Post- Implementation Review of the Quality and Effectiveness of the Non-Commercial Losses Legislation

Background

In March 2002, the Board of Taxation provided the Treasurer with a report, Government Consultation with the Community on the Development of Taxation Legislation. The report included a recommendation that the Board conduct post-implementation reviews of significant tax legislation initiatives, consistent with one of the functions set out in its Charter: to advise on  the quality and effectiveness of tax legislation and the processes for its development, including the processes of community consultation and other aspects of tax design.

The Government accepted that recommendation, agreeing to the Board conducting post-implementation reviews of major pieces of tax legislation to ensure that Government policy intent has been effectively translated consequent upon consultations undertaken.

The Treasurer subsequently agreed that the Board’s first post-implementation review would be conducted on the non-commercial losses measure in Division 35 of the Income Tax Assessment Act 1997. Division 35 took effect from 1 July 2000, so at that time a review was timely and based on reasonable experience of its operation.

In undertaking the post-implementation reviews the Board assessed legislation against criteria based on its Consultation Report to determine 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.

Working Group and Consultation

The Board commenced substantive work on the review in September 2003 and formed a Working Group of three of its members to take day to day carriage of this work.

In undertaking the review the Board sought submissions from interested stakeholders, including taxation professional bodies, peak artistic organisations and primary producer  associations, and advertised the review on the Board of Taxation website.

The Board received a total of 24 written submissions from individuals and a range of cultural, industry and professional organisations. Public submissions are available below on this web page.

The Board also commissioned:

• a study from the Australian Taxation Studies Program (Atax) to evaluate the compliance and administration costs of the non-commercial losses legislation; and
• a study from BDO Kendalls to assess the quality and effectiveness of the legislation.

The Board also sought information on the development of the legislation and its implementation from the Treasury and the Australian Taxation Office.

The Board’s Report and Government Response

The Board’s report on its post-implementation review of the non-commercial losses legislation was released publicly on 27 April 2005. The Board’s recommendations and the Government’s response to the report are outlined in the Board of Taxation Media Release No 14 of 27 April 2005.

Overall, the Board made five recommendations, four of which were to improve the administration of the legislation and one to broaden the eligibility criteria for the ‘other assets’ test.

The Government noted that the ATO has accepted the four recommendations that relate to improvements to the administration of the non-commercial losses legislation and that the ATO will issue additional guidance on the areas identified in the recommendations. The Government did not accept at the time the Board’s recommendation that assets in a simplified tax system (STS) pool (excluding cars, motor cycles and other vehicles) be counted towards the ‘other assets’ test in the non-commercial losses legislation.

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