Submissions
 
Submission No. 43 Back to full list of submissions
Download in either PDF or RTF format

 

SUBMISSION TO THE REVIEW OF BUSINESS TAXATION

A STRONG FOUNDATION

Discussion Paper — Establishing Objectives, Principles and Processes

DECEMBER 1998

AMP Ltd

Executive Summary

AMP commends and supports the Government on its decision to undertake a significant review of the Australian business taxation system.

AMP is a provider of many types of saving vehicles, including life insurance, trusts, superannuation and banking. The AMP group has about $50 billion funds that it has been entrusted to manage on behalf of the Australian public. AMP’s life company alone has around 2.2 million policy holders in Australia, many of whom are also shareholders in AMP. We therefore represent a broad cross section of Australians who will be affected by the reform of our taxation system.

AMP agrees that Australia’s current business taxation arrangements need reform if long term economic objectives are to be achieved. However, AMP believes that the role of national saving in ensuring sustainable economic growth should not be underestimated by the Government. Specifically, if national investment is to be enhanced without increasing Australia’s net exposure to foreign liabilities, then private saving must not only be maintained, but increased. This will be increasingly important in an environment of an ‘aging population’.

Given the need to encourage higher levels of private saving, AMP is disappointed that the review will recommend moving more toward an income-like tax base for levying business tax. AMP is more supportive of moving more toward an expenditure-like tax base which is more encouraging of saving.

We support the Review’s proposed national objectives of:

  • optimising economic growth;
  • ensuring equity; and
  • facilitating simplification.

AMP agrees that the Review should, in reviewing the taxation arrangements of Australian business, seek to ensure that recommendations for change are determined on a consistent basis, and result in competitive neutral outcome between similar providers.

However, AMP believes that the Review should exercise care in comparing hybrid products, such as investments in life insurance contracts, with other collective investments. Based on equity considerations, the review should ensure that these products are not put at a competitive disadvantage.

AMP submits that, on competitive neutrality grounds, public unit trusts should not be taxed as an entity, but remain subject to the see-through tax approach. However, the current system could be improved so that the profit of the unit holder exactly reflect the tax position of the investor.

AMP also recommends that, on equity and competitive neutrality grounds, that retained earnings for non allocated annuities held by the life office, remain exempt from the entity tax.

The taxation of superannuation funds invested with the life office should not be disadvantaged relative to superannuation funds directly investing in assets. AMP suggests that superannuation funds retain the ability to pass their tax liability onto the life office, and in turn, the life office should be the beneficiary of the 21 per cent imputation credit.

AMP agrees that it is desirable to have a business tax system that is based on a simple and efficient administrative framework. However, we believe that simplicity should not be given higher priority over the other criteria of efficiency and equity. Otherwise, in the long run, economic objectives such as higher economic growth could be compromised.

While the issue of adopting accounting principles for taxing business is not specifically part of this discussion paper, AMP recommends that taxable income remain the base for levying tax on life companies. The accounting principles used by life companies (Margin on Service) include a measure of unrealised gains, and AMP does not support the taxation of unrealised gains.

AMP is supportive of the creation of an independent advisory board, but believes that the board would be more effective of it had a mandate to oversee the operations of the Australian Taxation Office.

 

AMP’s response to ‘A Stronger Foundation’

1. Introduction

AMP is a broad-based financial services company with more than 5 million customers worldwide. We provide life insurance, retail banking services, personal financial services and advice, funds management services, superannuation consulting and administration, investment services and general insurance.

AMP has contributed significantly to Australia’s growth and development through saving of ordinary Australians and investment for the long term. AMP has been a leading investor for decades in the development of the country’s resources, infrastructure and business, both small and large.

AMP fully agrees with the Government that the Australian business tax system should be improved:

  • to provide incentives to work, save and invest, thereby encouraging long term and sustained economic growth through investment; and
  • to boost international competitiveness thus promoting job creation, leading to improved standards of living.

