Submission No. 32 Back to full list of submissions
Download in either PDF or RTF format


Review of Business Taxation

"A Strong Foundation"

Submission by The Institute of Chartered Accountants in Australia


Introductory Comments

The Institute of Chartered Accountants in Australia ("ICAA") welcomes the opportunity to contribute its views on issues raised by the Review of Business Taxation ("RBT") in its Discussion Paper, "A Strong Foundation".

The ICAA is the leading professional accounting organisation in Australia, representing some 31,000 members in the public accounting profession, commerce, academia, government and the investment community. Its members are advisers to businesses at all levels, from small and medium sized businesses to the largest global corporations operating in Australia.

In November 1997, the ICAA set certain criteria by which any proposals for Tax Reform should be measured, namely:

  • Certainty and speedy implementation.
  • Efficiency and lower costs of compliance.
  • Administratively practical and uncomplicated.
  • Simplicity and transparency.
  • Adequate, efficient and enduring tax bases.
  • Improve Australia’s overall competitiveness.

These criteria have been applied in formulating our comments on the following segments of the discussion paper.


Establishing Framework Objectives and Principles

National Objectives:

  1. Optimising Economic Growth

The ICAA believes that the paper’s discussion of the objective of Optimising Economic Growth should be expanded in a way which identifies specific economic growth objectives. Issues which could be raised in this context include, but are not limited to:

    • the maximisation of savings and the role played by the tax system in encouraging this activity (relevant to the consideration of such issues as the taxation of investment income, incentives for financiers and superannuation funds etc to support start-up and entrepreneurial ventures);
    • identification of the sectors within the Australian economy expected to be drivers of growth in future years (relevant to the consideration of such issues as the continuing need for tax incentives for capital intensive industries, such as mining and manufacturing);
    • congruence with Australia’s competitive position in the global market place.

The paper’s subsequent discussion on the difficulties of reconciling national objectives (paras 6.20 et seq) also makes no reference to the experience of overseas jurisdictions (eg Ireland) which have used carefully targeted tax and commercial incentives to generate economic growth. Although the nature and extent of trade-offs for such business tax incentives is indeed a contentious issue (para 6.25), the ICAA believes that it would be useful for the RBT to examine the experience in overseas jurisdictions and assess the economic benefits gained from such measures. These issues may well be canvassed in the forthcoming "International Comparisons" paper.


  1. Adjusting the weighting of national objectives

The ICAA agrees with and supports the focus on simplification of the tax law. In this context, the Institute considers that the current lack of simplicity is not just a "consequence of pursuing other objectives for the business system" (para 6.27), but also other factors which include:

    • a "tax every last dollar" mindset in the design and drafting of tax legislation (eg the FBT law, where the approach is to include all "benefits" in the tax net, and exclude or concessionally tax certain types of benefits, rather than adopt the approach in other jurisdictions which seek to tax only "big ticket" items such as company cars and loans);
    • the lack of an integrated approach to business law design in Australia (eg recent simplification of the Corporations Law which made it easier for companies to return capital was matched by corresponding complexity in the income tax rules dealing with this same topic);
    • the increasing reliance placed on certain types of taxpayers, particularly employers and superannuation funds, to collect specific taxes (the burden of complex legislation is, to a large extent, "hidden" from the public and falls most heavily on a select portion of the community).

The ICAA also points out that the complexity of Australian tax law reduces the ability of Parliament to understand the laws they are called upon to pass. The ICAA believes that, because few Parliamentarians have the time or support to understand tax related Bills, there is little appreciation of the true impact that complex law has on those obliged to comply with it. This is an issue which links with later comments the ICAA makes in respect of the proposed Advisory Board.

Further, the process has resulted in many errors, ambiguities and unintended consequences in the law and there is a pressing need for regular care and maintenance of the law - a matter more fully referred to in Annexure A to this submission dealing with an annual Technical Corrections Bill - "Making "Robust" Law/Administration of the Law".


Policy Design Principles

We note, with concurrence, the opening comments of the RBT in para. 6.36 regarding the use of policy design principles as conceptual anchors, accepting that many will be difficult or impossible to fully implement in practice. We therefore accept that many of the policy design principles are appropriate for determining the foundation of the Australian business taxation system. However, we do wish to comment on some of the policy design principles as being inappropriate and which should be amended.

  1. Income Tax Base

Given the importance of ensuring that the most appropriate tax base for the business tax system be determined, the ICAA is concerned that other potential bases, such as moving to an expenditure tax, are not being considered. Of the three nominated competing visions, and subject to our following comments, we opt for comprehensive income taxation and we do not support movement to either a cash flow taxation system or to a schedular taxation system as outlined in the Discussion Paper.

  1. Taxation of Comprehensive Income

The statement of principle connotes a concept of taxation of both realised and unrealised gains that is also possible to be likened to a wealth tax. It is not a new concept in Australian taxation as it is already the basis of taxing Foreign Investment Funds, but it is certainly a new concept in taxing on-shore income.

Taxation liabilities are payable in cash annually, so to impose a cash liability based on an unrealised gain is certainly not appropriate and may even force asset sales to meet the liabilities, sometimes in a depressed market. Furthermore, taxing unrealised gains requires annual valuations (additional compliance costs) and exposes taxpayers to liabilities based on fluctuations in markets.

Due to the many impractical considerations involved with such a system of taxing unrealised gains, we urge that the definition of comprehensive income be amended to delete reference to taxation of the net change in the value of taxpayers’ assets and liabilities.

  1. Real or Nominal Taxation

Conceptually, the ICAA supports the principle of taxation of real income rather than nominal income. We similarly support indexation of individual tax brackets to maintain equity in the taxation of individuals. However, we recognise that comprehensive indexation of the tax system is beyond the terms of reference of the RBT.

Of concern, then, is that the Discussion Paper advocates the compromise position of full nominal taxation rather than real taxation, encompassing elimination of the indexation component of capital gains and the adjustment of certain existing depreciation arrangements. These adjustments would represent a major departure from existing taxation arrangements. In the opinion of the ICAA, the practical difficulties inherent in the full taxation of real income are not sufficient reason to revert to a full nominal taxation system as proposed by the RBT.

  1. Integration of Ownership Interests

We note the RBT appears to prefer a system where the corporate veil would be lifted in determining the taxation liabilities of individuals, but that valuation requirements and complicated capital requirements would place significant obstacles in the path of full integration. Accordingly, the RBT notes the government’s proposed full imputation reform proposals would go a long way to achieving the objective of full integration.

