Chapter 2: Board's Progress

2.1 A Working Group of the Board was established in 2003 to consider possible rationalisation of the income tax legislation. From 2004, this Working Group managed the project on identifying the inoperative provisions of the 1936 and 1997 Income Tax Assessment Acts. It comprises Mr Chris Jordan AO (Chairman), Mr Peter Quiggin, and Mr Richard Warburton AO, and is assisted by the Board’s Secretariat.

  • The Board’s membership and Charter are shown at Appendix 1.

2.2 The Board’s starting point was that, if it were to recommend repeal of the inoperative provisions of the two Acts, this recommendation would need to be based on a rigorous process giving confidence that operative provisions would not be incorrectly repealed with unintended consequences for taxpayers or the revenue. This approach has governed the Board’s work and the contract specifications of Board consultancies for the project.

Consultancy undertaken by Mr Tom Reid

2.3 In April 2004, the Board engaged Creating Coherence Pty Ltd, employing the services of Mr Tom Reid, to assist in defining the inoperative provisions of the 1936 and 1997 Acts and to identify these provisions. Mr Reid was previously Second Parliamentary Counsel, Office of Parliamentary Counsel.

2.4 Following discussions with Mr Reid and consultation with selected stakeholders, the Board agreed to adopt the following two part definition of an inoperative provision:

  • Type 1: The provision has no application, of its own force, to income years after a cut off year.1
  • Type 2: The provision cannot apply to income years after a particular income year because its operation is ‘spent’.2

2.5 To simplify the identification task (at a likely very small cost in terms of inoperative provisions not identified), it was agreed that a section would not be regarded as inoperative if any of its sub-provisions fails these two tests — that is, if some but not all of its sub-provisions are inoperative.

2.6 It is recognised that the definition and methodology used will not have identified every provision that is inoperative or otherwise redundant. For example, in addition to the case noted in the preceding paragraph, it will not always be possible to identify provisions that lack explicit cut offs. There may also be provisions that do not strictly meet the definition of inoperative, even though they have been made redundant by later developments in the law or have an extremely limited application to taxpayers.

  • However, Mr Reid is confident that a very high proportion of inoperative provisions (according to the agreed definition) has been identified.

2.7 The methodology employed by Mr Reid was to conduct electronic searches of the Scaleplus reprint, prepared by the Attorney-General’s Department, of the two Income Tax Assessment Acts and the Taxation Administration Act 1953. Every reference to a date was examined to see if it made the provision, where it occurred, fit the definition of inoperative. In addition, areas of the 1936 Act were ‘manually’ reviewed to identify provisions that have implicit cut offs. The CCH conversion tables were used as a double check on such provisions.

2.8 Mr Reid found that candidate inoperative provisions made up about half the 1936 Act and less than 2 per cent of the 1997 Act.3 Later work has shown that somewhat less of the 1936 Act is actually inoperative (see below).

2.9 Mr Reid advised that the ‘candidate inoperative provisions’ he identified should be checked manually if the intention was to repeal the inoperative provisions. He also advised that further checking should include the investigation of all cross-references to inoperative provisions to determine whether consequential amendments were needed (for example, where a still operative provision referenced a definition contained in a candidate inoperative provision).

Consultancies undertaken by Atax and SoftLaw

2.10 Consistent with Mr Reid’s advice, in January 2005 the Board engaged Atax4 to advise whether there would be any unintended consequences if the candidate inoperative provisions identified by Mr Reid were repealed.

2.11 Atax also analysed cross-references in Commonwealth legislation (including regulations) to candidate inoperative provisions and the scope of definitions referring to these provisions to ensure they do not cause the candidate provisions to have continuing effect.

2.12 In February 2005, the Board engaged SoftLaw Corporation Limited5 (now RuleBurst Limited) to identify these cross-references and definitional links using proprietary software. The results of SoftLaw’s work were provided to Atax to facilitate their analysis.

2.13 In addition, Atax examined amendments to tax legislation in the period March 2004 (the cut off used by Mr Reid) to June 2005 to determine whether these amendments resulted in any further candidate inoperative provisions. None was found.

2.14 Atax examined every provision classified by Mr Reid as a Type 1 or Type 2 candidate inoperative provision and took a view on whether it had any residual operation. Their methodology included:

