Explanatory Memorandum
(Circulated by authority of the Treasurer, the Hon Peter Costello MP)Chapter 1 Board of Taxation report: Identification and Possible Repeal of the Inoperative Provisions of the 1936 and 1997 Income Tax Assessment Acts
History of the measure
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references to the identified provisions in Commonwealth Acts, so that necessary amendments could be developed for each repealed provision.
1.6 The Board subsequently reported to the Treasurer in 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 At that stage, more than 2,000 pages were expected to be repealed.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.