The ICAA recognises the many problems of full integration, particularly in relation to large public companies. It would be far too complex to impose a full integration system for, say, minor shareholders in BHP.

That is not the case in relation to closely held private companies. In fact, the ICAA believes the full integration principle should be applied in relation to closely held private companies, where the economic entity principle is more applicable. It is of fundamental importance to recognise that "small business" has a different risk profile to that of larger enterprises. Accordingly, this key element needs to be accorded adequate balance.

Our proposal would, we submit, be more appropriate than the current government proposal to impose a company tax liability on trusts. A separate paper prepared for the ICAA on the issue of "Taxing Trusts as Companies - Why?" is attached as annexure "B". The major reason for imposing a company tax regime on trusts appears to be to prevent the current tax "leakage" caused by the flow-through of tax preferences in trusts, whereas there is no flow-through for companies. The ICAA is pleased to note that this issue is raised for consideration by the RBT in para 6.65 of the Discussion Paper.

As an extension of this proposal, the ICAA recommends that the RBT consider the proposal of aligning the top marginal rate with the corporate tax rate, not only to eliminate a layer of complexity but also to remove much of the temptation which surfaces when the top marginal rate exceeds the corporate rate.

  1. Single Layer of Domestic Taxation

The ICAA supports the RBT proposal that business income should bear no more than a single layer of taxation. The current system of company taxation means that distributed business income bears at least a single layer of taxation and sometimes more. We welcome the possibility of a review of the existing system to achieve the principle proposed by the RBT.

  1. Horizontal and Transitional Equity

The ICAA generally supports the principle proposed by the RBT.

  1. Investment Neutrality

The broad statement of principle on page 69 of the Discussion Paper is a statement of a desired position in an ideal world that may be difficult to specifically contest, except that it appears to be directed towards a pre-conceived idea of what some bureaucrats may wish to achieve. The broad statement is made that business tax arrangements should avoid differentially taxing the type of entity (companies, trusts, partnerships, direct investment, etc). Yet this is what the government is proposing should occur under the entity taxation regime outlined in the government’s tax reform policy document. All trusts and companies (and limited partnerships) would be taxed as if they were companies, yet partnerships and direct investments would be taxed as at present, at the individual level. The principle statement at pages 69 and 70 goes on to perpetuate this distinction by describing the tax treatment of company distributions (dividends, share buybacks and liquidations).

The ICAA maintains that, for closely held company groups, the individual shareholders should be taxed by attribution on their respective shares of the taxable income of the company group and the taxation of trusts should not be changed to bring it in line with the existing treatment of companies. Refer to the attached paper on the taxation of trusts and the additional paper titled "Tax Simplification - Shortening the Yellow Brick Road" - "Annexure "C". The latter contains a proposed prescriptive method for taxing past accumulated profits in companies, which would alleviate the concerns expressed in the RBT Discussion Paper relating to "The treatment of profits retained in entities….." (see para 6.64).

This latter paper also proposes the added benefits of structural neutrality and lower compliance costs. Structural neutrality is another term for that used by the RBT - "Investment Neutrality". In the opinion of the ICAA, the proposal at paras 6.69 to 6.72 do not adequately achieve this objective.

  1. Risk Neutrality

The statement of principle contained in the "box" on page 70 of the Discussion Paper demonstrates an academic or economic view that is not matched by the issues of the real world. Accordingly, the ICAA disagrees with this particular policy design principle. The ICAA believes the business tax system should, in part, compensate and reward risk takers where capital markets do not adequately provide such compensation for investors. Furthermore, the illustrations used to support the concept of risk serve to strengthen the commercial need for risk recognition.

In order to assist achievement of the national objectives, particularly that of optimising economic growth, it is recommended that consideration be given to amending this design principle to enable compensation for risk to be given in certain circumstances, such as:

    • smaller businesses be compensated for the additional risks of commencing new businesses, particularly through reductions in tax rates and/or deferral of tax payments; and
    • venture capital investments be fostered by reductions in the rate of capital gains tax on disposals.

This issue is inextricably linked to the issue of international competitiveness and, we submit, the desirable policy objective in a domestic context should not be implemented while losing sight of the greater policy objective of international competitiveness.

  1. Balanced Taxation of International Investment

The ICAA roundly endorses the principle proposed by the RBT under this heading. Australia’s competitiveness is considered by the ICAA to be a major issue in the business tax system and a major order issue in the Policy Design Principles for the RBT.

The existing business tax arrangements for Australian based companies can be described as promoting a "Fortress Australia" attitude due to the comparative disadvantage for companies investing outside Australia. The comparative disadvantage refers to the lack of imputation credits for foreign taxes paid, the "dead cost" of dividend withholding taxes on repatriation of profits to Australia and the limited Capital Gains Tax rollover relief for international corporate restructures. Added to this would be the implications of the government’s proposal to introduce a Deferred Company Tax regime (conceptually similar to the UK Advance Corporation Tax, which has recently been abolished).

Among other issues in this context will be the comparative taxation of venture capital investments by major US "tax exempt" entities. Anecdotal evidence suggests such investors are reluctant to invest in Australia through their preferred form of pooled investment funds, namely limited partnerships, due to the relatively high level of Australian tax imposed on capital gains in such entities.

  1. Tax Incentive Provision

The ICAA heartily endorses the policy design principle outlined under this heading. The ICAA will assist in making a submission on the processes for proposing, implementing and evaluating the efficacy of tax preferences, when required.

  1. Effective Tax Incidence

The ICAA supports this policy design principle in broad context.

  1. Economic Substance over Form

The ICAA supports this policy design principle in broad context. However, in doing so, we take particular exception to the comment in para 6.84 of the Discussion Paper, that taxing trusts as companies is an illustration of investment neutrality. This statement demonstrates a complete misunderstanding of the nature of trusts and the reason why many are set up. In the opinion of the ICAA, investment neutrality would be better served by the alternative of taxing the economic family unit(s) behind closely held private companies rather than taxing trusts as if they are companies under the existing regime.

In most private (family) companies, the legal form of a company is used for limited liability purposes whereas, the economic substance is that the company’s assets are the family’s assets. The government’s attempts to legislate anti-avoidance measures to deal with this issue through the introduction of Division 7A in December 1997 is adequate demonstration of the reality of this economic substance issue. Structural neutrality, economic substance, tax simplicity and fairness objectives could be better achieved by adopting the US measure where the corporate veil is lifted for tax purposes and family members are taxed by attribution in relation to closely-held company income.


