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Government's backflip on tax laws undermines the integrity of the tax system

Publication date: 25 Nov 11 | Source: THE TAX INSTITUTE

Friday 25 November, 2011:  The Federal Government’s announcement today that it plans to introduce retrospective legislation to reverse consolidation tax laws rolled out only last year, further erodes the integrity of the tax system, The Tax Institute said today.

“The Government’s announcement of yet another retrospective change to tax laws is extremely disappointing and serves to further undermine the principles on which the tax system is based,” said The Tax Institute’s Senior Tax Counsel, Robert Jeremenko.

“A fundamental principle of the legislative process is that laws which adversely affect taxpayers should not apply retrospectively except in extremely rare situations, such as addressing significant tax avoidance.  This is not the case with these changes.”

“Taxpayers enter into transactions on the basis of the law as it is, not the law as it is rewritten after transactions have occurred,” he said. 

The Government’s changes relate to the way a consolidated group can deduct the costs allocated to particular assets following a corporate acquisition.  The changes will reverse amendments to the tax law passed by Parliament in May 2010 and further restrict the operation of the consolidation regime. 

“Today’s changes will have a significantly adverse impact on some taxpayers back to 2002, when the law first commenced. 

Furthermore, the retrospective changes will create inequitable treatment between taxpayers who are in similar situations, but applied the law as it stood at different times,” said Mr Jeremenko. 

“The Government’s announcement is the latest in a very concerning trend of retrospective legislation.  We have recently seen amendments to the Petroleum Resource Rent Tax backdated to 1990 and proposed changes to the transfer pricing laws that will apply from 2004.

“Whilst these changes stand alone on their own particular factual circumstances, the trend towards retrospectivity in legislation, particularly today’s reversal of tax provisions on which the Government consulted widely prior to introducing only last year, is a disturbing one.

“During this period of significant market volatility the last thing that business needs is another hit to their profit and loss account from such a significant change.

“Even the prospective part of today’s changes has the perverse effect of undermining the attractiveness of the consolidation regime, as taxpayers are skewed towards asset purchases rather than share purchases, hence eroding one of the key objectives of consolidation,” he said

Mr Jeremenko said, while the Federal Government consulted widely with tax experts and key industry bodies including The Tax Institute ahead of today’s announcement, the substance of the consultation was focussed on refinements.  The Government did not countenance any changes to their policy decision to retrospectively change the law.


For more information contact:
Robert Jeremenko, Senior Tax Counsel, The Tax Institute, 0468 987 300
Adam Bell/ Dylan Malloch, Sefiani Communications Group, (02) 8920 0700
Email: /

The Tax Institute is the country’s leading professional association in tax. Its 13,000 members include tax agents, accountants and lawyers as well as tax practitioners in corporations, government and academia.  The Tax Institute supports the tax profession and its members by holding more than 350 tax events each year. It conducts educational courses, develops publications, maintains an online information resource and provides a comprehensive tax library and research service. It works to continually improve tax law and its administration.