AMP therefore welcomes the review of business taxation currently being undertaken and we are pleased that the Review intends to consult with industry on the core issues, such as the overall framework for the new business tax system, as well as the more detailed issues, such as those identified in the Review’s terms of reference.

2. Objectives

AMP agrees in principle with the Review’s proposed national objectives of:

  • optimising economic growth;
  • ensuring equity; and
  • facilitating simplification.

2.1 Optimising Economic Growth

Increasing Australia’s economic growth can be achieved by increased domestic investment which must be financed by either domestic saving or borrowing from foreign savers. Australia has a significant structural problem with a high current account deficit and growing levels of foreign debt. Unless domestic sources of saving are expanded, foreign debt will continue to increase to levels that will make the Australian economy much more vulnerable to international shocks. The current account deficit is a significant constraint on growth, which has been recognised in successive budgets. The IMF recently expressed concern that "unemployment remained high and national saving was low".

The importance of private saving as part of national saving should not be underestimated given Australia’s ‘aging population’ problem. The increasing proportion of ‘non-workers’ in the Australian economy during the next 20-30 years will put increasing pressure on the government’s budget.

Increased private saving and investment will help to reduce the fiscal pressures arising from the ‘aging population’. The Government has succeeded in achieving an underlying budget surplus through making necessary, but tough, decisions to reduce spending. Australia’s aging population means that it will be harder to achieve surpluses in the future.

AMP believes that the role of national saving in ensuring sustainable economic growth should not be overlooked by the Government. To date, policy measures to increase national saving have largely focused on two areas: reducing Australia’s budget deficit and boosting private saving via compulsory superannuation (although this has been countered by increased taxation of superannuation saving).

AMP is a strong supporter of the need to increase national saving and we believe that superannuation is an essential contributor to the goal. Business tax reform also has significant potential in this regard. The business taxation system can play a significant role in encouraging long term private saving and investment, and must be reformed before the desired economic growth will be forthcoming. Higher national saving also reduces the cost of capital to business and results in greater domestic investment and economic growth.

Hence, the Government’s tax review process provides an ideal opportunity to improve the current business tax system to encourage private long term saving and promote stronger long term economic growth.

2.1.1 Superannuation

AMP is of the understanding that while superannuation funds are considered to be an entity for business taxation purposes, superannuation fund taxation is not specifically part of the Business Tax Review’s Terms of Reference.

However, as a direct consequence of changes to personal income tax rates, AMP notes that the incentive for employees to contribute voluntarily to their superannuation saving plans will be significantly reduced. As a result, the objective of a higher level of national saving could be compromised.

AMP submits that if personal income tax rates are reduced, then superannuation fund tax rates should also be reduced so that the relativities between superannuation and other saving vehicles are maintained.

Superannuation saving has been growing strongly during the 1980s and 1990s. However, this strong growth has not yet been translated into strong growth of private saving, due to reasons such as leakage of funds from the system, changing consumption patterns and other more complex behavioural responses to the range of policy measures that have evolved over that period.

AMP believes that there is a major structural problem with private saving that needs to be addressed and cannot be ignored. Further, AMP believes that, in the context of our "aging population", superannuation will play a vital role in solving this problem and that the overall retirement income policy framework needs to be reviewed to ensure that the potential for increased superannuation to boost private saving is indeed achieved.

AMP therefore suggests that the Government establish a review of superannuation and long term saving policy, with clear reference to simplifying the taxation arrangements for superannuation, ensuring incentives are adequate and that retirement saving are not diverted to support increased expenditure by governments.

2.2 Ensuring Equity

Equity can be considered from many different perspectives. The equity of alternative taxation arrangements usually is considered within the context of a single year period, although there is nothing inherently appropriate about that period. A different perspective would be to consider equity over longer time periods where the economic transactions involved are long term in nature.

For example, where income from investment and other sources is volatile over an extended period, horizontal equity would imply that the average tax rate payable by someone with such volatile income should be equivalent to the average tax rate payable by other tax payers with the same average income.