Legislation Design Principles

The ICAA is in general agreement with the legislative design principles set out in the paper.

  1. User based design

We take issue however with the suggestion that "[If] compliance costs are to be reduced generally, the system should be designed so that the tax administration has appropriate scope to deal with taxpayers rather than intermediaries". (para 6.102) The lack of acknowledgement of the role played by tax agents, accountants and lawyers in the tax system in actually making the existing tax system function is unfortunate, and throws into question whether the authors of the report have a true feel for the current role of the tax practitioner. Most Chartered Accountants for example, would see tax return preparation and assistance as part of a more general role of business advisers. Even if alignment of tax and accounting concepts did reduce the time and effort spent on tax return matters (para 6.102), the accountant’s role as a business adviser in most dealings, including those involving the ATO, would remain. And given the large number of business taxpayers who currently place their tax affairs in the hands of a tax professional, and the often adversarial tactics displayed by the ATO, the ICAA submits that few in the business community can envisage a tax system which will operate better if taxpayers deal with the ATO without the assistance of a skilled professional adviser appointed as the taxpayer’s agent.

The ICAA’s long held view is that the focus should be on reducing the number of taxpayers required to interact with the ATO at all (eg by removing tax return lodgement obligations for those employed taxpayers whose tax liability can be accurately reflected by PAYE deductions). We appreciate however that this is another topic outside the scope of the Review’s terms of reference.

  1. Policy transparency

The ICAA treats with some concern the suggestion that "statements of principle may in appropriate cases be an operative part of the Act" (para 6.106). The concern is whether such a provision could be used by the ATO against taxpayers who have relied on the terms of the law, but whose actions are judged by the ATO as being outside the "policy" of the law. Certainty is a desirable feature in all laws, but particularly so in tax law where tax is often an important determinant in business and investment decisions. If actions based on what appears to be the clear wording of the tax law can be undermined by the interpretation of "policy" by the ATO, then there will be little certainty, or confidence, in administration of the law. Such operative "policy" provisions in the law will also increase the need for taxpayers to seek ATO clearance before decisions are made (with consequential costs and delays).


  1. Anti-avoidance provisions

The ICAA acknowledges that specific anti-avoidance provisions add to the complexity and volume of Australia’s tax laws. However, such provisions usually specify the factors which a taxpayer must take into account in determining whether the anti-avoidance provision has been triggered. In this sense, they provide some element of certainty.

A general Part IVA anti-avoidance provision, by definition, lacks such guidance. In practice, this has caused problems for taxpayers and ATO officials alike. In recent months, attempts have been made within the ATO to create "Part IVA case notes" which can be published for the guidance of taxpayers. To date, nothing has emerged from the ATO project team.

Our members also view with concern suggestions that the judiciary can "flesh-out" the scope of general anti-avoidance provisions (para 6.120). There are several reasons for this concern:

    • the ATO’s ability to pick and choose those cases which it will seek to contest in the courts;
    • the time taken to get such cases through the judicial system (unlike some jurisdictions, Australia has no specialist "tax court");
    • judgements do not always provide a clear indication of the factors leading to the decision (some judges give clear reasons for their judgements, others don’t);
    • judicial decisions are often based on very specific facts and circumstances, with the result that decisions rarely provide guidelines of general application and relevance.

Our members are also concerned that a revamped general anti-avoidance provision, which replaces specific anti-avoidance provisions which specify the factors relevant to the Commissioner’s decision to apply the provision, would become a de facto "policy policeman", used by the ATO against taxpayers whose tax planning is deemed outside the spirit, but not the literal wording, of the law.

The ICAA therefore recommends that further consideration be undertaken on this proposal, in a forum which involves representatives of the National Tax Liaison Group and members of the Commissioner’s recently established Part IVA panel.


Reforming Business Tax Processes

  1. An Integrated Tax Design Process

The ICAA agrees that there is a clear and urgent need to reform both the business tax process and its attendant systems. Furthermore, we fully endorse the clear lessons learned from other countries (para 7.10) as being sound objectives to be achieved.

We also concur with the BTR in its belief that a key element in the reform of business tax processes is an integrated approach to tax design (para 7.35), the key components of which are illustrated in Figure 7.1. However, while we support the conceptual framework outlined, we firmly believe that to ensure greater acceptance from tax professionals, there must be adequate representation by experts from the private sector at least on the proposed Steering Committee, if not in the cross-functional teams.

To balance the interests of all "players" in this way ensures greater buy-in from tax externals as well as providing a suitable bridge towards our suggested composition of a Board of Directors (see later). In terms of the operations of the proposed Steering Committee, we endorse the process that applied during discussions on The Corporate Law Economic Reform Program when there was regular and open dialogue involving "externals", bureaucrats, initially the Parliamentary Secretary (Sen Campbell) and subsequently Minister Hockey.

In drawing this comparison, we appreciate that Minister Hockey would not have the time availability to become too heavily involved. However, interaction involving external parties was a significant contributor to the successful outcome of those deliberations.

  1. Establishing an Advisory Board

The ICAA advocates the appointment of a Board of Directors, with appropriate private sector representation and including the Commissioner of Taxation, to oversee the overall administration of the ATO.

Such a Board should not be restricted to having an advisory role but should be charged with the overall administration of the Business Tax System. Further, we recommend, for preference, that this Board report to Parliament or, alternatively, to the Treasurer or Assistant Treasurer.

It has become increasingly apparent that both the ATO and Treasury need to become more commercially aware in relation to both the preparation of tax legislation and the administration of the tax system. This is a dimension which is also being recognised overseas (eg, in the United States and Canada). Accordingly, it is important that the opportunity to introduce this significant aspect of tax reform is not lost.

Genuine consultation between the Revenue authorities, the business community and tax professionals is missing from the current tax processes. Regular and meaningful consultation is needed to ensure that the Revenue authorities appreciate the pace of change in commerce, the complexity of modern business life and the legitimate use of corporate vehicles and structures.

The ICAA believes that the appointment of a Board of Directors would achieve these various ends. Furthermore, it would be a critical step towards ensuring that our business tax system is sensitive to both:

    • the needs of government in terms of revenue; and
    • the needs of business, and all taxpayers, to ensure that taxes are designed and collected with minimal impact

while at the same time maintaining the policy focus with government.

