BUSINESS INCOME TAX CONSULTATION

The Treasurer announced today the mechanism by which consultation with business will

occur on the business tax reform proposals released as part of the Government’s tax

package.

sets out plans for comprehensive reform of business taxes on two

fronts:

• applying a framework of redesigned company taxation arrangements consistently to all

  limited liability entities; and

• considering the scope for more consistent taxation treatment of business investments

  with the prospect of achieving a 30 per cent company tax rate and further capital gains

  tax (CGT) relief.

indicated that consultation would occur with business on the

proposed reforms.

The Government has decided to appoint Mr John Ralph to conduct this consultation. He

will be assisted by the Tax Reform Task Force located in the Treasury.

Mr Ralph will be asked to report by 31 March 1999 to allow time for drafting of

legislation and its passage, to have effect from 1 July 2000. Mr Ralph will be asked to

take into account the views of small, medium and large businesses as well as rural and

farming businesses. Submissions will be invited from the public, from business and other

interested groups.

The terms of reference for the Review are attached. They have been drawn to allow

comprehensive consultation and take into account the current problems with business

taxation and the goal and strategy for reform set out in A New Tax System.

The strategy in relation to reform of business entities is to consult on the

proposed framework and on transitional and implementation details. The strategy in

relation to business investments is to consult on the extent of reform against the

goal of achieving a 30 per cent company tax rate and the prospect for further

CGT. A requirement of the reform of business investments is that it is revenue neutral.

A stable, simpler and more coherent business tax system will provide a basis for more

robust investment decisions, improved competitiveness, greater productivity, higher GDP

growth and more jobs.

Contact: Wayne Mayo

(02) 6263 4480

Business income Tax Review

Business taxation is concerned with taxing investments in physical and financial assets

(and their financing) and the collective vehicles or ‘entities’ through which

these investments can be made.

The Review will pursue the strategy specified in A New Tax System of

consultation on the framework of reform of business entities and on the extent of

reform of business investments recognising the current problems and objectives for

business tax reform identified in A New Tax System. The process of consultation

will include an assessment of the design and the administration of the tax regimes

affecting business to identify their main shortcomings and their impediments to productive

activity and innovation.

The Review will make recommendations on the fundamental design of the business tax

system, the processes of ongoing policy making, drafting of legislation and the

administration of business taxation.

The recommendations will be consistent with the aims of improving the competitiveness

and efficiency of Australian business, providing a secure source of revenue, enhancing the

stability of taxation arrangements, improving simplicity and transparency and reducing the

costs of compliance. The Review will adopt a comprehensive approach to reform driven by

clear, sound principles involving a move towards greater commercial reality.

The Review of business taxation arrangements will be open and transparent.

• Mr John Ralph, AO, will chair the Review.

• The Review will be able to call on the expertise of both the public and private sectors

  and academic tax experts.

• The Review is to report by 31 March 1999 to allow a reasonable time period for

  consultation with the business community, to allow draft legislation to be subject to

  consultative input from business and for the legislation to have effect from 1 July 2000.

This will involve reporting on:

(a) the Australian business taxation system as a whole compared with international

experience;

(b) the structural flaws in the broad design of business tax arrangements and the

degree to which existing business tax systems bias and impede business decisions;

(c) the degree to which the current business tax arrangements meet the aims of

certainty of taxation treatment, clarity of law, ease of administration and low compliance

costs; and

(d) the administration of taxation, including the drafting of legislation and technical

corrections to legislation and the adequacy of existing procedures for consultation

between the taxation authorities and the business community.

(a) in relation to business entities, the re-designed company tax arrangements

proposed to apply to companies, trusts, cooperatives, limited partnerships and life

insurers – including a move towards consolidated group

taxation and the achievement of a consistent treatment of distributions of profit and

contributed capital;

(b) in relation to business investments, the extent of reform in the areas of

physical assets, financial assets/liabilities and intangibles and the potential use of

accounting principles, taking into account the following considerations –

(i) the need to encourage business development with an internationally competitive tax

treatment of business investments;

(ii) the potential benefits of bringing tax value and commercial value closer together;

(iii) the goal of moving towards a 30 per cent company tax rate;

(c) in relation to capital gains tax (CGT), the scope for

• capping the rate of tax applying to capital gains for individuals at 30 per cent;
• extending the CGT rollover provisions to scrip-for-scrip transactions; and

(d) the Review will need to achieve overall revenue neutrality in respect of (b) and

(c) with these changes.