Australian Taxation Law Case Study Assignment



Australian Taxation Law

In the May 1996 issue of Fiscal Studies, Davidson (1996) described the work done by the Tax Law Review Committee (TLRC) since its inauguration in October 1994 and which includes an interim report and a final report (Tax Law Review Committee, 1995 and 1996). The central proposals relate to the rewriting of tax legislation in plain English and the provision of explanatory memoranda. The Inland Revenue has also followed this approach (Inland Revenue, 1995a and 1995b) and encouraged discussion with the publication of a consultative document (Inland Revenue, 1996a) which generated a formal response (Inland Revenue, 1996b). The Inland Revenue project is setting out to rewrite most of the Australian primary direct tax legislation over a period of about five years, and further details and subsequent developments can be found on the Inland Revenue's Tax Law Simplification Project Home Page on the Internet.'

Such proposals for rewriting tax legislation are very welcome. However, they may be insufficient to achieve the goal of simplification. Tax simplification is not a simple topic. As an early example, Lloyd George, when Chancellor of the Exchequer, once returned a complicated paper to the Board of Inland Revenue and demanded that it be rewritten in words of one syllable. This was duly done. However, it is reported that the topic remained as complicated as before and the monosyllables made it rather harder to understand (Johnston, 1965). Since that time, primary tax legislation has continued to grow both in length and in complexity. For instance, in the Australian, a further 1,300 pages of legislation have been added over only a five-year period (Beighton, 1995). The position is similar in other countries. For example, in Australia, the bulk of the tax law is contained in the Income Tax Assessment Act. When enacted in 1936, it consisted of 126 pages of legislation. Each year, it has been subject to amendment, and additions have vastly outnumbered deletions. Prior to simplification, the original Act had been extended to over 5,000 pages. Australia has taken a robust stance on simplification and this will be described below.

Trends towards greater complexity, of course, have a number of undesirable consequences, such as uncertainty for business and personal taxpayers and inflated costs of administration and compliance. Indeed, overly complex and obscure legislation might reduce the willingness of taxpayers to comply voluntarily with the requirements of the tax system. Complexity will also increase administrative and compliance costs and make useful discussion of tax policy more difficult. A further important consideration is that the introduction of self-assessment shifts the onus of responsibility firmly from the revenue authorities to the taxpayers (James, 1995). It is, therefore, even more important than before that taxpayers should be able to establish their tax position without undue difficulty or expense.

The result has been various initiatives for improvement. In Australia, the process started with a report produced by the Joint Committee of Public Accounts in November 19932 which recommended the establishment of the Tax Law Improvement Project ...