  1. reading through the candidate inoperative provision in its entirety to see if there is any continuing operation of the provision apparent from either the manner in which its cut off was worded (if there is an explicit cut off) or any of its provisions themselves;
  2. if the provision is part of a relatively succinct set of related provisions not all of which have been cut off, reading through the surrounding provisions to develop an understanding of the context in which the cut off provision operated and whether its continued presence may be necessary to the operation of any of the surrounding provisions;
  3. if the inoperative provision has been re-written (that is, generally from the 1936 Act to the 1997 Act), identifying the relevant new provision or provisions. Consulting the provisions of the Transitional Provisions Act that correspond to those new provisions to firstly see if the transitional operation is itself continuing or has ceased (in terms of practical operation as opposed to merely being statutorily in force);
  4. contemporaneously with step (c), if there is a continuing transitional operation, determining if the inoperative provision should be retained because it may need to be consulted to give effect to (legally) or understand that continuing operation;
  5. if the inoperative provision has been re-written, regardless of whether there is a continuing transitional operation under the Transitional Provisions Act, consulting the re-written provisions to determine if there is any reference at all to the former law in them that would make retention of the inoperative provision desirable;
  6. if a provision still in the legislation (that is, not repealed) has been rendered inoperative otherwise than as part of the Tax Law Improvement Project re-write process (whether by explicit cut off or implicitly), then instead of steps (c) to (e), undertaking the following steps:
    • if there is an explicit cut off, consult the relevant amending legislation that inserted the cut off to check if it contains any savings provisions not apparent on the face of the legislation (that is, provisions that have a continuing transitional operation);
    • refer to the explanatory material for the amending legislation in conjunction with it (if this is considered necessary to clarify any aspect); and
    • if the inoperative provision has been replaced by new provisions that cover substantially the same ground (whether in the 1936 Act or 1997 Act), then the substance of steps (c) to (e) should still be followed as part of examining the amending legislation (effectively in lieu of the Transitional Provisions Act) and the new provisions still consulted as per step (e);
  7. if a cut off is only implicit, determining the reason for the implicit cut off and its validity; and
  8. identifying other provisions in either the taxation legislation or other legislation that may refer to the inoperative provisions by reference to the SoftLaw report. Read these provisions to determine if their continued operation is dependent on the existence of the inoperative provision or reference to it.

2.15 Atax agreed with Mr Reid that:

  • approximately 1,620 pages of provisions of the two income tax Acts would be suitable for repeal;
  • a further 290 pages would be suitable for repeal, although Atax highlighted particular issues in relation to these provisions.

2.16 Atax’s examination concluded that around 480 pages of provisions identified by Mr Reid as candidate inoperative provisions have continuing operation and should not be recommended for repeal.

Subsequent consideration by Atax and Mr Reid

2.17 In May 2005, the Board engaged Mr Reid to examine and provide advice on the Atax work. In discussions between Atax and Mr Reid — and as a result of further work undertaken by Atax following input from the Reference Group (see below) — the above figures were modified as follows: approximately 1,545 pages suitable for repeal (consequential amendments to other legislation may be needed for some of these); around 590 pages able to be repealed following consideration of possible amendments to facilitate repeal; and about 300 pages not recommended for repeal.

2.18 Therefore, this phase of the work increased the total number of pages that Atax and Mr Reid consider would be suitable for repeal from around 1,910 to around 2,135.

Reference Group

2.19 In June 2005, the Board appointed a Reference Group of experts as a further safeguard that operative provisions would not be incorrectly repealed. The Reference Group provided the Board with high level advice and guidance on selected issues, including sample checking — rather than comprehensive checking — of the Atax work. The Reference Group comprised:


  • Mr Peter Quiggin, First Parliamentary Counsel, Office of Parliamentary Counsel, Canberra; member of the Board of Taxation; member of the Board’s Working Group on the inoperatives project;


  • Mr Gordon Cooper, AM, Principal, Cooper & Co, Chartered Accountants, Sydney; member of the Board’s Advisory Panel;
  • Mr Greg Pinder, Senior Adviser, Tax Design Division, Department of the Treasury, Canberra;
  • Mr Tom Reid, Consultant to the Board of Taxation, Canberra;
  • Mr Tony Slater, QC, Barrister, Sydney; and
  • Professor Richard Vann, Challis Professor of Law, The University of Sydney; member of the Board’s Advisory Panel.

2.20 The Reference Group examined a random sample of 1936 Act provisions — drawn from the estimated 1,620 pages of provisions referred to above — to provide additional assurance that the Atax methodology had produced sound results.

  • One of these provisions was found to have continuing application, underlining the difficulties inherent in exercises of this kind and the risk that any legislative change, including repeal, may have unintended consequences.

2.21 The Reference Group also examined a list of provisions prepared by one of its private sector members. The member concerned had not examined these provisions in detail or identified particular problems with them. Rather, his practical experience indicated that there were signals for care in considering whether they would be suitable for repeal.

  • This list of provisions will be provided to Treasury to assist with appropriate checking and legislative development that the Board recommends be undertaken as part of the Government’s usual legislative process.

2.22 At the time this report was finalised, the Reference Group had not had the opportunity to examine a sample of the estimated 590 pages of provisions that Atax and Mr Reid agreed would be suitable for repeal subject to consideration, as part of the legislative process, of possible legislative amendments to facilitate repeal.

Possible unintended consequences

2.23 As noted above, it remains possible that the repeal of some provisions could lead to unintended consequences, essentially reflecting the complexity of current law that has built up over many years. There would therefore be benefit in the Government undertaking further processes — for example, as recommended in this report, appropriate checking and legislative development and public consultation — to reduce as far as possible the risk of such unintended consequences.

2.24 In addition, the Board recommends that consideration be given to developing savings provisions, as discussed in paragraphs 2.30-2.32 below.

Section 8 of the Acts Interpretation Act

2.25 Section 8 of the Acts Interpretation Act 1901 sets out the effect of repealing a provision of an Act. As part of his consultancy to the Board, Mr Reid provided advice on the application of this section.

