House of Representatives

Tax Law Improvement (Substantiation) Bill 1994

Explanatory Memorandum

(Circulated by the authority of the Assistant Treasurer,the Hon. George Gear, M.P.)

Chapter 1 - About the Tax Law Improvement Project

Background to the project

The reasons for the project

For many years, the income tax law has been criticised for being too difficult to read and understand.

The structure of the Income Tax Assessment Act 1936 (the ITAA), which contains most of the basic rights and obligations of Australia's income tax system, has become overgrown and obscured by the addition of new material over the years.

A very formal and detailed style of language used in the law also makes its true meaning hard to find.

Setting up the Tax Law Improvement Project

In November 1993, the Joint Committee of Public Accounts published a report recommending the setting up of a broadly based Task Force to rewrite the income tax law. In the following month, the Government announced the Tax Law Improvement Project.

Scope of the project

This project will completely rewrite the income tax legislation. In the process, it will develop a better structure and arrangement for the law as well as re-expressing it in language that can be more easily understood by its readers.

The project will reduce excessive compliance costs to taxpayers brought about because of the present state of expression and presentation. It will focus on legislative or administrative rules that are overly complex, unnecessary or out of step with today's reality. The project is not about reforming the tax system or reviewing tax policy.

Composition of the project team

The project team includes personnel from the Australian Taxation Office, the Treasury, the Office of Parliamentary Counsel and 2 private sector representatives. A 14 person Consultative Committee from the private sector advises on the project.


The project runs for three years from 1 July 1994.

Changes to be made by the new law

The changes of substance proposed by this Bill are discussed in Chapter 3. In addition the substantiation provisions are being completely re-expressed.

The firm intention is that, once new law is enacted, taxpayers will not need to revisit the existing law.

When introducing new law, every effort will be made to identify in advance all significant changes proposed to the existing law.

It will be inevitable, in moving from the complex expression of the existing law, that its new form and expression may give rise to interpretations arguably different to those that would have been placed on the existing law. While such differences may be open, the new law is to be given effect according to its terms. The replaced law will be relevant to that interpretation only to the extent that judicial pronouncements (and Commissioner rulings) have been made on expressions carried forward into new law.

Similarly, the old law must also be interpreted according to its terms for periods to which it applies. If the new law were to produce a result that differs from the existing law, that would not be a ground for re-interpreting the existing law.

Location of changes

The redrafted substantiation provisions have been developed as something of a legislative model for how new income tax law should be drafted. They will be inserted into the existing Income Tax Assessment Act 1936 and will remain there until they can be transferred to the new income tax law framework currently being developed by the project and which is expected to replace that Act.

As the rewritten substantiation provisions are very different in their expression, structure and numbering, they are being inserted as new Schedules to the Income Tax Assessment Act 1936 . This is designed to prevent any potential confusion.

The existing substantiation provisions will not be repealed. They will remain on the statute books but will cease to have application after the new provisions commence to apply.

Key Principles Statements

Effective communication by using plain English is critically important to help readers more easily understand and follow the law. The Tax Law Improvement Project is also proposing a suite of supportive design techniques to lead readers through the legislative text to readily locate and absorb what they need to know.

One new design feature is to state up-front the 'key principles' of an area of the law. Use of key principles statements is adopted in the rewrite of the substantiation rules.

Even where clearly expressed, tax law can be difficult to grasp - not least because of its subject matter. The use of key principles at introductory points in the text allows the reader to get an early foothold towards understanding - a kind of navigational touchstone.

Key principles give a broad picture of the area of law they deal with and set a framework from which to understand and identify the detailed rules.

A well constructed set of linked key principles statements can also provide an easy path for a reader who needs to reach a broad overview of connected areas of law. The reader can then work into the detail with an overall feel for the subject.

At this early stage in rewriting the law flexibility is needed about how key principles should be constructed. This will allow their design to be tailored best to readers' needs within the particular contexts of the law to which they relate.

In an important sense they establish the general themes. In many cases key principles statements may be something of a broad summary of the detailed rules, but this will not always be so. Even when it does serve as a summary, a key principle cannot purport to be exhaustive. It cannot hold all the detail, but that does not lessen its usefulness. Nor is it some kind of golden rule that transcends everything that follows in the detailed provisions. It sets the scene and for that reason comes first, but does not have prime order of importance.

Key principles statements are not in any sense to replace or transcend the detailed provisions, which retain fully the legislative task assigned to them. The two are complementary, and have equal status as part of the law.

New numbering system

The rewritten substantiation provisions contained in this Bill employ an entirely new numbering system. The system has been developed as a more robust response to the pressures on the existing numbering system. Frequent amendments of the existing law have led to the insertion of sections with numbers such as 159ZZZZB.

The new system adopts the approach of citing:

first, the number of the Division of the Act in which the section is located; and
second, the number of the section within that Division. Under the new law, it is proposed that each Division will be numbered separately.

Thus, the first section of a new Division 23 of the Act would be cited as section 23-1. Similarly, the fifth section of a new Division 49 would be cited as section 49-5.

View full documentView full documentBack to top