On 8 February 2008, the Assistant Treasurer and Minister for Competition Policy and Consumer Affairs, the Hon Chris Bowen MP, announced the appointment of a Tax Design Review Panel to examine how to reduce delays in the introduction of tax legislation and improve the quality of tax law changes. The review formed part of an election commitment to streamline the process of introducing tax legislation.
The review panel was asked to examine:
- options to reduce the delay between the announcement of proposed changes to tax laws and the introduction into Parliament of associated tax legislation
- how the quality of the law can be improved through enhanced community consultation, particularly in the development of tax policy changes prior to the announcement of specific changes, and
- methods to increase community input into the prioritisation of changes to tax laws.
The review panel's complete set of recommendations is as follows:
Tax Design Review Panel - better tax design and implementation 2008
Recommendation 1: Pre-announcement consultation on policy design
The government should generally consult on tax changes at the initial policy design stage, prior to any government announcement. For major policy changes, consultation should include public consultation on policy design (for example, via the release of a discussion paper). For smaller changes, Treasury should engage the best available private sector experts on a paid professional basis to provide confidential advice on policy design. Where possible, the agreement of the states and territories should be sought on GST changes prior to any federal government announcement.
Recommendation 2: Tri-partite design teams
Substantive tax changes should be developed by a tri-partite team led by the Treasury, which includes tax officers and private sector experts. The team should have carriage of the measure throughout the design phase and should also monitor its implementation. Where appropriate, the Office of Parliamentary Counsel (OPC) should also be involved at the policy design stage.
Recommendation 3: Changes should be prospective and introduced within 12 months
The government should ensure that announced tax changes generally apply prospectively (that is, from a date following enactment of the legislation). The government should aim to introduce legislation for such measures within 12 months of announcement.
Recommendation 4: Retrospective changes should be introduced within six months
In circumstances where retrospective measures are appropriate, the government should aim to introduce legislation within six months of announcement, recognising that in order to meet this timeframe it may be necessary to reduce the time allowed for consultation.
Recommendation 5: Announcements should include detail of proposed changes
The government should ensure that press releases advising of tax changes are accompanied by a separate Treasury document providing a level of detail similar to that in the drafting instructions Treasury provides to OPC. The separate document should describe the consultation timetable and include the details of the Treasury contact for the measure.
Recommendation 6: Two-stage public consultation after announcement
The government should ensure that post-announcement consultation on substantive tax measures occurs at two stages:
i. on the design of the announced policy, and
ii. on the draft legislation.
Recommendation 7: Post-announcement consultation should be public
The government should generally adopt public consultation for post announcement consultations to ensure that all stakeholders have the opportunity to contribute to the process.
Recommendation 8: Post-announcement consultation - four weeks at each stage
The time allowed for post-announcement consultation should be a minimum of four weeks on the policy design and four weeks on the draft legislation.
Recommendation 9: Drafting priority to allow for consultation
To facilitate the timely introduction of substantive tax measures and in recognition of the need to consult on draft legislation, the government should ensure that the priority accorded to the drafting of legislation required for consultation purposes would allow the legislation to be drafted by the date by which it needs to be released for consultation.
Recommendation 10: Consultation summary on Treasury website
The government should post a consultation summary on the Treasury website when legislation for the measure is introduced into parliament.
Recommendation 11: Simultaneous approval to consult on draft legislation
The government should amend its approval processes so that, when seeking the prime minister's or cabinet's policy approval for a tax measure, the Treasury minister is also able to seek approval to release draft legislation for public consultation, without having to seek further approval.
Recommendation 12: Engage private sector specialists
In accordance with recommendation 1, the Treasury should engage external experts to ensure tax design is better informed by practical knowledge of the tax law, industry structures and commercial practices.
Recommendation 13: Treasury's project management approach
The Treasury should seek continuous improvement in its project management techniques and capabilities.
Recommendation 14: No change to current drafting arrangements
The government should not outsource the legislative drafting function nor should the use of regulations be expanded.
Recommendation 15: No change to the location of drafting resources
The government should not establish a dedicated tax drafting resource within the Treasury.
Recommendation 16: Greater priority to care and maintenance
The government should ensure greater priority is given to the ongoing care and maintenance of the tax system.