Finally, it is important that any Board of Directors is adequately financed and resourced, including payment of appropriate remuneration to the private sector members.




Concluding Comments

The Institute of Chartered Accountants occupies a unique position due to the involvement of its members in all areas of business in Australia and the resources of the ICAA are available to assist the RBT in this ongoing consultative process towards achieving a better business taxation system for Australia. Please feel free to communicate with the following contacts at the ICAA if we can provide you with any further assistance or explanation.


Ian Langford-Brown Phone (02) 9290 5750

Director Taxation Fax (02) 9262 3251

Institute of Chartered Accountants

Level 14, 37 York St

Sydney NSW 2000

Ken Traill Phone (02) 9290 1344 or (02) 9235 3366

Principal Consultant - Tax Reform Fax (02) 9223 1690

Institute of Chartered Accountants Mobile (0418) 971 355

Level 14, 37 York St

Sydney NSW 2000




Annexure A - Making "Robust" Law/Administration of the Law

Annexure B - Taxing Trusts as Companies - Why?

Annexure C - Tax Simplification - Shortening the Yellow Brick Road





Annexure "A"

Making "Robust" Law/Administration of the Law

  1. Need for Care and Maintenance of Taxation Law

This part of the submission is concerned with the process of fixing errors, ambiguities and unintended consequences in taxation law.

In the past, there were very few occasions when consultation regarding a taxation law had occurred before the law was tabled in Parliament. Once tabled, the inclination to "take ownership" of the law often inhibited the process of determining whether the law could be better expressed. Further, some taxation law attracted partisan views in the House of Representatives or the Senate and the resulting amendments (often at the eleventh hour) were often poorly expressed in the law. There have also been cases when policy has been announced and more than one year later the legislation has not been introduced to Parliament. On other occasions, changes to the law have been given retrospective effect by applying the law to periods when no announcement had been made or, at best, a vague statement of concern or intention was all that existed.

All these factors and more contribute to uncertainty in the application of the law to proposed or completed transactions.

The RBT proposal to draw more "externals" into the consultation process before introducing new law to Parliament should result in a lower incidence of errors, ambiguities and unintended consequences with a resultant increase in the "robustness" of the law. Further, the idea of expressing law in terms of its policy/purpose with reduced reliance on prescription which may achieve that policy/purpose, could result in the more robust law (provided it does not also result in more discretions to be administered by the ATO). However, whatever process is utilised for placing before Parliament legislation on which it may vote as it pleases, is unlikely to overcome the probability that some provisions, especially in new law, will contain errors, ambiguities or unintended consequences.

  1. National Objectives

The concerns and proposals expressed in this submission are intended to address the National Objectives expressed on page 62 0f the "Strong Foundations" paper and in particular the objective of providing certainty and stability in legislation which can promote and not impede economic growth. In this context, uncertain legislation is a barrier to planning and implementing transactions which could create opportunities and wealth for business and its employees.

3. Background

In recent years, the Parliamentary program has become so full that many legislative proposals (even where OPC has drafted the law) do not get tabled in a timely fashion, but often are set aside waiting for a "slot" in the program. As a consequence, business is required to "second guess" the likely provisions at a time when it is entering into transactions and, on occasions, when it is filing its income tax returns under what is now a "self-assessment" environment. The number of new legislative proposals held up by this process (often described as "legislation by announcement") is unacceptable. However, a far greater number of proposed amendments to the law (to fix errors, ambiguities or unintended consequences) are so delayed that the ATO is inclined to prefer to administer the law according to its perceived intended purpose (perhaps supported by a ruling) rather than request and/or beg for a slot in the Parliamentary program to introduce an appropriate amendment. The result of this behaviour is that the "rule of law" has broken down with some taxpayers considering themselves bound by the black letter law and others taking "advantage" of the ATO view where that may be more favourable, but with the risk that a dispute might result in a court disagreeing with the ATO.

The outcome of the above is that business is divided into at least two camps - the "bold" and the "not so bold", depending on whether they consider the black letter law or the ATO view to be advantageous or at least not disadvantageous. This has resulted in considerable uncertainty regarding many provisions in the taxation law, which in turn has resulted in many transactions which could have been of benefit commercially to business, not being proceeded with in light of the errors, ambiguities and unintended consequences evident in the black letter law or because there is only an announcement (no legislation) to assist analysis. It has also resulted in the ATO being inclined (or pushed?) to issue rulings or determinations or other announcements stating its view on particular provisions in circumstances where that view may not accord with the interpretation of judges who may have to consider the provision. This possibility, when considered by the ATO, has often discouraged the emergence of any ATO view. This behaviour (which is understandable) has resulted in some taxpayers taking advantage of poorly expressed law to the detriment (in terms of the intended policy) of the revenue.

The areas of taxation law where errors, ambiguities and unintended consequences are evident, are not only isolated provisions of little relevance to normal business transactions, but are to be found in key areas of the law and in abundance in some of those key areas. In this regard, the following key areas of the law are mentioned:

    • CFC provisions
    • FIF provisions
    • Foreign tax credit rules
    • CGT provisions - especially business rollovers
    • Employee share plan rules
    • FBT rules
    • Loss carry forward and transfer rules, including trust loss rules
    • Dividend franking rules

(This list is not exhaustive.)

In most of the foregoing areas, the errors, ambiguities and unintended consequences can "cut both ways" but, on balance, because the demand for a Parliamentary slot to protect the revenue transcends the demand to protect taxpayers, the remaining provisions which disadvantage taxpayers significantly outnumber those which would disadvantage the revenue. This outcome has engendered a cynical view among business that Parliament is not concerned with the integrity of the law after it has enacted each piece of legislation.

The fault barely lies with OPC and may only sit with the ATO in those circumstances where its review of a bill could have resulted in a better expression of the law. Essentially, the fault lies with Parliament and in particular with the Government of the day, which presumably controls the Parliamentary program.

This submission recognises that to the extent a problem may be substantially fixed by Government action alone, there is no certainty that even a recommendation by RBT will result in the problem being fixed.

  1. Recommendation

It is recommended that the Government commit to an "annual Technical Corrections Bill" and that this bill have a slot in the Parliamentary program in the spring sessions each year. It is further recommended that where consultation with the ATO reaches agreement that the black letter law contains an error, ambiguity or unintended consequence, the resources to fix that discovery be made available so that amending legislation can be included in the next Technical Corrections Bill to be put before Parliament.

