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Retrospectivity resurrection, how late is too late?

Publication date: 30 Oct 01 | Source: THE TAX INSTITUTE

'The Taxation Institute of Australia is alarmed by the possibility of retrospective anti avoidance legislation. Firstly, it involves legislation about a poorly defined concept. It is not clear, even now, exactly what behaviour is being targeted. Secondly, the proposed start date - 22 February 1999 - is not a viable or reasonable start date for this anti-avoidance legislation, 2.5 years late is just too late. I call on both the Liberal and Labor parties to definitively rule out any possibility of this retrospective legislation being introduced in the new Parliamentary term.'

If retrospectivity is still under consideration, at least 3 years of tax returns could potentially be affected resulting in numerous administrative and technical difficulties, as well as issues of equity and fairness. For example:

  • How long would taxpayers be given to pay the primary tax?
  • How will this tax be assessed, and on what tax return forms?
  • Would there be any question of imposing any penalties or interest in these circumstances?

    It is the Taxation Institute's view that there is no justifiable basis for retrospectivity. Whilst retrospectivity for periods of 6 to 12 months is not unknown (and even then is often challenged), a retrospective period of over 2.5 years relating to a practice that has never been clearly articulated in any Government announcement is not justifiable on any grounds.

    Any attempt retrospectively to resurrect an idea, which was only ever an imprecise concept, is unlikely to be acceptable to the Australian community, and in particular, to the family investor sector which retrospectivity will largely affect.

    In addition, taxing people retrospectively for over 2.5 years offends all sense of equity and fairness, especially as taxpayers have been told by the Treasurer on 22 March 2001 that 'the current tax law for trusts will continue to apply' (see Treasurers Press Release No. 16).

    'The Taxation Institute is appealing for urgent clarification from all political parties in relation to trust taxation and, in particular, the use of 22 February 1999 as the commencement date of this type of legislation,' said Ms McCleary.

    - ends -

    Editor's Note:

  • On the 22 February 1999 the Treasurer issued a Press Release announcing that 'The Government will address an abuse of deficiencies in the current business tax system.' Trusts were not mentioned, let alone revaluation distributions out of trusts.
  • The Press Release referred to a letter written by John Ralph to the Treasurer. That letter gave several avoidance examples, none involving trusts. The only reference to trusts was very general: 'There are also other possible reforms, including transitional arrangements for the taxation of trusts, that could give rise to strategic exploitation prior to their introduction.'
  • On 21 September 1999, when the Government announced its initial response to the Ralph Report, the Treasurer stated that 'a number of the anti-avoidance measures will begin from 22 February 1999.' Trusts were not mentioned in the body of the Press Release, but tucked away in Attachment P was a reference to non-commercial loans to trusts. Distributions out of revaluation reserves were not mentioned.
  • On 27 February 2001 – two years after the critical date – the Treasurer issued another Press Release announcing that the draft legislation to tax trusts like companies was unworkable, and would be withdrawn. Also, there would be a new round of consultations to among other things 'address any tax abuse in the trust area.'
  • A month later, on 22 March 2001, the Treasurer announced his comprehensive tax reform implementation timetable for 'delivering the remaining elements of the business tax reform package.' The Press Release contained a single, clear message on trusts: 'the current tax law for trusts will continue to apply.'
  • By March 2001, it was thought that all vague rumours of 2 years earlier had been abandoned, but would presumably be re-considered in the new work on trust abuse announced in February 2001. However, for the moment 'the current tax law for trusts will continue to apply.'