Australia's Proposals On Taxpayer Elections

by Mary Swire, Tax-News.com, Hong Kong

16 June 2010

With a view to simplifying the income tax law and cutting red tape, Australia’s Assistant Treasurer, Nick Sherry, has released a wide-ranging consultation paper in relation to individuals and businesses making 'elections' in their tax affairs.

Elections, or choices, in the income tax law are decisions required of individuals and businesses in relation to their claims or obligations under the tax law. "There are currently over 200 such elections spread throughout the income tax law," said the Assistant Treasurer.

In the 2009-10 budget, the government announced its intention to simplify the law by reviewing the design of election provisions with a view to increasing consistency and reducing uncertainty in relation to these provisions for both individuals and the business community.

The release of the paper has also come about following a recommendation of the Review on Aspects of Income Tax Self Assessment. In that review, election provisions were identified as a potential source of complexity and inconsistency in the income tax law, while they were, however, an important tool for adapting the income tax law to different taxpayer situations.

Submissions made during public consultation on that review raised some significant law design issues about elections. Notably, submissions suggested that, in future, ‘drop dead’ dates by which taxpayers are required to make an election should be avoided, and the Commissioner of Taxation should have a general power to extend the time by which taxpayers are required to make an election, subject to express exceptions.

It was also suggested that the lodgement of elections should not be required, but that there should be ‘tick-boxes’ on income tax returns to notify the Australian Taxation Office of the election. Furthermore, when new election provisions are introduced into the income tax law, sufficient time should be provided before the commencement of that election to enable taxpayers to understand the new law and make elections.

The broad objective of the new elections review is therefore to examine ways to reduce the complexities associated with elections whilst maintaining the flexibility and fairness they provide to taxpayers. Accordingly, the consultation paper proposes a set of guidelines for the drafting of election provisions in the future.

The paper also considers whether the proposed guidelines could be used to improve the existing election provisions, and to benefit taxpayers by encouraging consistency across future election provisions in addition to making them more user-friendly.

"These elections have been identified as a potential source of complexity and inconsistency, so I want to have them thoroughly reviewed so we can remove any uncertainty or red tape, both for businesses and for individual taxpayers," Nick Sherry advised. "They can lead to the need for extensive calculations and often lead to unnecessary tax advisory costs, all meaning higher compliance burdens – and this is just not good enough."

"If such elections are clearly framed and easy to follow, they can actually make tax affairs more streamlined, better targeted to particular circumstances and more manageable. But I don't just want to review the existing election provisions, I also want to put in place a comprehensive set of new guidelines for framing any new elections that may be legislated in the future."

Submissions to the Treasury are due by August 16, 2010.

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