Over the last decade, the government has become accustomed to announcing significant tax changes well in advance of legislative enactment. In many instances these tax changes are "effective" from the date of the announcement. This means that if/when the law is introduced the changes operate on a retrospective basis.
As a result of this penchant for effectively enacting legislative change by media release, and the fact that there is often a significant time delay between the announcement and the law change, the Australian Taxation Office ("ATO") has been administering the expected law change as if it were actually law. In addition, taxpayers have been forced to understand and apply these anticipated changes in making decisions about investments, undertaking transactions and generally complying with their tax obligations. Over time these "legislative announcements" have created a backlog of 92 unenacted measures – some of which the ATO has been administering as law for some time now. Whilst this approach might work well when the law is eventually enacted, if the proposed measure is discontinued and the announcement has been relied upon by a taxpayer in undertaking a transaction and/or lodging their tax return, some might find themselves looking at an unexpected tax bill.
Due to the growing backlog, the Coalition government undertook a brief review of the list of unenacted measures and announced in December 2013 that the Government had made the decision not to proceed with at least 48 of the 92 unenacted measures ("the discontinued measures"). This has, of course, meant that some taxpayers (who have lodged returns consistent with the unenacted measure) could be subject to amendments and additional tax. This outcome is obviously an unreasonable and unfair result particularly for taxpayers that have relied on the announcement in good faith.
To remedy this problem, Treasury "announced" and released an exposure draft (the "ED") on 25 March 2014 which seeks to give legislative protection to taxpayers that have relied on certain announcements in relation to a discontinued measure. The ED - Tax and Superannuation Laws Amendment (2014 Measures No 2) Bill 4 2014: Protection for discontinued announced measures - proposes to make changes to the ATO's general amendment powers so that the Commissioner cannot make an amended assessment that results in an unfavourable result to the taxpayer if:
- the taxpayer lodges a return, which was based on the anticipation of certain proposed changes (specified in the ED) and
- during the period when the announcement was "on foot" the taxpayer relied on the announcement of the change of law in good faith, and as a result either:
- lodged a return or
- entered into a transaction (or other events or circumstances occurred)
Importantly, the operation of the protection provision will not apply if:
- the Commissioner is amending an assessment to give effect to an objection decision, or a decision of the AAT or Court on review or appeal; or
- the taxpayer makes a statement in a return for a later year that is inconsistent with an earlier anticipation of an announcement, where continuing to anticipate the announcement would give rise to a less favourable outcome in that later income year.
The ED indicates that taxpayers can choose not to have eligible self-assessed positions protected and request the Commissioner to amend returns to reflect the ongoing operation of the law.
Treasury is now seeking public consultation on these amendments released in the ED with submissions closing on 22 April 2014 and the protection provision (ironically) proposed to commence prospectively from the day the Bill receives Royal Assent (not the day of the announcement). If, enacted, this measure goes a long way to restoring the fairness of the tax system undermined by the discontinuance of the unenacted measures and provides taxpayers with a higher degree of certainty in relation to their tax affairs. Furthermore, these amendments would also provide the ATO with a sound legislative position for administering anticipated changes to the law. Further information including the ED and explanatory memorandum to the ED can be found by clicking here
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