Explanatory Memorandum
(Circulated by authority of the Treasurer, the Hon Peter Costello, MP)Chapter 2 - Regulation Impact Statement
Policy objective
The objectives of the New Business Tax System
2.1 The measure in this Bill is part of the Government's broad ranging reforms which will give Australia a New Business Tax System. These reforms are based on the Recommendations of the Review that the Government established to consider reforms to Australia's business tax system.
2.2 The Government established the Review to consult on its plan to comprehensively reform the business income tax system (as outlined in ANTS). The Review made 280 recommendations to Government designed to achieve a more simple, stable and durable business tax system.
2.3 The New Business Tax System is designed to provide Australia with an internationally competitive business tax system that will create the environment for achieving higher economic growth, more jobs and improved savings, as well as providing a sustainable revenue base so the Government can continue to deliver services for the community.
2.4 The New Business Tax System also seeks to provide a basis for more robust investment decisions. This is achieved by:
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- improving simplicity and transparency;
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- reducing the costs of compliance; and
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- providing fairer, more equitable outcomes.
2.5 This Bill represents the second phase of legislation to implement the New Business Tax System. The first phase involved the following Bills, which were introduced into the House of Representatives on 21 October 1999:
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- the New Business Tax System (Integrity and Other Measures) Bill 1999;
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- the New Business Tax System (Capital Allowances) Bill 1999;
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- the New Business Tax System (Income Tax Rates) Bill (No.1) 1999; and
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- the New Business Tax System (Former Subsidiary Tax Imposition) Bill 1999.
The objectives of the measure in this Bill
2.6 The New Business Tax System will promote investment through a fundamental reform of Australia's CGT regime.
2.7 This Bill contains a measure to remove averaging of capital gains for individuals.
2.8 Other important CGT reforms include:
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- the CGT discount for individuals and superannuation funds and the phasing out of indexation on CGT asset cost bases, which are contained in the Integrity and Other Measures Bill; and
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- expanded small business relief measures, exemptions on investments in venture capital by non-resident tax exempt superannuation funds and scrip for scrip roll-over relief, which are contained in the New Business Tax System (Capital Gains Tax) Bill 1999, to be introduced contemporaneously with this Bill.
2.9 Together, the Government's CGT reforms will remove impediments to efficient asset management, improve capital mobility, reduce complexity and compliance costs and make Australia's CGT regime internationally competitive.
Implementation options
2.10 The Review's recommendations, including the one on which this measure is based, have been the subject of extensive consultation.
2.11 The implementation options for the measure are to be found in A Platform for Consultation (see pp. 304-311) and A Tax System Redesigned (see Recommendation 18.1(a), p. 595 and pp. 599-603).
Assessment of impacts
2.12 The potential compliance, administrative and economic impacts of the measure contained in this Bill have been carefully considered, by both the Review and the business sector. The Review focused on the economy as a whole in assessing the impacts of the Recommendations (including that relating to the measure in this Bill) and concluded that there would be net gains to business, Government and the community generally from business tax reform.
2.13 The removal of averaging will impact on individual taxpayers with CGT assets.
2.14 The removal of averaging part way through a financial year may create some transitional compliance costs. However, overall it and the Government's other CGT reforms will reduce compliance costs and simplify the CGT provisions, thereby providing a more consistent and easily understood business tax system.
2.15 Further details on how the removal of averaging will impact on affected taxpayers are contained in Chapter 1 of this Explanatory Memorandum.
2.16 The implementation of the measure in this Bill is not expected to give rise to any significant increase in administration costs.
2.17 The revenue impact of this measure is dealt with in the General Outline for this Explanatory Memorandum.
2.18 The New Business Tax System will provide Australia with an internationally competitive business tax system that will create the environment for achieving higher economic growth, more jobs and improved savings.
2.19 The consultation process commenced with the release of ANTS in August 1998. The Government established the Review in August 1998 and since that time the Review has published 4 documents on business tax reform, in particular A Platform for Consultation and ATax System Redesigned in which the Review canvassed options and issues and sought public comment.
2.20 Also during this period, the Review held numerous public seminars and focus group meetings with stakeholders in the taxation system. It received and analysed 376 submissions from the public on reform options. Further details are contained in paragraphs 12-16 of the Overview of A Tax System Redesigned .
2.21 In analysing options, the published documents frequently referred to, and were guided by, views expressed during the consultation process.
2.22 The measure in this Bill has therefore been subject to extensive consultation, given that the measure arose directly from a Recommendation of the Review.
Conclusion and recommended option
2.23 The measure contained in this Bill should be adopted to reduce complexity under an internationally competitive CGT regime, designed to improve incentives to save and invest.