Whilst Technical Corrections Bills are currently evident in the Parliamentary program, there is no discipline of ensuring that all of the provisions which should be repaired are included in such Bills and there is no discipline for ensuring that such Bills are guaranteed a slot in the Parliamentary program.

As mentioned above, literally hundreds of provisions should be amended, it now being many years since most of them were passed into law.

  1. Overseas Experience

The concept of an annual Technical Corrections Bill can be found in the United Kingdom Houses of Parliament and the Congress in the United States. In the United States, the process includes an immediate review of legislation after it has been passed by Congress to determine whether the legislation meets or is likely to meet the policy which engendered it. This review is conducted initially within the bureaucracy and is subsequently supported by public hearings, the outcome of which can result in the inclusion of amendments in a Technical Corrections Bill. The process can also be triggered by the professions/business and its representatives.

In the UK, there is a regular opportunity to include technical corrections in each (annual) Finance Bill which is not confined to current year budgetary proposals. Consequently there is a more open and willing process of consultation regarding amendments to repair errors, ambiguities and unintended consequences.

  1. Related Processes

In recent years, consultation through the National Tax Liaison Group ("NTLG") has resulted in a number of lists of issues which could form the basis of Technical Corrections to the law. These lists are:

    • The Technical Corrections Register ("TCR")
    • The TLIP list of Foreign Source Income and CGT issues
    • The ATO Compendium (which partly subsumes the above lists)

There are almost 200 items on these lists and the professions would argue there are hundreds more that could be added. All of these items have given rise to uncertainty in the application of the law or have prevented business transactions which have no avoidance purpose from being carried out. The demand for amendments is very significant.

There should be an "open" process for commentary on perceived errors, ambiguities and unintended consequences. One possibility is to open the ATO website to suggestions as to where such errors etc exist and how they may be fixed. This section of the site should be left open for everyone to read. An appropriate consultative process could identify and agree items which should be removed as "inappropriate".

A "Strong Foundation" (7.61) refers to an Advisory Board "reviewing and reporting on the integrity and operation of the overall business tax system and highlighting opportunities for improvement". Whether this should be done "at arm’s length" or from an involvement in the process is debateable, but any review of the "system" should include a review of the processes taken to identify and fix all the errors, ambiguities and unintended consequences. These errors etc are certain to continue to result from the fragile process of converting a policy into law through Parliament. Such a review should form part of a report to the Government and to the public on an annual basis.






Annexure "B"

Taxing Trusts as Companies - Why?

Discussion Paper

Ken Traill

Principal Consultant - Tax Reform

The Institute of Chartered Accountants in Australia


One of the most significant proposals by the Government, and supported by the Opposition before the election, was the proposal to tax trusts as if they are companies with effect from 1 July 2000. There will be very few exceptions to this rule and the exceptions will generally be limited to those trusts that are established as a result of a legal requirement, such as constructive trusts or trusts that are established for a sole beneficiary who is under a legal disability. It will apply to discretionary trusts, unit trusts, fixed trusts, listed investment trusts, etc. It means that trusts will be subject to the rules for Division 7A (loans to shareholders, etc.), Dividend Imputation, Dividends vs Distributions and Capital Distributions, that currently apply for companies. This also includes the notorious Section 47(1A) problems on winding up and distributing indexed gains on sale of capital assets.

It has to be asked what is hoped to be achieved by the Government in making this proposed change?

Clearly it is not to prevent income-splitting since that is acknowledged to still be permissible. Possibly it is designed to achieve consistent treatment between the taxation of companies and trusts, yet it is questioned why such equality of treatment is necessary. It appears to be based on the statement in the Tax Reform Package (page 107) that "The fundamental problem is that there is inconsistent taxation treatment of business entities and the investments they conduct." The only possible reason, therefore, must be to counter some perception of tax avoidance that exists because of the inconsistency of treatment. However, the point to be made is that this could only be the case because of the inadequacy of existing tax laws in the taxation of companies, particularly in dealing with distributions of gains realised on the sale of assets that are tax free in the company due to indexation allowances or distributions out of other tax-preferred income. Whereas these tax benefits have been provided by governments, the existing tax laws do not allow those benefits to flow through to shareholders, so the perceived benefit is ultimately lost. So where is the mischief?

Perhaps these sentiments partly explain the enormous growth in the use of business trust structures in recent times, not because of the attempt to avoid tax but because the tax laws dealing with companies are too prohibitive.

The current proposal to tax trusts as companies, therefore, appears to be yet another in the line of anti-avoidance measures brought before parliament; capital gains tax, controlled foreign companies and foreign investment fund measures, Division 7A, trust loss and anti-dividend streaming measures and the Company Law Review tax measures. Yet the proposal has many more consequences, particularly for small and medium businesses, than merely anti-avoidance. In fact, many small and medium businesses are already planning to restructure their affairs to minimise the effect of these changes on their businesses, so a further question must be asked as to whether the proposed changes are really worth the effort.

The final question that will be asked by many businesses is that, if it will cost time and money to restructure to minimise the impact of the changes, is the end result of the Government’s proposal merely going to add compliance costs to businesses already laden with too much compliance costs without raising the level of revenues they hope to recover?

Companies are from Mars - Trusts from Venus

Trusts and companies come from different worlds - or planets. Trusts have been around since at least the Statute of Uses in 1535. They have allowed the separation of legal and equitable ownership, with the result that their prime function for centuries has been the protection of family assets for the benefit of successive generations of family members.

The company, on the other hand, derives from the UK Joint Stock Companies Act 1844 and is designed to enable the aggregation of capital for business purposes.

Therefore, the proposal to tax trusts as companies is fundamentally flawed.

The emphasis in the Tax Reform Package is on the taxation of investments, not on the purpose or nature of the structure. "It does not make sense for exactly the same investment to attract a very different tax treatment simply because it is put through a trust rather than a company." (Page 113)

One wonders if the government would have the same concern about equality of treatment if it would lose revenue by taxing trusts as companies. Instead, it appears the government are concerned to counter some perception of avoidance that currently exists because of the inconsistency of treatment. This is borne out by the following passages from the Tax Reform Package:

"These outcomes are most unfair. Wealthier individuals with access to legal and accounting advice can target particular investments and structures to take advantage of the differences in tax treatment - and thus minimise the amount of tax they pay. The rest of the community subsidises the wealthier investor." (Page 108)

"Achieving consistency of treatment across companies and trusts under these re-designed company tax arrangements would provide simplicity, clarity and fairness in treatment. It would also address techniques that have come to light through the High Wealth Individuals project which take advantage of highly complex structures." (Page 115)

This is to ignore the fundamental difference between companies and trusts and to fail to recognise that many of the trusts in the community are not for business purposes at all. Many, if not most, are formed for family and asset protection and succession planning.

