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Increased Certainty In Australian Tax System

Thursday, March 18, 2010

The Australian government has moved to boost taxpayer certainty through the repeal of over 100 provisions in the income tax laws that provide the Australian Taxation Office (ATO) with an unlimited period to make an amendment to a taxpayer's assessment.

"The removal of these provisions will boost certainty for taxpayers, said Nick Sherry, the Assistant Treasurer. “The removal of these unlimited amendment powers will ensure taxpayer affairs for a particular year become final at the conclusion of the standard amendment period of two to four years.” This finite amendment period will apply unless there has been fraud or evasion.

In addition, Sherry also released the Inspector-General of Taxation's (IGT) review into delayed or changed ATO views on significant issues. The report examines taxpayer concerns about perceived ATO ‘u-turns’ - delayed or changed approaches on significant interpretative matters or in relation to past administrative practices.

The IGT report found that while the ATO may have acted within the law, there are circumstances where taxpayer concerns of its changes in views or practices, and their related delays, may be justified.

In his report, one of the IGT’s recommendations is that the government should consider whether the current legislative framework provides effective transparency and certainty for taxpayers when the ATO retrospectively applies new, changed or clarified views.

In his reply, the Assistant Treasurer agreed that transparency, clarity and certainty are critical principles with the administration of tax matters, and stated that the recommendation would be considered within the government’s overall response to the Henry tax review.

In addition, he disclosed that the ATO has informed him that “it will be developing, in close collaboration with the taxpayer community, its administrative practice concerning the circumstances in which it seeks to apply its views retrospectively by incorporating specified process steps and criteria set out in the IGT report. It has also indicated that it will improve its pro-activity in seeking to identifying areas of uncertainty through improved engagement with taxpayers and their representatives."

On the same day, Sherry, announced the introduction of tax legislation “to improve the fairness and integrity of the tax system.” The new bill contains various measures that have been the subject of previous issues of draft legislation for public consultation.

The bill therefore contains a tightening of the non-commercial loan rules to remove the scope for private companies to allow shareholders and their associates to use company assets — such as real estate, cars and boats — for free, or at less than their arm's length value, without paying tax. There are, however, exemptions to ensure farmers and small businesses people who legitimately use a residence in connection with their business are not disadvantaged.

The bill also includes the extension of the tax file number withholding arrangements to closely held trusts and family trusts in order to prevent taxpayers from avoiding paying their fair share of tax. The effect of this change will be to allow the ATO to better align the information obtained from trustees with the amounts reported by the trust’s beneficiaries. Additionally, this measure will allow the ATO to check whether the assessable income of beneficiaries of these trusts correctly includes their share of the net income of the trust.