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Tax Law Improvement Project: The Quiet Achiever in Tax Reform
John Harrison
Economics, Commerce and Industrial Relations Group
1. Introduction
The Tax Law Improvement Project (TLIP) is rewriting the Income Tax
Assessment Act 1936. It currently has its first major Bill before
Parliament and, to date, both sides have expressed support.
The Bill outlines the new structure of the Tax Act and deals with:
- core provisions of income and deductions;
- building write-offs;
- losses provisions;
- mining provisions; and
- substantiation.
2. Background
In November 1993 the Joint Committee of Public Accounts' Report Inquiry
into the Australian Taxation Office recommended a broadly based task
force be established to redraft the Income Tax Assessment Act 1936.
The then Treasurer, the Hon. John Dawkins, announced the Tax Law Improvement
Project: a 3 year project commencing on 1 July 1994 which would rewrite
some 5000 pages of income taxation law.
The multi-disciplinary project team is located in Brisbane and Canberra
and is led by Brian Nolan, a former Second Commissioner of the Australian
Taxation Office. The team comprises senior personnel from Treasury, the
ATO and the Office of Parliamentary Counsel.
3. Consultation
Consultation is a key feature of the project's methodology. A TLIP Consultative
Committee, comprising representatives of business, the community and tax
professionals, has a high degree of technical competency and meets regularly
to review and recommend improvements to the project team's work.
The community is involved through seminars and discussion groups on
specific legislation issues. Comments are sought by the project team in
relation to exposure drafts of proposed legislation.
Consultation is a long process, but it is invaluable. Through it, the
project team better understands the difficulties faced by tax practitioners
and the community in interpreting and applying the income tax legislation.
The team can then minimise these practical problems when making its rewrite.
The quality of rewrites is also enhanced through community feedback, which
enables an easier legislative passage.
4. TLIP Aims and objectives
The aims of TLIP are to reduce the costs of compliance and promote clearer
law through:
- a better structure;
- a better numbering system;
- easier navigation around the law; and
- more user friendly legislation.
5. A rewrite, not policy change
The project's terms of reference in rewriting the taxation law are to
maintain the taxation policy and not to change the law. Accordingly, the
project team is not examining ways to introduce new taxes or change old
ones.
However, from a compliance cost point of view, where sensible modifications
can be made to improve the law without altering its substance, such minor
policy changes are taken on board by the project team. For example, in
rewriting the substantiation rules the project team identified requirements
in the law which placed an unnecessary burden on taxpayers. Considerable
changes were made in the rewrite which made it easier for taxpayers to
comply with the new legislation.
6. Parliament's role
The Parliament has played an important part in TLIP through the issuing
of Joint Committee of Public Accounts (JCPA) Reports Nos 343 and 345,
which address a number of issues and make recommendations supporting the
project and its approach.
Of importance, the JCPA has essentially endorsed the project's terms
of reference in terms of a rewrite, not a policy change.
The JCPA was highly aware of frustration felt by some that the TLIP's
mandate was too limited, but saw that there was an immediate and pressing
need to reduce the complexity of the 1936 Act.
The JCPA recognised the need for a wide ranging review of tax policy
at both the Federal and State level. It further urged the Government to
comprehensively review tax policy in terms of the full body of the law
and the tax administration underpinning it.
7. The features of Tax Law Improvement
7.1. Structure is logical and better located
The design of the new taxation law is akin to a pyramid involving 3
layers, starting with central concepts and building up to more specialised
provisions, as follows:
- Core provisions
- General Provisions
- Specialist provisions
The 1936 Tax Act has lost its coherence through 60 years of continued
amendments, and a new rationale has been introduced to the taxation law.
Users of the law will benefit by this new structure. For example, all
the provisions affecting superannuation will be brought together and located
in one place.
7.2. Logical order of rules - simple first, complex later
Simple and complex law is intermeshed in the old law. What is important
is emphasised in the new law by placing upfront those rules that affect
most people. Accordingly, if you meet the requirements of the main rule(s),
you do not need to read through the detail in the following provisions
for the exceptions. There is a great benefit in not having to wade through
pages of legislation irrelevant to the user.
7.3. Plain language
Average sentence length of 140 words in the 1936 Tax Act has been reduced
to 40 in the new Act, making the law easier to read. Also, the law is
written in plain language, not legal jargon, and is much easier to understand.
Commonly used terms which have been tested by the courts have been retained.
While criticisms have been made that the new language may change the
law, the rewrite includes in its first division a rule that any difference
in style of the new law does not affect the meaning. Accordingly, the
new law should be interpreted in the same way as the old law. Any changes
made by the project team are spelt out in the Explanatory Memorandum.
7.4. Modern numbering system
A new numbering system has been created which will overcome the existing
legislation's numbering deficiencies. It will be easy to follow, it will
be sequential and it will be capable of withstanding further amendments
without affecting its flow.
7.5. Reduction of legislation
The removal of redundant provisions, better structuring and the new
way of writing the law has, to date, enabled a reduction of some 50% -
60%. The user is obviously benefited by reduced legislation as it requires
less time to read for the same effect.
7.6. Various tools
The better structure of the law is also assisted by various navigation
tools which make it easier for users to get around in the legislation.
Users benefit by the certainty that they have read all they need to in
applying their tax problem to the legislation. Various design tools are
aimed at comprehension:
- at the start of each subdivision a guide gives you an overview
of what the subdivision is about;
- headers at the top of each page advise the nature and number
of the division and section on every page;
- signposts refer you to other relevant / related sections;
- examples are provided in the legislation on the more complex
issues;
- better use of charts, diagrams and tables; and
- every defined term is listed in the dictionary in the last
division and is either defined or referenced to the definition location.
8. Benefits of improving the law
The benefits of improving the law include:
- reduced complexity through a more sensible structure with a
clearer navigation system, with fewer rules and a smaller quantity of
law.
- lower compliance costs - taxpayers and advisers will be more
certain about the law and less time will be required to interpret clearer
legislation.
- promote fairness - by spelling out the rules more clearly,
taxpayers can better understand how the law applies to them in terms
of their obligations and rights.
- better compliance - users of the law who better understand
it find it easer to comply.
9. The future
The next major Bill of TLIP will deal with the very complex Capital
Gains Tax provisions. Current work has identified some 40-50 issues requiring
improvement and should make meaningful change.
The project will also be conducting further testing of the results of
its project methodology and the effectiveness of the new style of legislation.
The work being done is seen as a launching pad for change in tax reform
and should have enormous significance for other law.
Notes:
This research note has been prepared as a result of the author's attendance
at a seminar of TLIP.
Further detailed information on TLIP can be found on the internet address:
http://www.webaustralia.com.au/ato/atohp.htm
For further information on tax reform, refer to Current
Issues Brief No 7, 1996-97, Total Tax Review: Major Reform Issues and
Research Note No 10, 1996-97, The
National Tax Reform Summit: A Summary of Outcomes.
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