Barkoczy, Stephen --- "Editorial" [2000] JlATax 17; (2000) 3(4) Journal of Australian Taxation 260

Editorial

Associate Professor Stephen Barkoczy

It is expected that tax practitioners and academics will spend much of the coming financial year consolidating their understanding of the ANTS and NBTS reforms and absorbing their full implications. There have certainly been a massive number of new provisions inserted into the tax legislation over the last 12 months with which academics and practitioners will need to familiarise themselves. One can gain an appreciation of the scale of the reforms by simply accessing the Parliamentary website and scrolling through the many recently passed ANTS and NBTS amending Acts. In total there have been hundreds of amendments made to provisions in the tax laws since December last year and the introduction of many new statutory concepts such as "venture capital franked dividends", "non-commercial losses" and "personal services income".

In this context, it is pleasing that the Government has recently announced that it will refer the Review of Business Taxation's recommendation to introduce a "cashflow/tax value" system for determining taxable income to the newly announced Board of Taxation which is to be chaired by Dick Warburton. As a result, this controversial recommendation, which had previously received "in principle" support from the Government, will now not commence from 1 July 2001 (as earlier foreshadowed).

The Government has also announced that, in spite of its cashflow/tax value announcement, it still intends to proceed with the previously announced small business tax changes from 1 July 2001.

As nothing has been announced about the introduction of the "consistent entity regime", one must therefore presume that the Government probably still intends to introduce this significant reform to the tax laws from 1 July 2001. The consistent entity regime will have a major impact on tax structuring generally and especially the treatment of

distributions. Every income tax practitioner and academic will need to acquaint themselves with the new rules which will contain fundamental new concepts such as a "profits first" and "slice rule" for dealing with entity distributions.

The Bill that ultimately contains the consistent entity measures will undoubtedly become one of the most widely discussed Bills of the year (this assumes, of course, that the Bill will be introduced during this financial year for a 1 July 2001 commencement date).

An inevitable consequence of the tax reform measures that have been introduced so far and those that are foreshadowed is that practitioners will need to reconsider conventional "tax wisdom". Tax effective structuring, financing and business practices need to be re-evaluated in the context of the new laws. Fundamental issues like what is the most appropriate business structure and how best to make entity distributions will need to be considered from a completely new perspective. There will also be many "transitional" issues that should be considered by tax advisers. For instance, entities contemplating returning capital or undertaking share buy backs in the near future should be considering how the consistent entity regime changes might impact on these decisions. In many cases, it might be better to bring forward these transactions and undertake them prior to the introduction of the new consistent entity regime rather than after it is introduced.

The dynamics of the New Tax System provide many challenges for both the ATO and tax advisers. Over the years, those practising in the tax area have continually needed to respond to major changes and be adaptive with the way they approach tax problems. All in all, nothing has really changed - other than the law!

August 2000