House of Representatives

Explanatory Memorandum

Circulated By the Authority of the Treasurer, the Hon Wayne Swan MP

Chapter 1 - Background to the rewrites

Outline of chapter

1.1 This chapter explains the historical background to the Income Tax Assessment Act 1997 ( ITAA 1997) and the steps that have been taken to complete the rewrite of the Income Tax Assessment Act 1936 ( ITAA 1936). It also summarises the changes the Bill makes to the provisions it rewrites. The later chapters discuss the specific changes in more detail.

Creating the 1997 Act

1.2 In November 1993, the Joint Committee of Public Accounts recommended that the income tax law be rewritten. ^[1] The Keating government accepted the recommendation and created the Tax Law Improvement Project (TLIP) to implement it.

1.3 In April 1995, the TLIP team published a discussion paper proposing to rewrite the law progressively. It proposed that approach for several reasons, including:

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rewriting the law in tranches would be less disruptive for the Parliament and other users of the law;

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the benefits of the rewrite would be available sooner; and

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waiting to deliver the whole rewrite at once would almost certainly involve having to rewrite some things twice, as the law changed in the interim.

1.4 The team's proposal was adopted. This led to the ITAA 1997 (introduced into Parliament in 1996 and enacted in 1997) and two further Acts: the Tax Law Improvement Act 1997 and the Tax Law Improvement Act (No. 1) 1998. Each Act included rewrites of tranches of the income tax law.

Further stages of rewriting the income tax law

1.5 In August 1998, the Howard government announced, in its Tax Reform: Not a New Tax, A New Tax System paper, that the TLIP team would be subsumed into the taskforce being assembled to implement the substantive reforms that paper proposed. ^[2]

1.6 Since that time, no formal work has been done on a pure rewrite of the remaining provisions of the previous Act, the ITAA 1936. However, rewriting has continued as part of substantive reforms. The reform of the imputation system in 2002, for example, included a rewrite of the imputation provisions from the ITAA 1936 into the ITAA 1997.

1.7 The ITAA 1936 has not been repealed. However, in 2006, the Tax Laws Amendment (Repeal of Inoperative Provisions) Act 2006 repealed all the provisions of the ITAA 1936 that had so far been rewritten, as well as other provisions of the Act that had become inoperative.

What does the Bill do ?

1.8 TLIP had no mandate to make significant policy changes, but it did have a wide brief to improve the legislation it was rewriting. TLIP introduced many of the drafting features we now take for granted in the income tax and goods and services tax (GST) laws (such as a top-down structure, aids to navigation, asterisking of defined terms, and non-operative guide material). It also used plain English drafting for its rewrites.

1.9 The rewrites in this Bill involve no significant policy changes but do conform to the drafting approach used in the ITAA 1997 and in Schedule 1 to the Taxation Administration Act 1953 ( TAA 1953). However, they involve much less rewriting of provisions than did the TLIP rewrites. In part, that is to minimise the possibility of substantive changes occurring unintentionally but, more importantly, it is because the provisions chosen for rewriting already used a fairly plain-English style.

What sorts of changes have been made to the material ?

1.10 In general, the rewrites aim to reproduce the ITAA 1936 material, in language as little changed as possible, and in the same order as the original material.

Structural changes

1.11 In some cases, material has been consolidated or reordered to better conform to the structure of the current law. These cases are itemised in the relevant chapters.

Inoperative and transitional material

1.12 Material that is clearly inoperative has been removed, and some material of a transitional nature has been moved from the principal rules into the Income Tax (Transitional Provisions) Act 1997 ( IT(TP)A 1997). These cases too are itemised in the relevant chapters.

Numbering

1.13 In some cases, the numbering of provisions has changed to reflect the location in the ITAA 1997 or the TAA 1953 into which the provisions have been rewritten. Structural changes and removal of inoperative provisions have also affected the numbering in some areas. The specific changes for each of the rewrites are explained in the relevant chapter.

