|Submission No. 69||Back to full list of submissions|
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20 January, 1999
I am aware that submissions on the Review of Business Taxation should have been lodged by the 31 December 1998. However, I have several points to make which are relatively brief and I would be grateful if you would consider them.
These submissions are not confidential and I have no objection if you quote or publish any or part of them.
1. The terms of reference for the Review are extraordinarily wide. They include the taxation of income which would not normally be considered business income. For example, a deceased estate with a few investments would be an entity that will be included under the Review’s scope. About the only income I can think of that will not be covered by the Review is salary and wage income. This creates a potential problem in that there may be an expectation gap between the material covered by the Review, and the area the business community at large is expecting to be covered. Also, there is the risk that the Review may "bite off more than it can chew" by trying to cover too much.
2. The Review canvasses the possibility of taxation on "comprehensive income." This would include any increase in the value of assets. In other words, the Review seems to accept the possibility of imposing tax on unrealised gains. I am surprised that such an approach had ever been considered. Firstly, there are liquidity problems. How do you pay tax on unrealised gains when you have not realised any cash to pay the tax? Secondly, there is the huge time and expense of acquiring valuations on all assets every year. The business community is busy enough as it is, the last thing it needs is that sort of administrative cost. Thirdly, how do you cope with the situation where an asset increases sharply in value one year and decreases sharply the next? Tax may be paid on the increase, but a tax loss generated by the decrease may be unable to be utilised.
3. The Review looks at the possibility of charging for private rulings. This is something that was canvassed in the last budget. I think it is a gross abuse of the self-assessment system if this approach is every followed.
Prior to self-assessment, all tax returns were reviewed by the Tax Office. The principle was full and true disclosure. Once the assessment issued the Tax Office was bound by that assessment. In effect, the Tax Office gave every taxpayer a private ruling every year. The move to self-assessment was done to save the government money. It enabled more tax officers to be used in other areas. However, under a self-assessment regime, there had to be some way to enable taxpayers to know that they were calculating their tax correctly if there was any doubt. Accordingly, the system allows them to put questions to the Tax Office to determine their position.
It seems to me that it is an abuse of the government’s power if it starts charging taxpayers when they ask for a ruling. To refer to the "cost" of providing rulings is pure sophistry. The government should be looking at how much they save by not having to review every single tax return. Given the context of the highly complex tax legislation, it seems to me to be particularly unfair that taxpayers who are struggling to come to terms with the system should be penalised for trying to determine their correct tax position.
I find the comments at Paragraph 8.42 particularly offensive. On what basis have you decided that certain private rulings have "significant commercial value"? The only reason that I can think of that a ruling may have commercial value is because someone has succeeded in obtaining a statement from the government as to the tax position in a particular situation, whereas other taxpayers in similar circumstances have not been able to do so. Such a situation is not an excuse for charging for rulings, it is an indictment of the tax system.
A point which was not directly dealt with in the paper and should be looked at in the context of the Review, is the situation of entities with carried forward losses. A crucial aspect of the self-assessment system is the time limit in respect of amended assessments. If there was no time limit for amendment of assessments, taxpayers would be forever in a position of uncertainty in respect of their tax liability. It is inequitable and unfair that taxpayers in a tax loss situation could be in this position whereas taxpayers who have paid tax are not. The rules should be the same for all taxpayers whether they have made a profit or incurred a loss for the year. The matter is currently under appeal to the High Court (Ryan’s case). In my opinion, it is to the Commissioner’s discredit that he has even considered an appeal to the High Court. This is an area which should be settled by clear legislation.
Bentleys MRI (Qld) Pty