The Perception of Avoidance

The Commissioner of Taxation has publicly commented on the growing use of trusts in recent years and the perception of avoidance that has accompanied that growth. One problem he might have had with such growth was the possible use of such trusts for income splitting purposes. The common response from many business advisers was that the use of trusts had grown due to the complex and unbalanced problems of using companies, particularly the tax problems. The Commissioner therefore felt that he had to address the difference between taxing trusts and companies in order to redress some of the possible tax leakage because small businesses were not using companies as much.

Well, income splitting is still permitted under the reform proposals, so there must be some other perceived avoidance issue which stems from the difference in tax treatment between the two alternative forms of business vehicle.

The differences are as follows:

    • Companies are taxed at 36% prior to distribution of profits to shareholders, the income of trusts is taxed in the hands of beneficiaries if fully distributed;
    • Loans by companies to shareholders may be treated as dividends whereas there is no similar provision applicable to trusts;
    • Company tax paid may give an imputed credit to shareholders upon distribution, but tax-preferred income (eg, due to R&D deductions, building write-off amortisation, indexation adjustments on capital gains, tax-free goodwill gains, etc) does not give rise to any imputed credit. Therefore these tax concessions end at the company level and do not flow through to shareholders. Such tax concessions do flow through discretionary trusts to beneficiaries.

It is this latter area where major problems arise. The problem is not really one of avoidance as such. The problem is that the system of taxing companies itself is so flawed as to produce these types of anomalies for anyone who has chosen to use a company vehicle to conduct a business. The arguments that have been continually made by businesses and professional bodies to address these anomalies have not been accepted by the ATO or Treasury, presumably for reasons of revenue concerns. Alternatively, the ATO and Treasury are intent on watering down the intended benefits of the dividend imputation system introduced by the Hawke/Keating government in 1987, as they have done in so many other ways.

Why Stop at Trusts?

If the ATO and Treasury are so concerned at stopping the apparent flow-through of tax benefits in discretionary trusts, why should they then stop at trusts? Probably the next step for them would be to treat all partnerships in the same way as companies, just as they have already done for limited partnerships. They might then move to deny all tax benefits to individual sole-traders as well!

However, reviewing the corporate limited partnership provisions in Division 5A of the Income Tax Assessment Act 1936 gives a guide as to some of the issues that must be considered and modifications that will have to be made to tax trusts in the same way as companies. They include:

    • Continuity of ownership and continuity of business tests for transitional and grandfathering purposes;
    • The definition of dividends paid by trusts;
    • The implications where there are changes of beneficiaries;
    • The definitions of share and shareholder and their application to trust beneficiaries;
    • The definition of residence of the trust.

From this will flow many other issues such as linking the taxing of trusts with the CFC system, the thin capitalisation and debt creation provisions, dividend imputation, value shifting and so on. The list goes on.

These types of changes are attempts by the bureaucracy to stop perceived tax leakage that arises from attempts to avoid existing anomalies in the legislation and thus raise further revenues. As a result, they serve to add enormous complexity to an existing complex system and thus increase compliance costs substantially.

Would it not be smarter and simpler to address the existing anomalies in the taxing of companies to enable tax-preferred income to flow through to shareholders in the same way as presently exists for trusts and partnerships, as was originally intended by parliament?

To illustrate, consider the following hurdles the proposed change will place in our way.

Trusts and Division 7A

Division 7A was introduced into the Tax Act with effect from 4 December 1997 and applies an entirely new regime to the tax treatment of loans and payments to shareholders and associates. It is an extremely harsh provision with severe consequences for companies and their shareholders where loans or payments are treated as dividends, unfranked and yet with a debit to the company’s franking account. The Division does not currently apply to trusts and many trusts have existing loans to their beneficiaries and associates. How existing loans will be treated under Division 7A, when trusts are taxed as companies, is not yet known, so caution and precautionary planning is recommended.

All trusts should be reviewed immediately to determine whether there are any loans to associates and, if so, advisers should consider ways to eliminate them before 30 June 2000. This could involve the associates repaying the loans out of other funds, selling assets to the trust in repayment of the loans or restructuring the trust and/or family entity group. Restructuring could involve making capital distributions out of the trusts to enable the associates to repay the loans and possibly creating new loans from the associates to the trusts which can be drawn down in future.

The farce that this illustrates is that if there is no avoidance of tax at present in this context (which, it is submitted there is not), what is the point of forcing trustees to incur additional costs to ensure they do comply with the new law? It is simply inappropriate to dip into the well and raise inappropriate and unwarranted additional tax.

Trusts and Franking of Distributions

Currently, trustees that fully distribute their income to beneficiaries are generally not subject to tax. Income is distributed at the end of each accounting period on a pre-tax basis and the beneficiaries incur their own tax liabilities in the same way as if they were individual taxpayers or, indeed, members of a partnership.

As a result of the proposed changes to the imputation provisions, the trustee of a trust will be required to pay tax on the profits of the trust before the income is distributed so that all distributions from the trust will be paid as a fully franked dividend. This change will be particularly onerous both for trusts that derive foreign source income (where tax may have already been paid at source) and for trusts where the trust (accounting) income is greater than the net (taxable) income for tax purposes, due to timing or permanent differences.

Trusts that have traditionally distributed all their income on the 30th June each year would have to consider whether to accumulate the income and not distribute the full amount of income annually. This applies to all income, not just the examples outlined above but for all trusts, whatever the reason. This may also require a change to the trust deed to enable accumulation.

In any event, if the income has not been taxed before 30 June, there may be no franking credits in the trust to enable it to pay a franked dividend. Therefore, an opening gambit may be to defer distributions until a later time when franking credits are available.

Otherwise, a trust that makes a distribution on 30 June each year and that has no franking credits will be required to pay the proposed "deferred company tax" by 21 July that same year. Just imagine the complications early and complete distributions would bring for those trusts that present their records to their accountant in October each year to enable accounts and tax returns to be prepared within the traditional timeframes.