This is particularly relevant for those who seek to smooth their income over different periods of their life cycle, via long term saving (including retirement saving) and insurance.

Ideally, an expenditure taxation model would provide horizontal equity over extended periods and indeed over the full life cycle. However, the Review has indicated that it is unable to fully consider such a model, within its time constraints. Nevertheless, when balancing the trade offs amongst the various national objectives and the design principles, the Review should consider leaning towards expenditure taxation benchmarks to help achieve simplicity and long term horizontal equity.

In keeping with horizontal equity principles, AMP believes that the Review should ensure that similar investments are compared for taxation purposes with like investments. However, AMP would like to raise the question of how the Review will categorise hybrid investment products, such as an investment through a life insurance contract?

The economic function of saving/investment life contracts differs from other instruments by combining risk transference and investment, also by providing a direct guarantee of return of capital with an equity return.

It is not clear that, on equity considerations, these hybrids should be compared with other collective investments such as public unit trusts, nor should they be directly compared with non collective investment products such as individual saving products.

Therefore, AMP submits that the Review exercise care in ensuring that hybrid investment products are not put at a competitive disadvantage relative to other non hybrid investment products, based on equity and competitive neutrality considerations.

If the taxation arrangements for life contracts investments were changed, it could potentially make life products an unattractive form of long term saving. AMP wishes to point out that a large proportion of the current life investment contracts were established many years ago, and at least these policy holders should be protected by ‘grandfathering arrangements’.

Finally, with respect to equity, we see the need for all tax payers to have a common start date for the new arrangements to avoid early balancing companies form paying extra tax.

2.3 Facilitating Simplification

AMP strongly supports the objective of facilitating simplification. In relation to the taxation of business and, in particular, financial services, the current taxation regime is unduly complex, continually changing and legalistic. The cost of complying with the current taxation regime is unacceptably high.

A good example of this is the superannuation surcharge which, according to a survey jointly carried out by the Association of Superannuation Funds of Australia (ASFA) and the Investments and Financial Services Association (IFSA), has cost the superannuation industry around $190 million to implement compared to revenue to government of around $470 million. In the end, these high costs of compliance are borne by the Australian public as their savings are reduced by increasing administration fees.

Simplified tax rules are particularly relevant where frequent discretionary decisions are required. Most existing superannuation saving is subject to steadily increasing preservation requirements until age 55 (or 60 in due course). The rules that apply to new contributions and to retention of benefits beyond the preservation age will have more impact on levels of private saving than those that apply to existing preserved contributions.

AMP acknowledges that simplicity is one of the criteria for designing tax policy. However, AMP believes that, in reforming the business tax system, simplicity should not be given higher priority over the other criteria of efficiency and equity. If simplicity is given higher priority in the design of tax policy, in the long run the overall economic objectives as noted in this discussion paper may not be achievable.

2.3.1 Financial and tax accounting

The Review, as required by its Terms of Reference, will examine the possibility of using accounting principles for levying business tax, thereby replacing the current arrangement of levying tax on a business’s taxable income. While AMP acknowledges that this issue will be covered in greater detail by the Review with the release of it’s second discussion paper, AMP would like to make a brief comment on this issue at this time.

AMP recognises that there is a significant divergence between ‘profit’ for accounting purposes, and ‘taxable income’ for taxation purposes. There may be a view that Margin on Service (MOS), which is used by Australian life companies to estimate accounting profits, should be used as a base for tax purposes. The move to an accounting basis for determining tax liability is intuitively a good idea as it avoids duplication and unnecessary reconciliation. Although, it risks the artificial creation of accrued losses to limit tax.

However, MOS is an actuarial methodology which is heavily reliant on many different assumptions (estimates) as to what might happen in the future in determining policy liability.

The annual accounting profits of a life company may vary considerably depending on the assumptions made by the actuary in calculating the policy liability. From a tax perspective, it is capable of manipulation and therefore it lacks the rigour required.

Therefore, AMP proposes that MOS profit is not suitable for tax purposes.

