31 December, 1998
Dr. Alan Preston,
Review of Business Taxation,
Department of the Treasury,
Canberra ACT 2600.
Dear Dr. Preston,
Review of Business Taxation
The Insurance Council of Australia welcomes the opportunity to provide a submission to the Review of Business Taxation’s first paper – " A Strong Foundation".
In doing so may we refer to our letter to Mr. John Ralph dated 21st September 1998, which enclosed a copy of the insurance industry’s Position Paper on Tax Reform.
We also refer to the submission to the Review prepared by the Business Coalition for Tax Reform (BCTR), the broad thrust of which is supported by the insurance industry.
May we raise the following points which are relevant to insurance :-
- Simplification – the divergence between published financial results and taxable income. The insurance industry is bound by accounting standard AASB 1023 and income tax ruling IT2663, both of which are peculiar to the industry. The main difference between the two is the treatment of unrealised gains and losses on investments, which under the Australian accounting standard must be brought to account. Given that
- the industry has consistently argued against this particular provision of AASB 1023, and
- AASB 1023 is out of step with international accounting standards,
we do not believe that such unrealised gains or losses should form part of taxable income.
- The proposed franking/withholding system is anti-competitive for Australian groups either investing offshore or with offshore shareholders. Offshore profits will be subject to local income tax, then if those profits are distributed as dividends by the Australian parent they will be subject to Australian tax, representing double taxation. Non resident shareholders will be subject to Australian company tax of 36% on the unfranked component of all dividends, compared to the current withholding tax rate of 15%.
- The industry supports the concept of a group being treated as an entity. Because of the nature of general insurance, operating profits can never be guaranteed, and dividend rebates in one member of a corporate group could be wiped out by an underwriting loss in the insurance entity in that same group. A possible solution would be to consider the New Zealand system for the taxation of dividends.
- The industry believes that in there have been instances where compliance costs have negated the benefit of any additional taxation revenue raised – for example, the reported payments system for smash repairers.
- We would a support a more commercial approach to rulings, and that where there is not a clear cut principle involved, a workable commercial solution should be sought.
- We support the proposal for the concurrent release of draft legislation with the final paper as a worthwhile objective, not only for this Review but also as a model for the future.