issue amended assessments. Likewise, the
taxpayer has rights to object to assessments despite the
repeals.
For the vast majority of taxpayers who have been honest and
compliant there will be no occasion to refer to these repealed
provisions and they may treat these repealed and saved provisions
as consigned to history.
However, for those taxpayers who have been engaged in aggressive
tax planning and tax minimisation practices, there is always the
prospect of the Commissioner auditing these schemes for years
covered by the repealed provisions and striking the schemes down
under Part IVA of the ITAA 1936. To this class of taxpayers and
their advisors the repealed provisions are at best dormant awaiting
activation at any time if the Commissioner considers that those
schemes fall into the grey area that separates tax avoidance and
tax evasion.
In the case of taxpayers who have been fraudulent or have
engaged in tax evasion, the repealed provisions were only repealed
in name. The savings provisions in Schedule 6
would be a constant reminder that as far as they were concerned the
repealed provisions and Acts were always operational or active.
Should Bill when enacted be called
the Tax Laws Amendment (Repeal and Saving of Inoperative
Provisions) Act 2006 in the interests of taxpayers and tax
practitioners
Tax professionals and those acquiring tax skills will always
consider the repealed provisions and Acts as part of their working
tools. The Tax Law Amendment (Repeal of Inoperative Provisions) Act
2006 (the RIP Act 2006), when enacted, will provide an index to the
repealed provisions and contain the all important saving provisions
in Schedule 6.
To serve the purposes of tax professionals and taxpayers who may
be affected by the application of the provisions and Acts which
have been repealed, a preferable title to the Act may be the Tax
Laws Amendment (Repeal and Saving of Inoperative Provisions) Act
2006 instead of the Tax Law Amendment (Repeal of Inoperative
Provisions) Act 2006 (the RIP Act 2006) as envisaged by the
Bill.
Will the measures in the Bill usher
in a third Income Tax Assessment Act for all practical purposes for
tax professionals?
The practical benefits of repealing the inoperative material are
considered in paragraphs 1.11 to 1.15 on pages 6 and 7 of the
Explanatory Memorandum and these paragraphs are included in
Attachment D.
One of the benefits mentioned is shorter published
legislation.
1.15 Shorter published legislation is possible
because the Board consulted with the two major commercial
publishers. The publishers advised that they would relocate
repealed provisions into a separate, less frequently published,
hard copy or on-line archive volume, rather than continuing to
reproduce them in smaller font in their annual reprints. That will
significantly shorten their annual reprints of the tax laws. The
electronic versions of the legislation which many people use
(whether the version produced by the Attorney-General s Department
or one of the commercial versions) would also be shorter.
Despite the imperative to omit the repealed and saved provisions
to shorten the printed volumes of the ITAA 1936 and the ITAA 1997
for the use of taxpayers and tax professionals, the volume that
contains the repealed and saved provisions must still be a
reference book with the repealed and saved provisions.
This third volume of inoperative and saved provisions is in fact
a third reference book of income tax law and will be required for a
considerable time to come when the Commissioner will not find it
necessary to conduct audits for the years of assessments covered by
the repealed and saved provisions.
As the remaining part of the ITAA 1936 is rewritten into the
ITAA 1997, it may be necessary to save the repealed provisions to
be applicable for the years prior to the insertion of the rewritten
provisions into the ITAA 1997. These repealed and saved provisions
will be additions to the volume of repealed and saved provisions
which the Bill when enacted will create. It is only when the ITAA
1936 has been completely written into the ITAA 1997 that the ITAA
1936 will cease to be a repository of current Australian income tax
law. However, its place will be taken by the volume of repealed and
saved provisions and as mentioned earlier will be used by tax
professionals and probably, a minority of taxpayers, until the
Commissioner ceases to conduct audits for the years of assessment
covered by the repealed and saved provisions. In the interim period
Australian income tax assessment law will be in the ITAA 1936, the
ITAA 1997 and the third volume of repealed and saved income tax
law.
- Tax Laws Amendment (Repeal of Inoperative Provisions) Bill 2006
Second Reading Speech.
-
Explanatory Memorandum to the Tax Laws Amendment (Repeal of
Inoperative Provisions) Bill 2006, p. 3.
- Gary Banks, Chairman, Productivity Commission, The good,
the bad and the ugly: economic perspectives on regulation in
Australia, p. 4. Available at http://www.pc.gov.au/speeches/cs20031002/cs20031002.pdf
on 1 August 2006.
- Pagination data (which includes Tables of Contents, Notes and
Tables) is taken from the printed versions up to April 1997, and
thereafter from the RTF or PDF versions available on the ScalePlus
or ComLaw websites.
- Reform of the Australian Taxation System, Statement by the
Treasurer, the Hon. Paul Keating, M.P. (September 1985).
-
Tax Reform: not a new tax, a new tax system: The
Howard Government's Plan for a New Tax System, Circulated
by the Hon. Peter Costello MP, Treasurer of the Commonwealth of
Australia
- Review of Business Taxation, A
Tax System Redesigned: More Certain, Equitable and
Durable, July 1999. Available on 2 August 2006 at http://www.rbt.treasury.gov.au/publications/paper4/index.htm.
- Joint Committee of Public Accounts, An Assessment of Tax: A
report of an inquiry into the Australian Taxation Office, page
xxvi.
- Office of Parliamentary Counsel, Building the New Tax Law,
Information Paper No. 2, April 1995, p. 3. Available at http://www.opc.gov.au/plain/docs/building_tax_law.rtf
on 1 August 2006.
- ibid., p. 21.