MOS is also at odds with tax principles as it :

  • recognises unrealised investment gains and losses;
  • does not fully reflect actual expenses in the year they occurred;
  • recognises and capitalises losses for all future years for a product group in the year they are identified, but takes no similar action for products expected to remain profitable; and
  • includes underwriting profit that has not and may not be derived.

AMP does not support the taxing of unrealised gains, because this breaches the principle of equity, on the basis of the ability to pay. Taxing unrealised gains can produce negative effects for business cashflow and therefore business solvency and long term viability.

If accounting principles were adopted as a basis for taxing business, then AMP suggests that adjustments would be necessary, particularly in the case of life office entities, to exclude unrealised gains from the accounting basis to ensure these were not taxed. However, such adjustments could be made elective for the various entities.

3. Policy design principles

AMP fully supports the Review’s desire to establish appropriate policy design principles for business taxation. AMP believes that it is necessary to have clear and concise principles which are transparent to all businesses, government and individuals, both domestic and foreign, so that there is strong support for investment in Australian business. It is also critical that there is a clear design framework for business taxation to ensure that these investments flow to their highest return in the economy, distorted to the least extent as possible by taxation. This would help to ensure that economic objectives such as higher national saving and higher economic growth are attained.

AMP believes that the overall principles of business taxation need to be robust, ensuring that the design of the policy, administration and legislation can endure over time.

3.1 Defining the tax base

3.1.1 The tax base benchmark

The appropriate business tax base is key to the principle of policy design. The Review supports the use of income rather than expenditure, as the defining benchmark for levying business tax. More specifically, of the income tax base models, the Review supports the use of comprehensive, nominal income tax base as the preferred benchmark for business taxation.

Alternative benchmarks are dismissed by the Review for several reasons, namely the transitional arrangements required for any new benchmark, the subsequent impact on revenue flows, as well as the short reporting time frame that the Review has been given which does not allow a thorough analysis of any alternative benchmarks.

AMP does not support the use of income as the preferred tax benchmark for levying business taxation. Rather, AMP is supportive of an expenditure based tax model as the preferred benchmark. This does not mean that AMP is arguing for the implementation of an expenditure-base system of business tax. AMP recognises that there are many important practical problems with implementing such a system. By the same token, it is not practical to implement a comprehensive system of income taxation. Like all other countries, Australia’s business taxation system is a hybrid of expenditure-like and income-like taxation. The real choice facing the Review is which way to nudge the current system.

Currently, business tax is partly levied on an income-like basis, and it is AMP’s belief that this system taxes saving heavily, thereby reducing the incentives for the private sector to save. Given that national saving has been identified as an important national and business objective to achieve stronger, sustainable economic growth, AMP believes that all moves should be made to ensure that the taxation system put in place for the next century is pro saving. In turn, this implies that moving more towards an expenditure-like tax base is necessary.

If the business tax system is moved in the other direction — to be more income tax like— then the overall national objectives of higher national saving and economic growth could be put at risk, or traded off for other objectives.

Given that AMP has significant concern with the use of an income tax base as the preferred benchmark for business tax, AMP does not support the use of a comprehensive income tax (CIT) base, nor the use of nominal rather than real income.

Given that the benchmark for tax policy is key to design, it is regrettable that the Review has not been given sufficient time to explore alternative benchmarks and their feasibility. However, AMP suggests that over time, the business taxation system should move more towards expenditure-like tax base and away from an income-like tax base.

Nevertheless, going forward into the business tax reform process, AMP assumes that the income tax base will be the benchmark model adopted by the Review. As such, AMP notes that the CIT base is a conceptual benchmark rather than a feasible benchmark for several practical reasons. However, departures from the conceptual benchmark raise the question about what the criteria for these departures will be? Specifically, what forms of income will be included and excluded from the benchmark on what grounds?

If the objective of the Review is to form a coherent and sustainable set of principles for defining the tax base for business, then AMP believes that the Review should provide clear specifications for determining these departures from the CIT base.

