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The Board of Taxation
Presentation by Mr Brett Heading

Topics

• Role of the Board of Taxation
• Review the Board's work
• Highlight issues on the Board's plate
• Focus of the Board's activities in 2003

Board of Taxation's Role (1)

The Board's mission is stated in its Charter

• "Recognising the Government's responsibility for determining taxation policy, and the statutory role of the Commissioner of Taxation, to contribute a business and broader community perspective to improving the design of taxation laws and their operation."

Board of Taxation's Role (2)

• Purely an advisory body to the Treasurer and the Government
• No mandate to determine taxation policy matters unless authorised by the Treasurer
• No power of direction over the Commissioner of Taxation

Board of Taxation - Composition

• In operation for two and a half years
• Seven non-government members
• Three ex-officio members
• Serviced by a small Secretariat within the Treasury

Board's Work (1)

Major recommendations by the BoT:

• that development of the TVM not proceed
• that best practice arrangements for community consultations be established
• that the responsibility for tax legislation be transferred from the ATO to the Treasury

Board's Work (2)

• that new office of Inspector-General of Taxation is a welcome addition to existing tax institutions
• that there is no compelling case to change the existing tax treatment of trusts
• Review of International Tax Arrangements

Taxation of Trusts (1)

• The Government took the Board's advice that the entities taxation regime that was to commence in July 2001 - not proceed
• When the Government withdrew that Bill, it indicated a new round of consultations would be undertaken on principles that can protect legitimate small business and farming arrangements whilst addressing any tax abuse in the trust area

Taxation of Trusts (2)

• The Government announced that the Board would be part of the new round of consultations
• The Board examined the essential issues with the assistance of the Treasury, ATO and external experts

Taxation of Trusts (3)

• The Board's report was released by the Government on 12 December 2002
• The Treasurer announced on 12 December 2002 that a new measure would be introduced to replace section 109UB that deals with distributions from trusts

Taxation of Trusts - Board's Recommendations (1)

• The efficiency and equity of the tax system would not necessarily be improved by aligning the tax treatment of trusts and companies
• Retain the current flow-through treatment of distributions of non-assessable amounts

Taxation of Trusts - Board's Recommendations (2)

• Improve effectiveness and fairness
  • improve the effectiveness of the deemed dividend rules so as to more effectively prevent beneficiaries accessing trust income that has borne tax only at the company tax rate; and
  • remove the unfairness in the operation of section 109UB that is currently inducing some small and medium-sized business operators to establish arrangements that enable them to avoid the operation of the section completely

Taxation of Trusts - Board's Recommendations (3)

• Commissioner of Taxation to clarify and publish his views about the deductibility of interest on borrowings used to finance non-assessable distributions to beneficiaries of discretionary trusts
  • If the rulings are unable to deal with the matter, a legislative solution should be considered

International Tax (1)

• Working Group: Tony D'Aloisio, Chris Jordan and Brett Heading
• 58 submissions from organisations and individuals
• The Board's report was submitted to Government on 28 February

International Tax (2)

• CFC and FIF rules complex - imposes significant costs on business
• The costs of maintaining these rules can no longer be justified
• The tax system needs to continually adapt to increasingly integrated global business environment

International Tax (3)

• Board's report in two parts
  • Recommendations Report
• Consultation Report
  • Confidential volume not to be published but will be made available to the Treasurer
• Up to the Government to decide when to make the report public - as is the usual case with all Board reports

Looking Ahead - 2003

• Public consultation on an exposure draft legislation on the definition of a charity
• Review the effectiveness of community consultation arrangements and the quality and effectiveness of legislation in delivering its policy intent
  • Board will be developing its work program in this area