Progressing the Development and Evaluation of the Tax Value Method: An Information Note (May 2001)
The purpose of this note is to outline the Board of Taxation’s plans for progressing the further conceptual development and evaluation of the so-called Tax Value Method (TVM) for determining taxable incomes.
Adoption of the TVM was a key recommendation of the Ralph Review of Business Taxation. The Government has since indicated its in-principle support for the TVM concept. The Treasurer, in a press statement of 7 August 2000, noted, in particular, that if implemented properly, the TVM has the potential to underwrite the development of a stable, less ambiguous and more understandable income tax system. He added that, potentially, the TVM could result in a system that is more conducive to accommodating changes into the future.
At the same time, the Government has acknowledged that there are many detailed issues that have yet to be resolved before it can commit to implementing the TVM. In his press release of 7 August 2000, the Treasurer announced that the required further development of the concept “…will be done with consultation through the Board of Taxation providing input from business users (and other stakeholders), and aiding in the education process.”
Against that background, the Board has developed broadly a two-stage strategy for advancing the development and evaluation of the TVM.
- The first stage will centre on developing a draft legislative framework sufficient to demonstrate and effectively test the TVM concept.
- The second will focus on evaluating and quantifying the likely transitional and on-going costs and other aspects of compliance with TVM based legislation. Evaluation will also extend to testing the robustness of the concept in terms of its capacity to accommodate future changes to the law and to maintaining the law’s integrity.
Through both stages of its strategy, the Board will be commissioning, in conjunction with interested and willing stakeholders, extensive companies and other case studies. These studies will be designed to thoroughly test the conceptual foundations of the TVM, and hence, inform the drafting process, and to test or inform evaluation of the compliance aspects.
The first stage will involve building on the draft legislation produced by the Review of Business Taxation and the positions developed in the subsequent consultations on the issues to around February 2000. Initially, the focus will be on addressing some fundamental aspects of the TVM (ie the “core rules”) that to date have received only rudimentary attention. These include the treatment of liabilities, the distinction between business and private or domestic income and expenditure, the treatment of non-cash transactions, and CGT issues.
The emphasis then will be on developing other important rules (e.g. the rules for non-residents, transitional rules) with a view to the release of an exposure “demonstration” legislative package towards the end of 2001. This demonstration legislation would then provide the basis for further testing and evaluation of the compliance aspects of the TVM, and more generally for promoting better informed public debate of the issues.
A small ‘TVM Legislative Group’, centred in the Australian Taxation Office, has primary responsibility for developing and drafting the ‘demonstration’ legislation. This Group comprises relevant officers from the ATO, the Treasury, the Office of Parliamentary Counsel and two private sector tax practitioner consultants.
In conjunction with the Legislative Group, the Board has convened a Working Group of private sector “experts” drawn from the tax practitioner, accounting, corporate finance, legal and academic spheres. The purpose of this group is to contribute practical advice and ideas to the legislative drafting process as well as contribute to other elements of the development and evaluation process. The Working Group, currently has a total membership of 19 persons, including its chairman, Mr Chris Jordan, and formally meets every 4 to 6 weeks. It is a first point of on-going reference for the legislative drafting team in the course of the development of the Board’s demonstration legislation. Members of this Group are free to consult more broadly with the business community or their constituent groups in gleaning ideas etc for input to the Drafting Group.
More generally, the Board will also be looking to coordinate and accommodate broader stakeholder interest in, and debate on, the TVM concept. This will be achieved, inter alia, by convening, at appropriate stages, seminars and conferences and the like, and through the regular dissemination of relevant information on the Board’s website.
In terms of timeframes, the aim currently is to produce the Board’s draft demonstration legislative framework for public release by around early 2002. Allowing for further comprehensive compliance testing and issues debate, the Board envisages being in a position to make its recommendation to the Treasurer on whether the TVM should be adopted in the first half of 2002. This suggests that the TVM, if implemented, could not become effective before 1 July 2003.
Evident from the foregoing is that the Board is looking to promote processes that will allow for full, open and frank discussion of the issues. The emphasis is on generating as much factual information as is feasible in order to promote informed and objective public debate, and hopefully consensus, on the relative merits of the TVM concept. As such, the Board is hopeful of constructive and cooperative input from all interested parties in this very important endeavour.
The Board very much would welcome any comments or suggestions on any of the foregoing.