Evaluation of the Tax Value Method

Background

In announcing on 7 August 2000 the Government’s decision to establish the Board of Taxation, the Treasurer indicated that the Board would be given an initial task of oversighting a further process of community consultation aimed at further developing and evaluating the Tax Value Method (TVM) of calculating taxable income.

Adoption of the TVM was a key recommendation of the 1999 Review of Business Taxation (RBT). The Review recommended the TVM as a way of achieving simpler, more transparent and more certain tax laws. One of the core objectives of the Review was to move the (business) tax system towards greater commercial reality. Its stated aim was to accomplish a robust structure based on explicit principles so that the architecture of tax legislation would be durable and capable of future modification without doing damage to the framework on which it is based.

Process of the Review

In progressing its remit from the Treasurer, the Board’s focus was first, to further develop the facts about the TVM, including a body of draft legislative and explanatory material sufficient to demonstrate the concept and second, to progressively test and evaluate the idea. To assist it in these tasks, the Board established two formal groups:

• A TVM Legislative Group: This small Group was charged with developing the TVM prototype legislation and associated explanatory material. It was led by Mr Andrew England, an Assistant Commissioner at the Australian Taxation Office (ATO) and advised by two private sector members, Mr Paul Abbey a partner of the firm Shaddick and Spence and Mr Kevin Stevenson, a director of the firm Stevenson McGregor1. The team also included Mr Tom Reid, a consultant legislative drafter to the ATO and former second Parliamentary Counsel at the Office of Parliamentary Counsel. Remaining members of the group were drawn from the ATO and Treasury.
• A TVM Working Group: This larger group was responsible for providing technical commentary and other assistance on the draft legislation produced by the Legislative Group and for otherwise assisting the Board in its evaluation task. Its membership included the key Legislative Group members and 19 non-government sector tax experts drawn from the accounting, tax  advising, corporate and academic spheres.

The Board acknowledges the significant efforts of the TVM legislative group in developing the TVM prototype legislation and explanatory material and also of the project team led by Mr Michael Smith an Assistant Commissioner at the ATO. The latter team developed case studies and other material and consulted with taxpayers, tax practitioners and software developers to allow the practical aspects of working out taxable income under the TVM to be considered.

Workshops and Consultation

There were a significant number of workshops conducted with business taxpayers, tax practitioners, individual taxpayer representatives and representatives of the software industry and the Board convened two major stakeholder consultative events, A TVM Consultative Conference held in July 2001 and attended by approximately 100 senior business and tax practitioner representatives; and a TVM Briefing held on 6 March 2002 also attended by more than 100 senior business and tax practitioners representatives.

The material developed throughout was intended to assist interested parties in their assessment of the relative merits of the TVM and formed the basis on which the Board sought, by 30 April  2002, submissions on the TVM from the community.

The Board received 34 submissions in response to their request. All submissions are available on the page below.

Board Report

The Board’s report recommended that the Treasurer not proceed with the Tax Value Method. On the 28 August 2002, the then Treasurer announced that the then Government had accepted the recommendation from the Board of Taxation not to proceed with the Tax Value Method. The report was publicly released on 30 August 2002. The Board responded to the Treasurer’s announcement via a press release.

The report and Government’s response represent the culmination of a very comprehensive community consultation and evaluation process. The Government’s decision to accept the Board’s recommendation not to proceed with the TVM brings official closure to this recommendation of the Ralph Review of Business Taxation.

For further information about this review please contact the Board of Taxation Secretariat on (02) 6263 4366 or at taxboard@treasury.gov.au.

Submissions received