Recommendation 17: Adopt the Board of Taxation's 2007 Tax Issues Entry System recommendation
The government should pilot the Tax Issues Entry System (TIES) to identify legislative and administrative issues relating to the care and maintenance of the tax system. The Board of Taxation should review the operation of the system after 12 months.
Recommendation 18: Board of Taxation to advise on TIES priorities
The government should ask the Board of Taxation to consult with the community and provide advice to the government on how issues identified through TIES should be prioritised. The Board's advice to the minister should be made public.
Recommendation 19: Publish a forward work program on announced measures
The government should publish a rolling forward work program setting out the consultation it plans for announced tax measures and indicating the legislation it plans to introduce in the next sittings. When a delay occurs, the forward work program should be amended to reflect the delay and to explain the reasons for it.
Recommendation 20: Process to deal with unenacted announcements
As soon as practicable, the government should announce its position in relation to all unlegislated announcements of the previous government. For those measures that are to be adopted, the government should announce an indicative work program for their implementation (in accordance with recommendation 19).
Recommendation 21: Periodically review unenacted measures
The government should periodically review any stock of unlegislated announcements and provide certainty to the community by dealing with any measures that are not to proceed.
Recommendation 22: Monitor early implementation of new law
The tri-partite design team should monitor the early implementation of substantive new law to ensure that the legislation is operating as intended by identifying legislative refinements that are needed and ensuring that appropriate administrative products and guidance material are in place.
Recommendation 23: Board of Taxation to perform more post-implementation reviews
The government should more frequently ask the Board of Taxation to conduct a formal post-implementation review of major policy initiatives, after two to three years of operation.
Recommendation 24: Investigate powers to grant extra-statutory concessions
The government should consider whether the Commissioner of Taxation should be given further power to modify the tax law to give relief to taxpayers, or whether there are preferable ways in which the commissioner could provide extra-statutory concessions in appropriate circumstances.
Recommendation 25: A mechanism to implement the recommendations
The government should ensure there is a mechanism in place to drive the implementation of the new tax design process.
Recommendation 26: Review implementation of recommendations after two years
The government should ask the Board of Taxation to review the tax design process after two years and report to government on the extent to which there are demonstrated improvements.
Meeting discussion
Rob Heferen, Secretary to Australia's Future Tax System review and Vernon Joice of the secretariat to Board of Taxation were welcomed.
The Commissioner opened the discussion on the reviews by inviting member's views and their feedback on the recommendations.
A number of the recommendations relate to government as well as the Tax Office in respect of the taxation system. Some of the recommendations relate to areas beyond the Tax Office, for example, issues relating to insolvency practitioners. There will be a strong focus on the post implementation process as well as consultation early in the design process.
Members commented that some of the recommendations have been addressed since the report commenced.
JCPAA recommendations
Recommendation 2 - (JCPAA) prompted discussion of phoenix arrangements which may not be included in promoter penalty legislation. It was thought that the issue was around recidivism. It was thought that civil penalties should have wider application than tax agents to include tax intermediaries e.g. lawyers and BAS service providers. The application of the Proceeds of Crime Act could be considered. It was acknowledged that civil penalties act as a deterrent and is easier to use in comparison to criminal penalties.
Recommendation 7 - members commented that the complexity of the system is an issue for their members. The ultimate abolition of lodging individual returns is a concern for some associations. Different approaches used in other countries regarding individual returns were discussed, such as optional return lodgment, or lodgment dependent on expenses. Various options regarding lodgment were discussed, such as establishing a standard claim amount, and phone lodgment. Pre filling is a first step to reducing complexity. There are likely to be circumstances where the need to lodge is retained, for example, more complex returns involving share ownership and rental properties. Sustainability of the profession was raised, for example, strain on tax agents due to the complexity of tax matters, and skill shortages.
Recommendation 9 - regarding rulings was discussed. Members were advised that public rulings are the Tax Office's view of the law can have both a prospective and retrospective operation. They are applied on a prospective basis where there is a change in opinion of view of the law. It was acknowledged that there may be some issues where some uncertainty exists. The Commissioner confirmed that advisors need to understand the law and apply it. There are instances where the office needs to consider issues, and the industry is often aware when this occurs. The Commissioner advised members that if uncertainty existed about an issue, it should be submitted for consideration for inclusion in the public rulings program.
