Mr MILES (Braddon—Parliamentary Secretary (Cabinet) to the Prime Minister) (5.27 p.m.)—I move:

That the bill be now read a second time.

The Income Tax Assessment Bill 1996 is the first instalment in a package of legislation which will replace Australia's main tax law, the Income Tax Assessment Act 1936.   The existing act has grown in haphazard fashion over the past 60 years. Layer upon layer of new provisions have been added with no serious attempt to ensure that the act remains understandable, intelligible or internally consistent.

It has grown enormously in length and complexity. Over the last 13 years of the former Labor government alone the size of the ITAA trebled from about 1,100 pages to around 3,300 pages. The cost of compliance with the act has grown commensurately. Not even the most expert of tax practitioners can claim to fully understand all aspects of the act.

The complexity of the current act has been responsible for a significant erosion of certainty and of confidence in our taxation system, by the general taxpaying community, both individuals and companies. This is damaging to the system itself. It can also weaken the essential tax morality of otherwise honest, law abiding, responsible citizens.

The government has as a high priority the objective to rewrite the tax laws to:

.   reduce their length

.   reduce their complexity

.   increase their certainty and consistency

.   reduce compliance costs

.   provide a better environment for business and individual taxpayers to meet their obligations

This priority is part of a wider commitment by the government to attack unnecessary red tape, overregulation, complexity and uncertainly wherever it exists. The government is committed to reducing the cost of doing business, to increasing national productivity and competitiveness—to adopt world best practice wherever possible.

The package of bills I am introducing today—of which the Income Tax Assessment Bill 1996 is the centrepiece—is a major first step in the achievement of the government's tax law objectives. The bill is essentially the product of the tax law improvement project. In late 1993 the Joint Committee of Public Accounts recommended that the income tax law be rewritten. It recommended setting up a broadly based task force to undertake the task. As a result, the previous government in 1994 established the tax law improvement project for this purpose.

The tax law improvement project has undertaken extensive public consultation in the preparation of the bills before the House, including the release of draft bills for public comment. The project has also been advised by a consultative committee of experts in the field of taxation. Work is well advanced in rewriting much of the remaining rules that affect how much income tax a person must pay. A discussion paper outlining a proposed structure for a rewrite of the capitals gains tax provisions has been released and an exposure draft rewrite of the depreciation rules is imminent.

Future instalments of the new law will progressively build up the new assessment act. This package of bills makes a significant inroad into that work. The government intends that this first instalment should apply from the 1996-97 income year, subject to transitional arrangements for some measures. The practical rule changes made in it are overwhelmingly favourable to those it affects. Future rewritten instalments, essentially on an annual basis, can be expected to apply in similar fashion.

The government proposes that the Joint Committee on Public Accounts, which has had a longstanding interest in the tax law and has kept a watching brief over this project in particular, should have the opportunity to complete a review it undertook of an earlier version of this legislation. The government proposes to ask the committee to consider the bill and to report on it at the commencement of the budget sittings in August. I will formally propose this course in a few moments. I now turn to outline some of the specific features of the bill.

GENERAL FEATURES

At a broad level, a number of strategies have been adopted to make the law easier to understand and use.

Core provisions

The most important general provisions of the law, those dealing with how much tax a person must pay, have been redrafted in simpler and clearer terms and brought together at the start of the new law. These core provisions are essential to an understanding of the income tax system. They have been expressed clearly but with minimal change to the language of central income and deduction rules in order to retain the value of established judicial precedent.

Better structure

Readers will be assisted by a more logical structure to the law. The new act will use a top-down approach, starting with the core and moving on to general provisions which affect large numbers of people; then to more specialised provisions that apply to specific groups of taxpayers or to special types of tax. After that come provisions about collection of recovery of tax and then those about administrative matters. The act will finally contain a dictionary where readers will have easy reference to the meanings of defined terms and concepts used throughout the legislation.

New numbering system

There will be a new section numbering system that is simple to understand and will better cope with the addition of new material in future. The existing system is cumbersome, confusing and disorienting to readers. It has been a source of derision.

Talking directly to readers

The practice of addressing readers in the second person, which was introduced in the Tax Law Improvement (Substantiation) Act 1995, has been continued for areas where the law affects individual taxpayers. This engages readers much more actively and promotes understanding. It is not used, however, in provisions that apply only to impersonal entities.

Reader Guides

Important parts of the law begin with orientation material to help readers find their way to what they need to know about it. This material will have a strictly limited legal status in interpreting the new law. The text makes clear distinctions between these non-operative guides and the operative rules.

Modern design

The bill incorporates modern design techniques for clear and effective communication. It makes extensive use of examples and diagrams, of notes highlighting special features of the law and of signposting to other parts of the law that the reader may need to go to.

SPECIFIC AREAS OF THE LAW REWRITTEN

In addition to the core concepts, some other areas of the existing law have been rewritten and are included in the bill.

Losses

The provisions dealing with deductions for current and prior year losses and company group loss transfers have been rewritten. This has reduced the length of the existing provisions by more than half. Unnecessarily complex and prescriptive rules have been simplified. Another feature is the bringing together of common themes such as the continuity of beneficial ownership and the same business tests of the losses provisions. Redundant provisions have been eliminated.

Mining

Also rewritten are the capital expenditure write-offs regimes for the petroleum mining, general mining and quarrying industries. This has helped reduce the size and complexity of the law and a substantial amount of duplication has been eliminated, reducing the length of the relevant provisions overall by some 70 per cent.

Buildings

The capital expenditure write-offs for buildings have been rewritten and, again using the various simplification techniques I have described, have allowed the length of these provisions to be halved.

Substantiation

The income tax rules for calculating car expenses and substantiating work expenses, which were rewritten and enacted last year, are also being transferred across to the new act by this bill. The new law will operate prospectively and existing rulings and court based interpretation will not be affected where the new law re-expresses the same ideas for clearer effect, which is mostly what the new law will do. Where a change in substance is being made to the existing law, those changes will only apply for the future. In these cases existing rulings and precedents will apply up to the time the new law begins.

The revenue impact of the new law will be mainly neutral. While most changes will have no direct impact on the revenue outcomes, some will result in minor but unquantifiable revenue costs.

There are two proposals that will have a measurable revenue impact. A proposal to allow accelerated write-off for mining expenditure incurred before July 1982 will initially be revenue positive, being $10 million and $5 million in the first two full years respectively, but will become revenue negative in later years. A proposal to allow display homes to be written off under the special concessions for buildings will have an annual cost of $2 million.

I present the explanatory memorandum, which includes a more detailed explanation of the new structure of the bill and of a number of relatively minor changes to the law itself. I commend the bill to the House.

Debate (on motion by Mr Peter Baldwin) adjourned.