Many trusts have what is termed "tax-preferred income", such as where the trust is entitled to deductions for tax purposes for building write-offs, etc. This means that income that is offset by these allowable deductions is not presently taxed when received by beneficiaries and is therefore termed "tax-preferred". Under the proposals for reform, distributions out of this income will still be subject to the imputation changes, so trustees will need to consider whether or not to distribute such income. Distribution would lead to an increase in the overall tax burden as well as urgent reviews of investment decisions.

The tax treatment of distributions of tax-preferred income appears to be the major area of difference between the taxation of trusts and companies that the Government is attempting to stop as a result of these new proposals. Yet the current system can hardly be described as tax avoidance. It is a system that has been with us for many decades and is fairly efficient, allowing tax benefits provided by the Act to pass through trust structures to the ultimate beneficiaries.

What is the mischief which is so significant to warrant such a raft of changes? Is it too simple to turn it around and suggest that the real community need is to revisit companies? The problem has been that the system of company taxation does not permit such flow-throughs. Perhaps it is the system of company taxation that should be overhauled rather than the system of taxing trusts.

Trusts and Distributions

Distributing capital or profits from companies has always been a complex matter, made even more difficult by the introduction of amendments in the Taxation Laws Amendment (Company Law Review) Bill in 1998. This has not been such a difficult problem for trustees of trusts, up to now, yet it may be all about to change!

Many trusts, in a prime and traditional role, have been set up as asset protection vehicles and, thus, have accumulated substantial reserves. It has not been announced how future distributions out of these reserves will be treated under the new regime for taxing trusts as companies. The risk is that such distributions may be treated as dividends in the same way as distributions by companies. Trustees would therefore be wise to consider whether to make capital distributions out of accumulated reserves of trusts prior to the commencement of the new regime. By so doing, such distributions could serve a dual purpose of getting in before the new impost arises as well as solving potential problems arising from existing loans.

The impact of such action, however, could be to defeat the purpose for which the trust was set up in the first place, that is to shield the assets of the trust from the claims of creditors of failed businesses, directors liabilities, or family law disputes in the event of a marriage break-up of a family member. The assets of the trust would thus be exposed to such claims in future, where the assets are distributed out of capital reserves and are represented as loans by family members to the trust. Hopefully, the government will allow some form of grandfathering in respect of capital reserves accumulated at the time of introduction of these new measures, although there can certainly be no guarantee.

You may be damned if you do and damned if you don’t.

Further Reform Necessary

It is clear that the proposal to tax trusts as companies can have such an effect on trusts as to potentially make the use of such structures unattractive in future and could defeat the commercial use for which many of them were set up in the first place. To merely introduce such reform on its own could potentially be tantamount to retrospective legislation or, if that is too harsh, to changing the rules part way through a game to suit one player (the ATO). If such a measure is to be introduced, the government must also either:

    • allow grandfathering of accumulated capital reserves and pre-existing loans to beneficiaries and associates; and/or
    • allow taxpayers a form of capital gains tax rollover relief to enable a restructure of trust assets and transfers from the trust to, say, a partnership of individuals, without incurring a current tax liability.





Annexure "C"



Ken Traill

Principal Consultant – Tax Reform

Institute of Chartered Accountants in Australia

Discussion Paper – June 1998

  • Treasurer Costello’s publication in early 1998 "The Australian Taxation System – In Need of Reform" listed several criteria for reform, particularly fairness, simplicity and efficiency. This paper focuses on improving taxation fairness, simplicity and efficiency.

A Simplicity and Compliance Costs


  • That compliance costs of a tax system are a function of the degree of complexity of the system is true. It is accepted that the ever-increasing complexity of Australia’s tax system exacerbates this already unreasonable burden.

  • One of the Foundation Principles of the Business Coalition for Tax Reform is the overhaul of indirect tax by the adoption of a GST on as broad a base as practicable, at a rate between 10% and 12.5%.
  • The ICAA Submission to the Gibson Committee also recommends the introduction of a broad-based consumption tax (or GST) to replace WST amongst other indirect taxes.
  • Legitimate concern has been expressed by many SMEs that a GST will increase their compliance time and costs. Many do not collect WST, so there will be extra costs of implementing collection systems for GST, filing GST returns, remitting prior to collection from customers, etc. This is addressed in the ICAA submission.
  • The burden of tax compliance costs must be integral to the tax reform agenda of the Government. The ICAA submission to the Gibson Committee recommends that Government recognise the extra compliance costs burden which a GST would impose and consider appropriate compensation measures.

-Compliance Cost Offsets

  • One way to address this issue is to reduce the overall compliance time and costs in other areas to offset the increased costs from a GST.
  • The broad areas where compliance costs are currently being incurred are:
  • Income Tax Return preparation & lodgement

- Companies

- Trusts

- Partnerships

- Super Funds

- Individuals

- Audits

  • Annual Accounts preparation & lodgement

- Companies

- Trusts

- Super Funds

- Partnerships

- Audits

  • ASC/ISC filing fees
  • WST (if paid) - Remittances

- Returns

- Audits

  • FBT - Remittances

- Returns

- Audits

  • Payroll Tax (if paid) - Remittances

- Returns

- Audits

  • Group Tax - Remittances

- Returns

- Group Certificates

- Audits

  • SGC
  • Income Tax Payments - Provisional Tax Instalments

- Company Tax Instalments

- Individual Assessments

- Super fund Payments

  • Land Tax - Returns

- Payments

- Audits

  • Stamp Duty
  • Workers Comp
  • PPS, RPS
  • How might some of these compliance costs and time requirements be reduced in an overall tax reform context? The most obvious reductions appear to be the elimination of:
  • WST - Returns

- Remittances

- Audits

  • FBT - Returns

(replaced by PAYE) - Remittances

- Audits

  • Payroll Tax - Returns

- Remittances

- Audits

  • These reductions are not all necessarily likely, at least in the short term.
  • However, one of the greatest costs is the cost of engaging tax agents to prepare annual income tax returns and lodge income tax returns for every family member and family entity. This is a cost over which tax agents and clients constantly battle. Added to this is the compliance costs of handling multiple tax instalment and tax assessment notices for companies, individuals and, in some cases, trusts. This is compounded where there are several group companies and individual family member taxpayers. The ICAA favours a system whereby those whose income consists principally of pre-taxed source income (PAYE, PPS and franked dividends) are able to elect not to file an annual return. The system, of course, would require safeguards. (See attached example at Appendix A).