Recommendation 11 - the 12 month time frame for resolving issues associated with recommendation 11 was discussed. It was noted that the Office attempts to resolve matters in as short a time frame as is practical. The Tax Office advised that the practice is to advise Treasury promptly depending on the issue. The intent is that consideration of changes to law would be done as promptly as possible.
Recommendation 14 - members were advised that a practice statement has issued in respect of this recommendation which should provide appropriate guidance. Members were advised that this recommendation links with employee benefit arrangements.
Recommendation 17 - inclusion of additional statistics in relation to settlements in the annual report. Members commented that they were unsure regarding the intent of this recommendation. The code of settlement practice is seen as providing highly visible guidance on the office's current practice. Members were advised that the code has been revised and members were encouraged to provide feedback as this enables issues to be addressed.
Board of Taxation
A review of the activities of the Board of Taxation was provided by Vernon Joice, a member of the secretariat. The Board was established in 2000 with its main focus being on reducing the compliance costs of the system. There are a number of projects under consideration. Current reviews include:
- tax arrangements applying to managed investment trusts (due to report in June 2009)
- anti-tax-deferral regimes, and
- the GST administration review.
The small business tax compliance costs survey has been forwarded to government and the taxation treatment of off-market share buybacks was completed in June. The Board has a focus on reducing compliance costs and complexity. The achievements are a result of the feedback and consultation.
The main focus of the managed investment trust review is at the managed funds level. The discussion paper for the GST review has been issued with a reporting date for the end of the year. Further consultations will occur.
Australia's Future Tax System (AFTS) Review
Rob Heferen thanked members for the opportunity to provide an update.
The terms of the review are seen as ambitious as the review is looking to position Australia for challenges of the 21st century. These challenges include issues such as globalisation, a highly skilled labour force and associated implications, ageing population and luxury cars and fuel efficiency. Treasury released an architecture paper which formed the panel's term of reference. There is a deal of complexity associated with taxes that are currently levied and with the personal tax and transfer system. The nature of federation and revenue for the states adds to the complexity of the system.
The review process was outlined, which included the release of a paper to guide submissions. Submissions are due by 17 October after which time the paper will be issued for consultation. The review wants to test aspects of the tax system and it's positioning to assist Australia to move forward. There is some cross over with the JCPAA review, such as reviewing aspects of simplification and considerations of efficiency and equity. The issue of transfers from one system to another also need to be considered. The four main focus areas revolve around major change, the features of the system, problems with the current system and what reforms are needed.
The paper is expected to be released by the end of the year with a three to four month period for consultation.
The Commissioner thanked Rob and Vernon for providing a comprehensive overview.
The Tax Design Review panel is chaired by Neil Wilson. There were 26 recommendations associated with this report. Government supports the recommendations in principle. The main points are:
- there will be further consultation, including consultation before the policy decision is taken, where appropriate
- transparency is part of the process
- there will be a forward legislative program on the Treasury website, and
- introduction of measures is expected within 12 months of announcement.
There was a brief discussion regarding the recommendations of this review, focussing on recommendations 15 to 19. Members were advised that steps have been taken to strengthen the drafting process and delays are not anticipated. Regular technical amendments are expected to contribute to the care and maintenance of the tax system.
The TIES process was discussed. The process will proceed with increased community input. The Commissioner is expected to be given power to modify the law to provide relief. It is thought that existing issues will be incorporated into the new TIES process, and that the Board of Taxation may have a role in the prioritisation of issues. It is thought that someone independent of Treasury and the Tax Office may be involved in prioritising the issues. It is anticipated that the new process will deal with issues in an improved time frame compared to TIMS.
Overall, there is a move to do things differently and an expectation of change exists. An increased focus on consultation, implementation and post implementation phases is evident with the reviews. The Commissioner commented that a number of the reviews have a degree of commonality, and encouraged members to provide comments and feedback in respect of the reviews.
Sections within Agenda items
Last Modified: Tuesday, 22 March 2011