General wording changes

1.14 In a few instances, wording has been changed where it produced a clearly simpler result without changing the meaning. These cases are itemised in the relevant chapters.

Guide material

1.15 Guide material has been added where none exists in the current law and, where it does exist, has often been substantially rewritten. The added material includes both formal guides to Divisions and Subdivisions, and notes that point readers to related provisions or other relevant information.

Definitional changes

1.16 The most significant changes were to make the material conform to the definitional approaches used in the ITAA 1997. The most important of these is the 'one-term, one-meaning' protocol that requires a defined term to have the same meaning across the ITAA 1997. By contrast, it is quite common in the ITAA 1936 for definitions to apply only to a Division, or even to a section, and for the same term to be defined in many different ways throughout that Act.

1.17 In some cases, the current law defines a term inconsistently with its definition or use in the ITAA 1997, and in others a term may be defined in the ITAA 1997 but take its ordinary meaning in the current law. The changes made in the rewrites to accommodate the definitional rules have aimed to preserve the meaning of the current law. Individual changes are discussed in the relevant chapters.

Will the rewrite affect interpretation of the law ?

1.18 Whenever the wording of legislation changes, its meaning could change too. An important aim of the rewrites in this Bill is to minimise any changes in meaning and there are good reasons for believing that merely changing the structure, wording or location of provisions has not changed their meaning.

Statutory influences on interpretation

1.19 The main reason is that section 1-3 of the ITAA 1997 provides that an idea expressed in one form of words in the ITAA 1936 is not taken to be different when the same idea appears to be expressed in the ITAA 1997 but in a different form of words. Section 15AC of the Acts Interpretation Act 1901 says the same thing.

1.20 Because 'this Act' is defined in the ITAA 1997 to include Schedule 1 to the TAA 1953, section 1-3 produces the same result for material rewritten into that Schedule.

1.21 In general, there is no intention in the rewrites in this Bill to change the ideas expressed in the original material, so section 1-3 should prevent any changes in meaning being inferred because different words have been used. In those few cases where a different meaning is intended, the relevant chapters say so expressly.

Effect on ATO rulings

1.22 The Australian Taxation Office (ATO) publishes rulings about the interpretation of taxation laws. ^[3] Those rulings are more than just the Commissioner of Taxation's (Commissioner) opinion about what the law means; they are statements to which the Commissioner is legally bound, even if they prove to be wrong (see Division 357 in Schedule 1 to the TAA 1953).

1.23 There might be doubt about the ongoing effect of a ruling about a provision that has been rewritten. To the extent that a rewritten provision expresses the same idea as the original provision, section 357-85 of Schedule 1 to the TAA 1953 provides that the ruling applies equally to the rewritten provision. That means that taxpayers can rely on an existing ruling, and will get the same legal protection, as if the ruling were about the rewritten provision.

How is this explanatory memorandum arranged ?

1.24 After this general chapter, the explanatory memorandum contains a separate chapter for each of the rewrites.

Specific chapter for each rewrite

1.25 Each of those chapters explains what, in broad terms, the rewritten material does. It also discusses particular issues relevant to that rewrite. For instance, the chapters explain such things as:

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the material that was not rewritten because it was inoperative;

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the changes made to conform to definitional requirements; and

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the reasons for the location and structure of the rewritten material.

1.26 The chapters do not discuss the detailed policy reasons for the original provisions. However, they do list the Act that introduced the original provisions and each of the Acts that amended them. That list will help those interested in the policy reasons for the provisions to track down the original explanatory memorandums and parliamentary debates that explain them.

1.27 The chapters do discuss the reasons for any substantive changes to the original provisions. They also explain the consequential amendments to other provisions that are needed as a result of enacting the rewrites.

Finding tables

1.28 Some finding tables follow the specific chapters. Those tables cross-reference the original provisions with their equivalents in the rewrites. The tables help taxpayers map the rewrites onto the existing provisions and vice versa.