Senate

Second Reading Speech

BY THE MINISTER FOR SOCIAL SECURITY SENATOR THE HON JOCELYN NEWMAN

The Tax Law Improvement Bill (No. 1) 1998 is the third instalment of legislation that is progressively replacing the Income Tax Assessment Act 1936.

Last year Parliament enacted the first two instalments of rewritten law. The first instalment established the Income Tax Assessment Act 1997 as the main income tax law. It has a new more logical structure, a flexible and user-friendly numbering system and is written in plain language appropriate to its audience.

The 1997 Act now contains the core provisions of the law and most of the rules that apply generally, such as the provisions about assessable income and deductions. It also includes some other more specialised rules covering such topics as mining and primary production deductions.

The main feature of this Bill is the rewritten rules about capital gains and losses, colloquially known as the capital gains tax, or simply CGT.

Capital gains tax

From its inception in 1985, the CGT provisions have been compromised by the unnecessarily complex approach that was taken to their presentation and expression. The aim of CGT is to tax as income gains made on the disposal of assets and on the receipt of certain capital amounts.

Although CGT applies to many transactions that do not involve the disposal of assets, the existing law squeezes them into its uneasy structure by treating each of them as though they did involve such a disposal. This has left a complex and extremely confusing system of artificial deeming provisions that can confound even experienced professional advisers.

The rewrite does away with this `deeming approach' and replaces it with statements which directly describe in clear words the transactions that come within the coverage of CGT.

The key to the rewrite is the breaking up of the law to identify each `CGT event' . The concept of disposal is to be limited to where there actually is a change in ownership of an asset from one person to another. Other kinds of transactions that can give rise to a CGT liability are brought together so that the reader can be confident that all circumstances that can give rise to a capital gain or loss are comprehensively listed.

By bringing together in a coherent way material that is scattered throughout the old law and by doing away with unnecessary text, the rewrite supports a more readily gained understanding by taxpayers of the CGT consequences of their decisions.

Other areas rewritten

A range of other rules with specialised application have also been rewritten and included in the Bill. These cover the treatment of company bad debts, intellectual property, horticultural plants, expenditure on protecting the environment and on environmental impact statements, the averaging of primary producers' liabilities and evening out the effects of above-average special professional income.

Minor policy changes

The rewritten rules include minor policy changes which will help to make the law simpler, clearer and less burdensome for taxpayers. They will do this by:

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replacing impractical rules with ones which facilitate compliance;

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simplifying rules which are unnecessarily complex;

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deleting unnecessary rules;

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removing anomalies; and .clarifying ambiguities.

Revenue impact

The measures in the Bill are expected to have a small overall cost to revenue but this is well justified by the better compliance that should flow from the clarification of obligations. None of its individual proposals will have a measurable revenue effect.

Date of effect

The Government intends that the Bill will apply from the beginning of the 1998-99 income year.

Joint Committee of Public Accounts and Audit

The Government appreciates the work of the Joint Committee of Public Accounts and Audit in reviewing the Bill, and its ensuing Report 356.

The Joint Committee's ongoing involvement in the review of the Tax Law Improvement Project has been important in ensuring the quality of the rewrite and public confidence in the rewrite process.

The Government has accepted all of the Committee's recommendations for technical changes to the Bill. The Government has also made changes to the Explanatory Memorandum along the lines recommended by the Committee.

The Government is considering other recommendations in Report 356 that go to wider policy matters, and will provide responses on those other matters as soon as possible.

The explanatory memorandum includes summaries of all the rewritten areas of the law and explanations of the minor changes to the law that the Bill contains.

I commend the bill to the Senate.