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Journal of Australian Taxation

Business and Economics, Monash University
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Nethercott, Les --- "Editorial" [1999] JlATax 21; (1999) 2(5) Journal of Australian Taxation 294


Associate Professor Les Nethercott

With the recent release of the report, A Tax System Redesigned by The Review of Business Taxation, there may be a sense of gratitude by taxpayers and their advisers that some of the present income tax anomalies and inconsistencies have been addressed. Furthermore, with a policy perspective of wishing to make the economy more efficient and competitive, especially in an international forum, there is much to be said in supporting the broad thrust of the proposals. However, in order to achieve these objectives in the next six to eight months coming up to 1 July 2000, when a large number of recommendations will become operational, there will need to be a substantial amount of new income tax legislation.

It is now some two years since the Income Tax Assessment Act 1997 came into operation. However, the initial Tax Law Improvement Project (TLIP) proposal to rewrite and simplify the Income Tax Assessment Act 1936 by the year 2000 has been abandoned. This has largely been attributed to the need to focus on the GST and the tax reform issues arising from the Review of Business Taxation proposals. This has led to a situation where the taxpayer and their advisers have had to cope with a substantial amount of new legislation.

In the context of self-assessment it should be remembered that it is the taxpayers responsibility to know the law, interpret the law and apply the law to their individual position. Otherwise there is the risk of penalties. In this respect, taxpayers and their advisers are being asked to take on a considerable legislative burden in being required to inform themselves of current changes in the law. Even though the original brief of the TLIP was to rewrite the income tax law in a manner that was capable of being understood by taxpayers, this objective has not been achieved. Rather, there is legislative overload with an increased volume of legislation. This, in turn, has added a further burden to taxpayers and their advisers.

Another issue arising out of the current tax reform is the need for taxpayers to be aware of the transitional provisions relating to the new proposals. An example of this is the changes relating to capital allowances. Even though some of the changes were effective from 21 September 1999, it was not until 21 October 1999 that the New Business Tax System (Capital Allowances) Bill 1999 was introduced into Parliament. Moreover, the issue of how the effective life of assets should be determined is still unresolved. While s 42-112 is directed to how the new effective life should be determined, it leaves the taxpayer in an uncertain position by not resolving what the effective life of an asset really is. It is understood that the Commissioner of Taxation will update Taxation Ruling IT 2685 (relating to effective life) by 1 July 2000. This still poses a problem as to what action the taxpayer should take in resolving the problem in the interim.

Until legislation and transitional provisions are passed concerning the other proposals, similar difficulties will arise, especially for a taxpayer with substituted accounting periods commencing 1 January 2000. The net result is taxpayer uncertainty.

Tax law is changing rapidly and the danger of legislative overload is increasing. This places taxpayers and their advisers in a difficult position to comply with their obligations under the Act. The outcome may be a real cost that substantially diminishes the benefits.

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