An effective general anti-avoidance rule is an essential back-stop to ensure the integrity of our tax laws. However, the Government's proposed changes to Part IVA are an unnecessary overreaction to recent court cases.
The existing general anti-avoidance rule appropriately prevents blatant, artificial and contrived tax avoidance behaviour.
The Government's changes are likely to take years of costly court proceedings to fully realise. Worse still, these changes may open a Pandora's box by allowing the Tax Commissioner to levy tax on the basis of a 'maximum tax' alternative. This results from the unrealistic requirement to disregard tax when constructing the alternative postulate.
While not suggesting that the Tax Commissioner would seek to abuse such a broad power, the potential impact on taxpayers with limited resources to challenge the Commissioner's views should not be underestimated.
The same Bill also contained legislation to overhaul the current Transfer Pricing rules. These changes followed on from the undesirably retrospective phase one transfer pricing reforms introduced last year. Pleasingly, the Bill contains a more precisely applicable reconstruction power than an earlier draft, but still suffers from a number of problems.
The Bill containing both measures has been referred to the House of Representatives Economics Committee for further scrutiny regarding the significant economic impact and to ensure correct drafting.
Last week we also saw the release of the Inspector-General of Taxation's report into the self-assessment system. We welcome the acknowledgement that the current approach to self-assessment of tax liability imposes many of the expected obligations, but offers few of the expected benefits.
Members have long raised concerns with the increasing cost and complexity of quasi self-assessment in an environment of extensive tax law change, increasing reporting obligations and decreasing certainty.
The Inspector-General's long awaited report into the self-assessment system contains thirty-three welcome recommendations, most of which have been accepted by the ATO/Government. These recommendations are a step in the right direction of alleviating the ever-increasing workload borne by taxpayers and professionals in achieving an acceptable degree of certainty in relation to their tax affairs.
However the benefits of these good intentions will only begin to flow to taxpayers and professionals once work commences on implementation via a timely and directed process. In order to ensure success, such a process should be prioritised and well-resourced by both the ATO and Treasury.
We look forward to working with the Government in the coming months to implement the accepted recommendations.
The Tax Institute is Australia’s leading professional association in tax. Its 13,000 members include tax agents, accountants and lawyers as well as tax practitioners in corporations, government and academia.