In particular, AMP is concerned that under a CIT base, the unrealised gains of fund managers could potentially be measured as income, and subsequently subject to business taxation. AMP believes that the Review, in defining the tax base for business, should pay particular attention to the exclusion of the unrealised gains of fund managers from the tax base. Neglecting to do so may have seriously negative implications for long term national saving.

If the Review considers that any movement towards taxing unrealised gains is warranted, it should carefully consider the cash flow consequences. For example, if a tax liability was incurred and payable in relation to such gains, assets would need to be sold to meet the payment. However, if the Government extended its principles of accrual accounting to such liabilities, it would not need to require actual payment of the liability before it recognised that liability as current accrued revenue. This would be consistent with the Charter of Budget Honesty and the Commission to Audit to move towards accrual accounting concepts, as is already being implemented for tax assessed but not yet received.

3.1.2 Real and nominal taxation

AMP supports the principle that inflation be treated on a consistent basis within the business tax system. The current hybrid business tax system is inconsistent in adjusting earnings and costs and losses for inflation, resulting in a misallocation of investment resources within the economy. For example, unit trusts are currently eligible for capital gains indexation, while life companies are not entitled to capital gains indexation on realised gains. As such, the treatment of these two entities is inequitable, and is not competitively neutral.

AMP’s position on inflation is that regardless of the tax base, real earnings, adjusted for real losses, should be used for determining the tax liability for business. However, if real earnings are compromised for nominal earnings, then the Review should ensure there be consistent treatment of earnings under the business tax system for all entities.

3.2 Determining tax liability

3.2.1 Integration of ownership interests

AMP agrees that a major problem with the current taxation arrangements for business is the inconsistent treatment of different business entities and the investments they undertake. As a result, investments in like assets receive different tax treatment, based on the business entity through which the investment is conducted.

AMP is in principle, supportive of the proposal to treat entities as extensions of their ownership interests for business taxation purposes, and notes the benefits of horizontal equity that should arise from uniform treatment of investors, regardless of the legal form through which the investment is made.

AMP notes that for practical reasons, a full integration is not possible. The Review suggests that the imputation system combined with a system of refunds, extended to various entities, would go a long way to achieving integration of ownership interests.

However, AMP believes that the application of a divided/refund system to public unit trusts and pooled superannuation trusts could potentially give rise to lower levels of national saving, and it may also be costly for business to implement such a system.

One of the major structural differences between life office taxation and taxation of other saving vehicles, is that the interests of shareholders and policyholders are mixed within each life office statutory fund, while they are generally separated between the shareholders and customers in other saving vehicles. The proposed basis of providing separate imputation credits for shareholders and policyholders will require a careful segregation of the taxation liability of each group. The Review should ensure that no element of double taxation is permitted to emerge from any of the proposed changes to life office taxation, especially the proposal to broaden the tax basis to include transfers between the two groups of management fees and charges.

Public unit trusts

First, the extension of a divided/rebate system to public offer trusts could result in a disincentive to save via unit trust compared to making direct investments on an individual basis. By nature, public unit trusts are designed to serve as a collective investment vehicle whereby individuals acting as passive investors are able to gain access to expert fund management skills. Investors are also able to obtain a better spread of investments and access investments that are normally only available to those with large funds to invest.

The current taxation arrangements applying to public unit trusts in part recognises this fact, as trusts are effectively forced to distribute their taxable income annually and effectively operate as a conduit or see through for taxation purposes.

If public unit trusts are taxed as companies, the Government’s objective of enhancing equity will be compromised. Those with significant funds will be capable of diversifying their investments by directly investing in assets, and will be at a clear advantage to those smaller investors in unit trusts. As it stands, a see through basis is a more appropriate basis for taxing the individual unit holders compared to taxation on a company basis.

Another result to emerge from the proposal to tax public unit trusts as a company, and providing subsequent rebates where applicable, is that middle to low income savers will be denied part of their savings for investment purposes during the time that business tax is collected, and the refund delivered to the unit holder.

