Government Decides Against the Tax Value Method

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Government Decides Against the Tax Value Method




The Treasurer announced today that the Government has accepted a recommendation

from the Board of Taxation not to proceed with the Tax Value Method (TVM) and

the associated Section 4 ‘core rules’.

TVM was recommended by the Review of Business Taxation and referred by the

Government to the Board of Taxation in August 2000 for consultation and advice.

The Board has reported there is significant industry concern about the cost

and uncertainty associated with the TVM. In particular, the Board found that

there is a widespread perception that, while the TVM may offer benefits in some

areas, it would generate greater complexity and uncertainty in others. There

is also concern that adopting the TVM would result in substantial transitional

costs for tax advisers and business generally.

The Board’s recommendation followed an extensive evaluation of the TVM, which

included a wide-ranging process of consultation with tax experts, business and

the broader community.

While the TVM concept will not be pursued, the Government will develop, in

consultation with the business community, a systematic tax treatment of rights

and blackhole expenditures, with a view to implementing these changes by July

2005. Until then, the Government will continue to accord appropriate recognition

of rights and blackhole expenditures on a case-by-case basis as re-affirmed

by the Minister for Revenue and Assistant Treasurer on 14 May 2002 (Maintaining

the Momentum of Business Tax Reform).

While much has already been done to address blackhole expenditures through

the uniform capital allowance system, some business expenditures remain unrecognised

in the tax system. Although rights are currently accorded a range of taxation

treatments, anomalous outcomes may arise where there is a gap or overlap between

such treatments.

The Government has already, in consultation with the business community, introduced

positive measures including thin capitalisation, consolidated taxation of corporate

groups, the uniform capital allowances system, tax relief for demergers, and

a simplified imputation system. Other ongoing areas of reform which the Government

will pursue are the review of international tax arrangements and reforms to

the taxation of financial arrangements.

The Board of Taxation was established in 2000 by the Government to ensure full

and effective community consultation in the design and implementation of tax

legislation. I would like to thank the Board of Taxation for its consultation

on and evaluation of the TVM proposal.


28 August 2002

Contact: Niki Savva

02 6277 7340