- Explanatory Memorandum, Income Tax Assessment Bill
1996, Income Tax (Transitional Provisions) Bill 1996 and the Income
Tax (Consequential Amendments) Bill 1996, p. 18.
- Paul Martin,
The Tax Law Project What it Means for Property,
Property Australia, (October 1997).
- ibid
- The Hon Peter Costello, MP, the Treasurer,
Review of Aspects of Income Tax Self Assessment,
Parliament House, Canberra, 24 November 2003.
- The Treasury,
Review of Aspects on Income Tax Self Assessment, Report,
Canberra, August 2004, paragraph 7.9.
- The Hon Peter Costello, MP, the Treasurer,
Income Tax Act reduced by around 30 per cent , Press Release
No. 102, 24 November 2005, Parliament House, Canberra.
- The Hon Peter Costello, MP, the Treasurer,
Bill to cut tax legislation by more than 4,100 pages, Press
Release No. 018, 4 April 2006, Parliament House,
Canberra.
- Explanatory Memorandum to the Tax Laws Amendment
(Repeal of Inoperative Provisions) Bill 2006, p. 3.
Source: Patrick O Neill, Law
and Bills Digest Section, Parliamentary Library
Source: Patrick O Neill, Law and Bills Digest Section,
Parliamentary Library
Source: Patrick O Neill, Law and Bills Digest Section,
Parliamentary Library
1.1 The Board of Taxation (the Board) is a non-statutory
advisory body which provides the Treasurer with a business and
community perspective about improving the design of taxation laws
and their operation.
1.2 In 2003, in accordance with the Government s general aim of
reducing complexity in, and the compliance costs associated with,
the tax laws, the Board began to consider how the Income Tax
Assessment Act 1936 (ITAA 1936) and the Income Tax
Assessment Act 1997 (ITAA 1997) could be rationalised to
reduce the volume of tax legislation and improve its ease of use
for taxpayers, their advisers and those involved in tax
administration.
1.3 The Board considered that a useful first step in any
rationalisation of the two assessment Acts would be to remove the
inoperative material. So, in 2004, it engaged a consultant to
identify the provisions of those Acts that were inoperative.
1.4 The consultant s report showed that the inoperative material
was extensive (up to 50 per cent of the ITAA 1936 fell into that
category). Given the extent of inoperative material in the law, the
Board believed that repealing it had the potential to substantially
reduce the volume of the published income tax legislation, making
it easier to use, and contributing to reducing its complexity.
1.5 Towards that end, in January 2005 the Board engaged further
consultants to confirm the inoperative status of provisions and
identify all references to the identified provisions in
Commonwealth Acts, so that necessary amendments could be developed
for each repealed provision. October 2005, recommending repeal of
the inoperative provisions identified. On 24 November 2005, the
Treasurer released the Board s report and announced the Government
s intention to repeal the inoperative material after draft
legislation had been through a public consultation process. At that
stage, more than 2,000 pages were expected to be repealed.
1.7 After that, the Treasury and the Australian Taxation Office
reviewed the inoperative material identified by the Board. They
also identified some further inoperative material, partly as a
result of developing the amendments that would be needed to the law
when other inoperative material was repealed. But the main extra
material identified was the 60 or so wholly inoperative taxation
Acts (eg, the many sales tax Acts, both those from the 1930s and
those from the early 1990s).
1.8 An exposure draft was released for public comment from 4
April 2006 to 5 May 2006. This Bill incorporates some minor changes
arising from comments received during the consultation.
1.9 In total, this Bill repeals more than 4,100 pages of
Australian taxation laws.
1.10 As well as repealing inoperative material, this Bill makes
a few small improvements to the law. These are explained in more
detail later but largely involve removing duplicated definitions;
replacing them instead with cross-references to the single
definition. This promotes consistent terminology across the
taxation laws, and forms part of the Government s continuing
efforts to reduce unnecessary complexity in the tax laws.
What are the practical benefits of repealing the inoperative
material?
1.11 Repealing the inoperative material in the tax laws is
important because it can often be quite difficult to work out
whether or not a provision is inoperative. Many provisions being
repealed by this Bill at first glance seem to be operative. It is
only when they are analysed in detail (often involving very
extensive analysis of other provisions they interact with or
gathering information about the environment they apply to), that
they can be understood to be inoperative. Getting to that
understanding can be a lengthy and difficult task, even for
experienced tax practitioners.
1.12 There is also a cost associated with retaining inoperative
material in the law because, to know that a particular provision is
inoperative, at least involves reading it and, with income tax
provisions, that can take some time.
1.13 For those reasons, repealing the inoperative tax law
provisions will produce a material benefit for those who read,
interpret and apply the tax laws.
1.14 Another benefit arises because removing several thousand
pages of inoperative material will shorten the published versions
of the tax law. Shorter legislation is easier to access and to work
with.
1.15 Shorter published legislation is possible because the Board
consulted with the two major commercial publishers. The publishers
advised that they would relocate repealed provisions into a
separate, less frequently published, hard copy or on-line archive
volume, rather than continuing to reproduce them in smaller font in
their annual reprints. That will significantly shorten their annual
reprints of the tax laws. The electronic versions of the
legislation which many people use (whether the version produced by
the Attorney-General s Department or one of the commercial
versions) would also be shorter.
Bernard Pulle
14 August 2006
Economics Section
Bills Digest Service
Parliamentary Library
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Australian Parliament using information available at the time of
production. The views expressed do not reflect an official position
of the Parliamentary Library, nor do they constitute professional
legal opinion.
Staff are available to discuss the paper's
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members of the public.
ISSN 1328-8091
© Commonwealth of Australia 2006
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Published by the Parliamentary Library, 2006.
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