AMP believes that the existing system would be improved if it were changed so that the taxation profile of the unit-holder exactly reflected the tax profile on the investments in which they had an interest. Under this approach, the potential for taxing at the trust level is eliminated as the tax results would automatically be passed through to the unit-holders based on their investment interests.

Such a system would eleviate many of the abnormalities that exist under the current system and, in particular, aspects of double taxation which occur because of the differentiation between tax at the unit-holder level and tax at the trust level. It would also enhance simplicity and would remove the possibility of a trust being used for tax planning.

Accordingly, AMP recommends that public unit trusts should continue to be treated as a see through for taxation purposes, but the system be improved so that the abnormalities in the see through approach are eliminated. We are confident that improvements can be made and we would be happy to discuss measures for improvement with the Review.

To eliminate the see through tax system for public unit trusts would be a discouragement for Australians to save. Public unit trusts are an increasingly popular vehicle for the pooling of millions of Australian’s savings because they take advantage of expert investment management. Given these vehicles provide savers with the ability to diversify their saving, and potentially obtain a higher return than direct investment could yield, such vehicles should not be placed in a comparative disadvantaged position when compared to individuals investing directly.

Annuities

AMP would like to draw the attention of the Review to the issue of taxing annuity income at the corporate rate, and the implications it may have for retirees and their desire to have income security in retirement.

As the current tax arrangements stand, investment income from the annuity business of a life office is exempt from business taxation. This reflects the fact that investment income on annuities is ultimately taxed in the hands of the individual annuitants when payments are made to them as determined by their contracts.

From the perspective of competitive neutrality and horizontal equity, it is important that unallocated annuities and pensions are taxed on a comparable basis to allocated annuities and pensions. An allocated annuity will clearly identify the amounts credited to the annuitant’s account each period, but will not usually provide any guarantees. An unallocated annuity will usually guarantee a regular payment (which may be tied to the inflation rate) and reserves will need to be maintained to finance the future guaranteed payments. The payment streams may be very similar under each contract and the reserve levels may mirror the expected account balances, except for the statutory prudential margins required.

Under the entity tax regime, all annuity income would be subject to the business tax rate of 36 per cent. While AMP acknowledges that some of the life office’s direct capital investment in annuity business will attract the entity tax, it must be made clear to the Review that certain aspects of annuity income should remain exempt from corporate tax. It is understood that for allocated annuities and pensions, the reserves will remain tax exempt, however, the reserves for non allocated annuities and pensions will be subject to the entity tax.

Specifically, AMP submits that the necessary reserves required for both allocated and non allocated annuities and pensions should remain tax exempt at the life office level, implying that annuity income is ultimately taxed in the hands of the policy holder.

If retained earnings for non allocated annuity purposes are taxed at the corporate rate, annuitants will most likely face higher annuity prices than they would have prior to the introduction of the entity tax model.

Annuities will play a significant role in the forthcoming years as a means of providing secure income for many Australian retirees. Therefore, AMP stresses the need for the Review to pay particular attention to this issue, and ensure that measures are adopted that retain the tax exempt status of annuity earnings for policy holders.

3.2.2 Single layer of domestic taxation

AMP supports the principle of a single layer of taxation. In essence, this implies that the income of the owners of Australian business should not face more than a single layer of taxation.

Taxing superannuation funds

Under the entity tax proposal, superannuation funds will be taxed at the company tax rate of 36 per cent, and provided with a refund to reinstate the superannuation tax rate of 15 per cent. The Review must give careful consideration as to how the refund system would operate. In effect, the Government will be required to refund 21 per cent of the tax collected from superannuation funds, while not jeopardising the principle of a single layer of taxation.

