Statement by the Chairman – Board Starts Final Round of Tax Value Method Consultations

Today’s Tax Value Method (TVM) Consultative Briefing marks the start of an intensive final round of community consultations on the TVM.

Detailed information including draft demonstration legislation is being released to enable interested parties to formulate considered views on the TVM for input to the Board. Materials released today will also be made available on the Board’s website

Extensive development work has been done on the TVM over recent months in response to earlier versions of prototype legislation.

The Board welcomes community and stakeholder input based on the information released at today’s consultative forum. In particular, the Board is keen to receive submissions on the following specific issues relating to the TVM:

  • is there a need to address the complexity, inconsistencies and volume of Australia’s current income tax legislation;
  • does the TVM concept have the potential to deliver the improvements needed in Australia’s present income tax system – and why;
  • what specific benefits or impacts, including transitional costs, would the TVM have on taxpayers and/or tax practitioners;
  • are there areas in the draft legislation that would require adjustment to ensure consistent outcomes with the current law;
  • what would be the most efficient method and most appropriate timeline, if the TVM were to be implemented.

The TVM was a recommendation contained in the 1999 Ralph Review of Business Taxation. The concept of the TVM is to apply one set of uniform rules to the calculation of all forms of taxable income and losses, based on annual changes in the tax values of assets and liabilities. If adopted, the TVM would replace the current income tax law, which relies on legal definitions of income and deductible expenses and a myriad of separate

The proposed TVM is not a new tax, nor will it mean an increase in tax revenue. Under the TVM , you would calculate your taxable income on the basis of cash flows and changing tax values of assets and liabilities, with adjustments to reflect policy decisions and unused tax losses.

The overall aim of the TVM is to simplify income tax law by replacing the current many different rules with one rule supported by standardised core concepts. This improved structure of the law could reduce tax administration costs for businesses and individuals.

The Government asked the Board to test and assess the TVM concept in consultation with tax law practitioners and other key interests in the community. The Board’s strategy has been to promote awareness and understanding of the TVM through a process of extensive and open consultation and engagement with tax law professionals and other key interest groups. The aim has been to develop an information framework sufficient to allow the relative merits of the TVM to be objectively assessed.

The draft prototype legislation, associated explanatory material and other supporting information being released today represents the culmination of work done to date. The results of further analysis the Board has commissioned of potential compliance aspects will be available shortly.

All this material remains provisional in status. It does not reflect Government policy and has not been endorsed by the Government.

The material, nevertheless, provides a basis on which all those with an interest can make informed judgements in preparing and making their submissions to the Board, and all are encouraged to do so in a constructive manner.

The submissions will assist the Board in framing its final recommendations to the Treasurer mid-year as to the merits or otherwise of proceeding with the TVM.

Such extensive consultations are unique in Australia’s history of taxation reform and set a new benchmark in community consultation on Government legislative reform.

The need for adequate time to prepare for the transition to the TVM, as well as ensuring eventual efficient implementation will be critical elements in the Board’s deliberations.