B Necessity for Tax Returns – Look-Throughs and Consolidated Returns

  • Why, in times of self-assessment, should there be a requirement to file income tax returns for partnerships and family trusts where all income is distributed to partners and beneficiaries? (This applies equally to listed equity and property trusts as well.) All that is required is a distribution statement for each partner or beneficiary to file with his/her working papers for tax return purposes.
  • Taking this a step further, why do family group companies need to file multiple tax returns and receive multiple tax assessments and instalment notices. Could not family group companies be given the option of (at most) one tax return and one tax assessment? This would require a method of filing consolidated tax returns as currently happens in some overseas countries, notably USA and New Zealand. In most family groups, this would merely require a summation of the taxable income determinations of each of the group companies with adjustments for inter-company interest, management fees and dividend payments. (This proposal is not confined to family groups and could just as easily apply to large corporate groups.)
  • Consideration is needed of whether consolidation would require 100% owned group companies or, say, 80% common ownership. It is recognised that less than 100% ownership can give rise to difficulties but these should be considered in the interests of simplicity.
  • Take it one step even further. In the context of dividend imputation (and assuming that as part of overall tax reform, personal marginal tax rates are reduced to no more than the company tax rate – See Appendix C attached) why not treat family companies as 'look-throughs' in the same way as trusts and partnerships? Individual shareholders would be assessed to tax by attribution on their respective interests in the family company group. (See Appendix B for details.) This is not a new concept as it already occurs in the USA and is the approach already adopted by the Australian tax legislation in the taxation of foreign source income under the Controlled Foreign Companies ("CFC") provisions.

C Taxation of the Family Unit – Equity and Fairness

  • A critical reform would be to introduce family unit taxation, by election. As Cynthia Coleman of the University of Sydney said in her submission to the Government Members Tax Consultative Task Force ("the Gibson Committee"), "One of the major problems at present is revenue leakage caused by income splitting. This is an inevitable result of having progressive rates rather than a flat rate. It assumes an individual as tax paying unit." It must be acknowledged that without family unit taxation, where there are progressive tax rates, income splitting techniques will always be attractive.
  • In the interests of overall fairness of the tax system, one would assume that income splitting would be available to all taxpayers, not just those who can legally structure ways to achieve such a result because of the character of their earnings (i.e., why distinguish between trading income and wages & salary?).
  • The US tax system allows married persons to elect to file joint tax returns or to file separate returns. Different tax rates apply according to how taxpayers elect to file their returns, although rates for "married filing jointly" are generally lower than "single taxpayer" and "married filing separately" returns. We propose a system along the lines of the US system. Our proposal would limit family tax to spouses (or equivalent), not children.

D Fairness, Simplicity and Efficiency

  • We set out a proposal to reduce tax compliance costs, which has as its genesis each of the criteria listed by Treasurer Costello for reform of the Australian tax system. It is a proposal which, if implemented, will provide a measure of tax fairness to all Australians irrespective of whether legally they can split income or structure their affairs to obtain lower tax rates. It will contribute therefore to structural neutrality, efficiency and simplicity by reducing the administrative burden through a need to file fewer tax returns and issue fewer assessments.

E Conclusion

  • These proposals would lead to a system that is more simple to comply with and to administer, and would contribute to tax neutrality in relation to business structure decisions. The choice of using family trusts and private companies would be no longer predicated by tax considerations but rather be dictated by commercial and family reasons. Such a result of structural neutrality must be an objective of a simple, efficient and fair tax system.








Taxable Income Taxable Income

- Salary $50K - Salary $30K

- Trust Distribution $50K - Trust Distribution $50K


Taxable Income (Fully Distributed)


- Fully Franked Dividends Only


Taxable Income (Before Group

Dividends) $10K



Taxable Income $500K Taxable Income $50K Taxable Income $50K

(Incl. Franked

Dividends $20K)

Current Compliance Obligations:

  • Seven Income Tax Returns
  • One FBT Return
  • Monthly Remittances - PAYE (twice monthly?)


- Payroll Tax

  • Quarterly Tax Payments - Four Company Tax Instalments

- FBT Instalment

- Two Provisional Tax Instalments

  • Annual Tax Payments - Four Company Tax Assessments

- Two Individual Tax Assessments

- FBT Final Payment


  • One 'Family Unit' Tax Return
  • Monthly Remittances - GST


  • Quarterly Tax Payments - One Provisional Tax Instalment
  • Annual Tax Payments - One Individual Tax Assessment




































(Based on the example at Appendix A)

1. For all family companies, a calculation of taxable income would be required, as currently.

2. For the family (discretionary & unit) trust, a calculation of 'net income' for tax purposes would be required, as currently.

3. Spouses may elect to file a joint tax return (as in the USA), so there would be a calculation of their combined taxable income, as currently, with the following modifications:

  • The consolidated taxable income of the four related companies and family trust would be combined and added to the other taxable income of the spouses.
  • Any taxable income of the company/trust structure which was attributed to the spouses would be recorded in an 'attribution account' in the tax records of the companies and trust. (Similar to the existing CFC provisions.) Any tax losses remaining in the company/trust structure after group relief (offset) would not be attributed to shareholders, consistent with existing provisions for trusts.


  • Any distributions to the spouses out of an attribution account would not again be taxable.


  • An ordering system would be required to identify that dividends and other distributions would be deemed to be out of:
    • Firstly, attribution accounts
    • Secondly, franked dividend accounts
    • Finally, unfranked dividends.
    • Consolidated Taxable Income of Family Companies:
    • Holding Company 10,000
    • Operating Company 500,000
    • Land Holding Company 50,000
    • Investment Company 50,000


    • Net Income of Family Trust 100,000
    • Taxable Income of Spouses Filing Jointly:
    • Salaries 80,000
    • Net Income of Trust 100,000
    • Consolidated Taxable Income of Family Cos. 610,000


    • Less Inter-group Dividends 100,000
    • Family Taxable Income 690,000
    • Tax Payable, at "partners filing jointly" rates – see Appendix 3, $232,440.
    • If filing separately, the total tax payable is still $232,440.





(Estimated Cost $11 billion – Source: Business Coalition for Tax Reform)


From: To: Rate:

$ $ %

0 6,400 0

6,400 25,000 20

25,000 70,000 30

70,000 plus 36





From: To: Rate:

$ $ %

0 12,800 0

12,800 50,000 20

50,000 140,000 30

140,000 plus 36








(Split equally) (All earned by one partner)

10,000 0 0 720

30,000 3,440 3,440 5,220

60,000 10,440 10,440 14,220

100,000 22,440 22,440 28,020