AMP believes that moving to an entity tax basis for superannuation funds will not be a costless exercise though. The transaction costs involved in having to pay 36 per cent tax on earnings may require the portfolio compositions of many superannuation funds to substitute growth assets for cash. The consequence of which might be a lower return on superannuation saving. AMP estimates that the transaction costs involved in this process will be in the order of $46 million per annum, which will ultimately reduce superannuation members’ retirement saving. There is also the issue that superannuation members are denied part of their saving during the time between paying tax at the corporate rate, and receiving a refund for the overpayment of tax.

Where superannuation funds are invested with a life office, the super funds are able to transfer their contribution tax liability to the life company, which in turn, is the owner of the funds under management. In moving to an entity tax paradigm, AMP suggests that for simplicity reasons, that superannuation funds should maintain the ability to pass on their tax liability to the life office. This will prevent an administratively complex process of payment and refunding to take place between the life office and superannuation fund, and will also prevent many superannuation funds having to lodge tax returns in order to obtain the tax refund from the Government.

On equity grounds, all superannuation funds should be taxed similarly. However, if a superannuation fund, or a pooled superannuation fund, investing through a life office is unable to pass on their tax liability to that life office, then they will be at a clear disadvantage to superannuation funds making direct investments. In effect, small to medium superannuation funds, which predominantly invest through a life office, will be put in an inequitable position relative to larger funds, including industry funds, which are capable of investing member fund directly into assets.

One of the potential risks of the proposed entity taxation approach is that superannuation will be more efficient if it is transacted outside a life office, rather than inside. This may have the disadvantage of narrowing consumer choice, because the only generally available sources of capital guaranteed growth investments, especially for small business superannuation funds and for many self-funded retirees, are via life office capital guarantees. If it becomes uneconomic for superannuation to be conducted via the medium of capital guaranteed life insurance contracts, then many consumers may effectively be forced to adopt a higher risk profile than they would prefer.

There are alternatives that may be selected with a lower risk profile, such as retirement saving accounts and industry superannuation funds. However, the former of these will generally underperform growth investments in the long term and the later generally lacks any capital, other than an investment smoothing reserve, to back what many members probably perceive as an implicit capital guarantee. The Review should carefully assess any options that would lead to a reduction in consumer choice, that could flow from an inflexible implementation of entity taxation.

AMP suggests that if the passing on of tax liability is retained between superannuation fund and life office, then the life office should be the beneficiary of the 21 per cent tax refund that the Government will be required to distribute.

 

 

 

4. Legislative Design principles and Administrative design

AMP is supportive of the need to simplify business taxation arrangements. Hence, AMP is generally supportive of the legislative design principles and administrative design principles put forward by the Review.

As AMP has already noted, current business tax legislation is complex and imposes high costs on business, and therefore, efforts to reduce these costs are encouraged.

Overall, setting down legislative design principles should lead to a sustainable business tax system which will provide the business community with more certainly about the future of tax policy, and thereby reduce the future costs of working within the framework of the Australian business tax arrangements.

5. Process of business tax reform

To date, the process of business tax reform has been ad hoc, and as a result, we currently have a business tax system that is not helping to achieve the national objectives identified by the Review. If national objectives such as higher economic growth, higher levels of national saving and investment are desired, then a sustainable business tax system is also necessary. Therefore, AMP is encouraged by the concept of establishing an ongoing process for business tax reform.

5.1 Advisory board

In particular, AMP is supportive of the creation of an independent advisory board composed of private sector representatives that will have ongoing input into improving the framework and process of the business tax system.

However, AMP raises significant concern about the effectiveness of the advisory board. In particular, AMP believes that the role of the advisory board should not be limited to just an advisory capacity. Rather, AMP believes that the independent board would be much more effective if established with the mandate to oversee the operations of the Australian Taxation Office (ATO).

The independent board could be responsible for making an assessment on the effectiveness of business tax reform, and in turn, the board’s performance could be measured against the national objectives for the business tax system, and adherence to the legislative and administrative design principles. Obviously tax policy design would have to remain with the Treasurer.

AMP proposes that the establishment of an independent board with oversight of the ATO is a fundamental aspect of the tax reform process that will ensure ongoing consultation with the business sector.