Post-Implementation Review into the Alienation of Personal Services Income Rules

Background

On 3 June 2009, the then Assistant Treasurer announced that the Board would undertake a post‑implementation review of the provisions relating to the alienation of personal services income. The Board was requested to provide a final report by 31 October 2009 so that any findings and recommendations can inform the Panel undertaking the review of Australia’s Future Tax System, which was due to report by the end of 2009.

The Alienation of Personal Services Income provisions are integrity rules designed to address both the alienation of personal services income through interposing an entity and the capacity of individuals and interposed entities to claim higher deductions than employees providing the same or similar services. The provisions were introduced in 2000 and their effectiveness had not yet been formally reviewed.

The Board’s intention in undertaking the post-implementation review was not to reopen debates about the merits of the policy intent of this measure. The intention instead was to gauge how effective the legislation has been in delivering the policy intent.

The Board appointed a working group of its members comprising Mr Keith James (Chairman), Mr Peter Quiggin PSM and Mr Curt Rendall to oversee the Board’s post‑implementation review into the alienation of personal services income rules.

Terms of Reference

In undertaking this post-implementation review, the then Assistant Treasurer asked the Board to:

• examine the operation of the rules to determine whether the rules are achieving their desired policy outcome;
• identify any problems with the operation of the rules; and
• if appropriate, consider options for improving the rules.

In conducting the review, the Board is to have regard to the Government’s taxation review headed by Dr Ken Henry. Further information on the Review of Australia’s Future Tax System (AFTS) can be found at http://taxreview.treasury.gov.au .

The Board has established criteria against which it will evaluate selected legislation. The criteria include the extent to which the legislation:

• gives effect to the Government’s policy intent, with compliance and administration costs commensurate with those foreshadowed in the Regulation Impact Statement for the measure;
• is expressed in a clear, simple, comprehensible and workable manner;
• avoids unintended consequences of a substantive nature;
• takes account of actual taxpayer circumstances and commercial practices;
• is consistent with other tax legislation; and
• provides certainty.

Submissions

The Board requested written submissions on the post‑implementation review into the alienation of personal services income rules by 27 July 2009. All submissions received were acknowledged. Thirteen public submissions were received and are available for review below.

Board Report & Government Response

On 16 December 2009, the then Assistant Treasurer announced the release of the Board of Taxation’s report  on its post‑implementation review into the alienation of personal services income rules.

The Board welcomed the release of the report and thanked all stakeholders who participated in the review.

The Board’s report on its post‑implementation review into the alienation of personal services income rules is available for download.

In his announcement the Treasurer stated ‘these findings are of concern so we have passed the Board’s report to the Australia’s Future Tax System review. The Government will wait for the final report of the Henry Review before determining the appropriate action in this area.’

A number of recommendations were endorsed by the AFTS review.

Further information

Reference documents relating to this post‑implementation review are as listed below:

• House of Representatives Second Reading Speech for the New Business Tax System (Alienation of personal services income) Bill 2000 
• Explanatory Memorandum for New Business Tax System (Alienation of Personal Services Income) Bill 2000 
• New Business Tax System (Alienation of personal services income) Act 2000 

Further information on this review can be obtained from the Board of Taxation Secretariat on (02) 6263 4366 or from Taxboard@treasury.gov.au.

Submissions received