Barkoczy, Stephen --- "Editorial" [2000] JlATax 6; (2000) 3(2) Journal of Australian Taxation 80

Editorial

Associate Professor Stephen Barkoczy

As the financial year is rapidly drawing to a close, there is a distinct sense of trepidation about the dawn of the New Tax System on 1 July 2000. There is no doubt that there are many taxpayers that, as yet, are not properly geared up to prepare for the massive changes that the GST and the PAYG systems will bring. For instance, many taxpayers are still far away from completing their GST contract reviews and are having difficulty finding tax lawyers and accountants with capacity to deal with issues before 1 July 2000.

Although the GST and PAYG changes are fundamental and far reaching, they are really just the tip of the tax reform iceberg. In the meantime, the Government's massive business tax reform agenda which is proposed to be implemented over the next year or so appears to be rolling ahead unabated. During April, a number of Bills representing a significant tranche of the Government's second stage response to the Review of Business Taxation's recommendations in its report entitled A Tax System Redesigned were introduced into Parliament.

Measures aimed at preventing personal services income being channelled through interposed entities are contained in the New Business Tax System (Alienation of Personal Services Income) Bill 2000, the New Business Tax System (Alienated Personal Services Income) Tax Imposition Bill (No 1) 2000 and the New Business Tax System (Alienated Personal Services Income) Tax Imposition Bill (No 2) 2000.

The New Business Tax System (Integrity Measures) Bill 2000 contains rules that quarantine non-commercial business losses and rules that deny immediate deductions for prepayments relating to "tax shelter" arrangements.

A smorgasbord of reforms are contained in the innocuously titled New Business Tax System (Miscellaneous) Bill (No 2) 2000. The Bill makes massive and complex amendments to the corporate loss rules. There are new provisions designed to prevent the manipulation and duplication of tax losses and related measures affecting the continuity of ownership test. The Bill contains consequential amendments to the dividend imputation rules arising out of the commencement of the PAYG instalment system. There are new rules relating to the taxation of life insurers and a new anti-avoidance rule targeting schemes designed to avoid, defer or reduce PAYG instalments. The Bill also contains amendments to increase the small shareholder franking credit trading exemption threshold (from $2,000 to $5,000) and amendments to the scrip for scrip roll-over relief provisions.

The above barrage of Bills simply adds to the stockpile of existing tax and related Bills currently before Parliament. In spite of the fact that the Government still maintains that it is simplifying the tax system, it is widely acknowledged by practitioners that it has never been as difficult as it is at present to provide definitive tax advice. This is caused not only because of the scale of the reforms but also because of the pace at which they are being introduced.

There have now been a number of calls by senior industry figures to delay the introduction of "Option 2", namely the proposed "cashflow/tax value" method of determining taxable income. Whatever its potential long-term benefits may be, introducing this radical measure from 1 July 2001 will only create further chaos. Whilst the Government should continue implementing other aspects of its business tax reform package as announced, one hopes that if it decides to proceed with Option 2, it will allow taxpayers some breathing time to first cope with the other reforms. A delay of two years would not be inappropriate.

It is understandable that the Government needs to address tax avoidance and other integrity issues as the need arises. However, introducing fundamental changes to the tax base should not be approached with such urgency and the pros and cons of the proposed reforms should be debated in a "calm" environment rather than at the same time as so many other reforms are taking place. There is lot to be said for simply leaving the tax system alone for a while to let the dust settle – this in itself would be welcomed by many as a "reform".

April 2000