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Journal of Australian Taxation

Business and Economics, Monash University
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Barkoczy, Stephen --- "Editorial" [1999] JlATax 27; (1999) 2(6) Journal of Australian Taxation 389


Associate Professor Stephen Barkoczy

Without doubt, the most profound developments of the latter part of this year have come out of the Review of Business Taxation's recommendations in its final paper and report titled, A Tax System Redesigned. The Government's first stage response to the Review's recommendations was handed down on 21 September and its second stage response was released, not long thereafter, on 11 November. The package of measures announced are far reaching and will change the face of the Australian income tax system as we know it.

While the Government has accepted many of the Review's recommendations, it has certainly not accepted all of them. For example, the Government indicated earlier on that it would not proceed with the Review's FBT recommendations. It is also important to note that while the Government indicates that it sees considerable merit in the novel cashflow/tax value approach to determining taxable income proposed by the Review, it recognises that there is a need for further consultation, particularly in developing a workable system for its implementation. Of all the reforms recommended by the Review, this is the most radical and significant. One assumes that implementation of this reform will necessitate the introduction of a new Tax Act along the lines of the model contained in the draft Bill handed down with the Review's final report.

In recognition of the many demands that will be placed on business because of Year 2000 compliance and the introduction of the GST and the PAYG systems from 1 July 2000, the Government proposes to implement its reforms in phases. Two of the major reforms, being the "simplified tax system for small business" and the "consistent entity regime" will be deferred to 1 July 2001. Other measures will have various commencement dates including: the date the relevant enabling legislation receives assent, 1 July 2000, 11 November 1999, 1 October 1999, 21 September 1999, and 22 February 1999.

The Government is proceeding swiftly with the implementation of the reforms. In October and November, a package of Bills were introduced into Parliament to effect a number of the proposals outlined in the Government's first stage response. The key Bills are: the New Business Tax System (Income Tax Rates) Bills (No 1) and (No 2) 1999, the New Business Tax System (Capital Gains Tax) Bill 1999, the New Business Tax System (Capital Allowances) Bill 1999 and the New Business Tax System (Integrity and Other Measures) Bill 1999. These Bills (which have since been passed by Parliament) contain the corporate tax rate changes, the CGT measures, the revised depreciation rules and various integrity measures relating to tax losses, pre-payments and other arrangements.

The rationalists will argue that the proposed reforms will give our tax system a much purer conceptual framework and will restore equity which are both desirable goals. Certainly, there is considerable merit in many of the changes. In particular, small business taxpayers will receive many concessions. However, there are also some negatives in the many positives of the package for certain taxpayers. For instance, while the cut in the corporate tax rate is certainly welcome and will place Australia in a more competitive position internationally, it has come at the cost of the removal of accelerated depreciation which will be a concern to many capital intensive industries such as manufacturing and mining. Likewise, the 50% cut in capital gains that are required to be brought to account by individuals comes at the cost of the loss of indexation and averaging and is therefore not quite as sweet as it might first seem (particularly where assets that are to be held for a long term are involved).

There is also some certainty concerns about the Government's announcements. In particular, the Government announced that it would amend the general anti-avoidance provisions in Pt IVA of the Income Tax Assessment Act 1936 by introducing an improved "reasonable hypothesis" test and expanding the concept of "tax benefit". However, the Government did not elaborate on precisely how it would do this. Given the broad nature of the provisions concerned and the fact that these measures are proposed to apply to schemes entered into or carried out after 11 November 1999, this is a striking example of legislation by press release. Every tax practitioner and academic in Australia will need to spend considerable time over the coming months absorbing and carefully considering the ramifications of the New Business Tax System changes. There will be a need for informative articles dealing with the many issues that come out of the reforms and I hope that this Journal will serve as an appropriate forum for this debate.

December 1999

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