A Post-Implementation Review of the Quality and Effectiveness of the Small Business Capital Gains Tax Concessions

Background

In March 2002, the Board of Taxation provided the Treasurer with a report, Government Consultation with the Community on the Development of Taxation Legislation. The report included a recommendation that the Board conduct post-implementation reviews of significant tax legislation initiatives, consistent with one of the functions set out in its Charter: to advise on the quality and effectiveness of tax legislation and the processes for its development, including the processes of community consultation and other aspects of tax design. The report was released by the Treasurer via press release on 2 May 2002.

The Government accepted this recommendation and the Treasurer agreed that the Board’s second post-implementation review would be conducted on the small business capital gains tax (CGT) concessions in Division 152 of the Income Tax Assessment Act 1997. Division 152 applies to all assessments for the income year including 21 September 1999 and all later income years, but only for CGT events that happen after 11:45 am on 21 September 1999. At the time, only a small number of amendments had been made to the provisions since their introduction. Therefore, a review at this stage was timely and based on reasonable experience of its operation.

In undertaking these reviews, the Board assessed the legislation against criteria based on its Consultation Report to determine the extent to which the legislation:

• gives effect to the Government’s policy intent, with compliance and administrative 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.

Working group and consultation

The Board commenced substantive work on the review in November 2004 and formed a Working Group of three of its members to take day to day carriage of this work.

On 3 December 2004, the Board of Taxation invited stakeholders to make submissions to the review. A total of 20 submissions were received from a range of stakeholders by 30 June 2005. Public submissions are available on this website below. The Board met with a number of organisations that made submissions to the review to discuss their submissions.

The Board appointed two consultants to assist with the review. Webb Martin Pty Ltd (Webb Martin) was engaged to conduct a general evaluation of Division 152. Atax (the Australian Taxation Studies Program), part of the Law Faculty of The University of New South Wales, was engaged to conduct an evaluation of the compliance and administrative costs of Division 152. Both consultants consulted widely with taxpayers and tax professionals through focus groups and surveys to obtain input for their evaluations.

The Board also consulted extensively with the Treasury and the Australian Taxation Office (ATO). The Board would like to extend its appreciation to both the Treasury and the ATO for their cooperation with the Board in conducting this review.

The Board’s Report

On 9 May 2006 the Treasurer announced the release of the Board’s Report on its post-implementation review of the small business capital gains tax concessions.

The Board made a total of 39 recommendations, over half of which seek to address issues relating to the net asset and active asset tests. The majority of the remaining  recommendations seek to clarify issues relating to the retirement exemption and small business CGT affiliates.

Government Response

Of the 39 recommendations made, 26 sought legislative amendments and 13 related to administrative matters. The Government accepted all but one of the legislative amendment recommendations, 3 with minor amendments favouring the taxpayer. The Australian Taxation Office accepted all recommendations relating to administrative matters.

For further information about this review please contact the Board of Taxation Secretariat on (02) 6263 4366 or at taxboard@treasury.gov.au.

Submissions received