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3 June 2009

Board of Taxation to conduct two post implementation reviews

The Assistant Treasurer today announced that the Board of Taxation would undertake post-implementation reviews of certain aspects of the consolidation regime and the provisions relating to the alienation of personal services income.

Post implementation reviews provide the Board with an opportunity to review legislation that has been in operation for a number of years.

"The Tax Design Review Panel that I commissioned last year recommended that the Board be requested to undertake more frequent post implementation reviews," Mr Bowen said

"The intention of post-implementation reviews is to establish if the legislation is having its intended effect and to find out whether its implementation can be improved."

Alienation of Personal Services Income

The Alienation of Personal Services Income provisions are integrity rules designed to address both the alienation of personal services income through interposing an entity and the capacity of individuals and interposed entities to claim higher deductions than employees providing the same or similar services. The provisions were introduced in 2000 and their effectiveness has not been formally reviewed.

The Board will conduct the review in line with the terms of reference at Attachment B and report by the end of October 2009.

Certain aspects of the consolidation regime

The Board will also undertake a post implementation review of certain aspects of the consolidation regime, namely:

  • The operation of the single entity rule;
  • The interaction between the consolidation provisions and other parts of the income tax law; and
  • The operation of the entry history rule in acquisition cases.

The consolidation regime was enacted in four major stages during 2002 and 2003. A number of refinements have been made to the regime since then and it is timely to take stock of whether the law is achieving the objectives of promoting business efficiency, improving the integrity of the Australian tax system and reducing ongoing income tax compliance costs.

The Board of Taxation will provide further details on proposed timing for the review.

Further detail on post implementation reviews is at Attachment A.


Attachment A

Board of Taxation Post Implementation Reviews

The standing terms of reference for a post-implementation review requires the Board to consider whether the legislation:

  • gives effect to the Government's policy intent;
  • has compliance and administration costs commensurate with those foreshadowed in the Regulation Impact Statement for the measure;
  • is expressed in a clear, simple, comprehensible and workable manner;
  • avoids unintended consequences of a substantive nature;
  • takes account of actual taxpayer circumstances and commercial practices;
  • is consistent with other tax legislation; and
  • provides certainty.

Attachment B

Terms of Reference

Post-Implementation Rewview into the Alienation of Personal Services Income Rules

Background

The alienation of personal services income rules were introduced to improve the integrity of the tax system. The rules resulted from calls for greater equity and neutrality in the taxation of personal services income.

The changes came out of recommendations of the Review of Business Taxation. The rules are designed to improve integrity by addressing both:

  • the capacity of individuals and interposed entities (providing personal services of an individual) to claim higher deductions than employees providing the same or similar services; and
  • the alienation of personal services income through an interposed entity.

Even if a taxpayer's income is not affected by these rules, the general anti-avoidance provisions may still apply to schemes to reduce income tax by income splitting.

The Government has become aware of significant stakeholder concerns that the personal services income rules may not entirely achieve the goals of greater equity and neutrality in taxing income from personal services.

Scope of the review

The Board of Taxation is requested to undertake a post-implementation review1 into the alienation of personal services income rules. In undertaking the review, the Board is also to:

  • examine the operation of the rules to determine whether the rules are achieving their desired policy outcome;
  • identify any problems with the operation of the rules; and
  • if appropriate, consider options for improving the rules.

In conducting the review, the Board is to:

  • have regard to the Review of Australia's Future Tax System headed by Dr Ken Henry;
  • seek public submissions and consult widely; and
  • produce a final report by 31 October 2009 so that any findings and recommendations can inform the Panel undertaking the review of Australia's future tax system, which is due to report by the end of 2009.

1The standing terms of reference for a post-implementation review requires the Board to consider whether the legislation gives effect to the Government's policy intent, with compliance and administration costs commensurate with those foreshadowed in the Regulation Impact Statement for the measure; is expressed in a clear, simple, comprehensible and workable manner; avoids unintended consequences of a substantive nature; takes account of actual taxpayer circumstances and commercial practices; is consistent with other tax legislation; and provides certainty.