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New CGT law may deliver some expensive surprises says Tax Institute

Publication date: 28 Jun 98 | Source: THE TAX INSTITUTE

The rewritten and redesigned capital gains tax provisions that will become law from 1 July 1998 will substantially alter the way in which the CGT regime operates and may deliver some expensive surprises along the way, according to the Taxation Institute of Australia President, Mr Ken Spence.

"As a package, the new provisions are an improvement to the existing CGT provisions in Part IIIA of the Income Assessment Act. They are certainly more logically structured and more readable," said Mr Spence.

"However, many of the problems inherent in the old corporate-related CGT provisions have still not been addressed leaving a series of unnecessary ambiguities and complexities for tax practitioners to deal with."

"Given that the CGT rewrite is already more than 12 months late, the Tax Law Improvement Project Team should have been directed to spend a few extra months on the project to address these additional issues and then, hopefully, deliver a rewrite with greater real benefits of increased certainty as to tax outcomes and reduced compliance costs."

"It is now up to the Assistant Treasurer's minor tax policy enhancement procedure to come up with the goods to address a number of CGT problems still not adequately dealt with by the rewritten provisions."

"One of the many examples of the accepted deficiencies in both the old and new CGT provisions is there inability to appropriately cope with compensation payments made between contracting parties."

"The Tax Office have attempted to provide some guidance in this area by way of a ruling, but this should have been dealt with as part of the CGT rewrite process," Mr Spence said.

According to the Tax Institute, the full revenue implications of some of the legislative adjustments and interactions are just beginning to be considered in detail, particularly in the corporate area.

"While a number of so-called 'unintended consequences' were identified during the consultation process, many other matters are only now coming to the surface," Mr Spence said.

"These additional matters, including technical and minor CGT policy enhancements must be brought forward for consideration by Parliament and dealt with via legislation."

The CGT rewrite is the subject of three major articles in the Institute's latest technical publication, The Tax Specialist. For more information, call the Institute on 02 9232 3422.