2.26 In particular, he noted that, because of section 8, a repealing Act often does not need to include provisions to preserve the effect of the repealed provisions up until the time of repeal. Similarly, any investigation, legal proceeding or remedy in respect of a right or obligation created by a repealed provision can be continued to completion even after the time of repeal — although a repealed provision cannot itself create a new right or obligation after the time of repeal.

2.27 However, Mr Reid also pointed to circumstances where caution may need to be exercised in relying on section 8. In such circumstances, a savings provision may be desirable to preserve things section 8 for some reason does not cover or may not cover.

2.28 The Reference Group was asked whether they agreed with the interpretation of section 8 relied on by Mr Reid (and by Atax). They were also asked to consider any feasible alternative approaches which would most likely take the form of further savings provisions.

2.29 The Reference Group broadly agreed with Mr Reid’s interpretation of section 8 of the Acts Interpretation Act.

Proposed savings provisions

2.30 The Reference Group also considered the need for an appropriate savings provision to provide additional assurance that repeal of an inoperative provision would not affect the operation of a provision of any Act that depends on the repealed provision. Such a provision would be in addition to any specific savings provisions and consequential amendments that may be developed as part of the legislative process.

2.31 The Board proposes that a savings provision along the following lines be considered for incorporation in a draft repeal Bill:

Limited continued effect of repealed provisions

If the operation of a provision of any Act depends to any extent on a provision repealed by this Act, then, despite its repeal, the repealed provision continues to have effect for the purpose only of the operation of that other provision.’

2.32 In addition, the Board recommends that the Government consider developing a savings provision to enable the application of a repealed provision to be restored, if necessary, to address any unintended consequences.

  • Such a provision could, for example, take the form of a regulation making power in the repeal legislation to enable a repealed provision to be given its original or more limited effect. The Board notes, however, that such a use of delegated legislation would need to be acceptable to the Parliament.

  1. For example, section 48 of the 1936 Act provides as follows:

    ’48 Allowable deductions

    (1) In calculating the taxable income of a taxpayer, the total assessable income derived by him during the year of income shall be taken as a basis, and from it there shall be deducted all allowable deductions.

    (2) This section does not apply to the 1997-98 year of income or a later year of income.

    Note: Section 4-15 of the Income Tax Assessment Act 1997 sets out rules for working out an entity’s taxable income for the 1997-98 year of income and later years of income.’

    There are various ways in which a Type 1 provision may have application to the current income year otherwise than of its own force. The most typical case is likely to be where the provision contains a definition that is referenced by another provision that is still operative. 

  2. For example, section 67 of the 1936 Act provides as follows:

    ’67 Expenses of borrowing

    (1AA) This section does not apply to expenditure incurred in the 1997-98 year of income or a later year of income.

    Note: Section 25-25 (Borrowing expenses) of the Income Tax Assessment Act 1997 deals with the deductibility of borrowing expenses.

    (1A) This section has effect subject to Division 245 of Schedule 2C.

    (1) Subject to this section, so much of the expenditure incurred by the taxpayer in borrowing money used by him for the purpose of producing assessable income as bears to the whole of that expenditure the same proportion as the part of the period for which the money was borrowed that is in the year of income bears to the whole of that period shall be an allowable deduction.

    (2) Where the period for which the money was borrowed is not fixed, or exceeds 5 years, the period of 5 years from the date on which the money was borrowed shall, for the purposes of subsection (1), be deemed to be the period for which the money was borrowed.

    (3) Where the total expenditure incurred in the year of income by the taxpayer in borrowing money used by him for the purpose of producing assessable income does not exceed $100, the whole of that expenditure shall be an allowable deduction in the year of income.

    (4) Where a taxpayer incurs expenditure in the year of income in borrowing money used by the taxpayer only partly for the purpose of producing assessable income, the taxpayer shall be deemed, for the purposes of the preceding provisions of this section, to have incurred only so much of that expenditure as, in the opinion of the Commissioner, is reasonable in the circumstances.’

    It is clear from the cut off provision in subsection (1AA), and from the note, that this section does not apply to expenditure in the 1997-98 income year and later income years. However, because section 67 provides for expenditure to be deducted over a period of up to 5 years, it does not meet the test for being a Type 1 inoperative provision.

    The latest possible income year to which section 67 can be relevant is 2001-02. From 2002-03 at the latest, the provision will be ‘spent’.

    Note that Type 2 provisions are inoperative in a formal sense from the time the cut off provision is enacted. However, in a practical sense they continue to be operative until they are ‘spent’. This is because they have a direct application to working out a taxpayer’s liability for the income years before they are ‘spent’.

  3. Mr Reid also found that there were no candidate inoperative provisions in the Taxation Administration Act 1953
  4. The Atax team was led by Professor Robert Deutsch and also comprised Mr Maurice Cashmere, Mr Kalmen Datt, Mr Garry Payne, the late Mr John Raneri, and Mr Michael Binetter as a consultant to Atax. 
  5. Involved in the project were Ms Fiona Guy, Principal Legal Analyst, and Mr Andrew Barry, Lead Technical Research.