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Wednesday, 3 May 1989
Page: 1639


Senator WATSON — (10.05)-I move:

That the Bill be now read a second time.

I seek leave to incorporate my second speech in Hansard.

Leave granted.

The speech read as follows-

The purpose of this Bill is to make a minor amendment to section 69 (1) of the Income Tax Assessment Act 1936 to permit a taxpayer to receive a deduction not only for the cost of the preparation of a tax return but also for the fees charged by a tax agent for the preparation of additional information required under the Principal Act and under the Fringe Benefits Tax Assessment Act.

Self-assessment

Self-assessment is now a major part of the Australian taxation system and it has radically altered the basis for the preparation of tax returns.

Post-assessment checks, whether by way of a desk audit or a field audit, have become a regular part of the assessment process. In addition, objections and appeals are also now an intrinsic part of the self-assessment system.

Accordingly, it is reasonable to allow a deduction for the preparation of additional material required under the Income Tax Assessment Act and the Fringe Benefits Tax Assessment Act as part of the assessment process.

Provisions have been included in this Bill to deny a deduction of costs incurred through a registered tax agent in circumstances where the taxpayer has been engaged in a tax avoidance scheme under Section IVa of the Principal Act.

Provisions have also been included to preclude the amended Section 69 being used in contesting a dispute or resolving a disagreement through the courts.

The Reason for the Bill

Traditionally, fees paid by clients for services of taxation professionals, when directed towards their business activities, have been deductible against the assessable income of the taxpayers concerned, tax litigation excepted.

Doubts regarding the deductibility of fees for income tax return preparation caused by the decision of the High Court in 1950 in Green v Federal Commissioner of Taxation were overcome by the introduction, in 1963, of Section 69 into the Income Tax Assessment Act.

More recently, however, doubts have been raised as to the scope of deductibility of fees for professional taxation services in certain situations by particular court decisions.

Further concern has arisen as a result of what appears to be inconsistent approaches to the deductibility of fees for professional taxation services that have been taken by officers of the Australian Taxation Office following routine tax audits.

This amendment Bill has been made even more current by a judicial decision of 29 March this year. In the case, His Honour Mr Justice Northrop of the Federal Court overturned an Administrative Appeals Tribunal decision where the taxpayer claimed legal advice in the preparation of a notice of objection on the basis that the essential character of the expense was to obtain a reduction in the amount of tax assessed and therefore this legal expense incurred was not deductible under section 51 of the principal Act. Accordingly, inconsistencies appear to exist in the deductibility of disputation fees as they relate to income tax assessments and fringe benefits tax assessments even though the payment of both income tax and fringe benefits tax is non-deductible. My amendment Bill seeks to remedy this anomaly.

I believe disputation fees are deductible irrespective of whether they are incurred in respect of income tax assessments or fringe benefits tax assessments, except where they involve State, Territory or Federal Court action. Expenditure relating to professional tax fees incurred through a registered tax agent should be wholly deductible except to the extent to which it is private, domestic or capital in nature. As the recipient of professional tax fees will return those fees as assessable income so the payer should correspondingly obtain a full tax deduction in respect of the payment of those fees since, in reality, such outgoings cannot readily be described as expenses of a capital, private or domestic nature.

In summary, the Australian taxation environment is in a very different state to the position in 1963, when section 69 of the Act was introduced. In particular there has been a move to a system of self-assessment. The Commissioner no longer relies on the tax return as lodged and has instigated and upgraded measures seeking to ensure taxpayers properly meet their liabilities. Those most obvious to honourable senators will be desk audits and field audits. The new system of self-assessment increases the importance and time attributed to compliance, planning and, on occasion, tax disputation.

The importance of the role of tax advice in legitimate business administration and strategic planning has increased significantly. Today, tax is just one of the many important costs of operating a successful business. There now exists a much broader tax base, particularly with the inclusion of foreign source income and capital gains and there has been added further tax burdens, including fringe benefits tax. There is a recognition by the Australian Taxation Office of the co-operation of tax agents in the administration of the Income Tax Assessment Act and the very substantial role played by tax agents in assisting taxpayers to meet their obligations and, indirectly, to assist in the revenue collection process.

It is interesting to note that statistics show over 50 per cent of appeals against decisions and assessments of the Australian Taxation Office are resolved in the taxpayer's favour. Several other jurisdictions permit deductibility of taxation fees for taxation services. These include the United States, Canada, West Germany and Japan. The circumstances that 25 years ago initiated the limited concession embodied in section 69 no longer prevail.

I would like, in closing my remarks, to express my thanks to officers of the Taxation Institute of Australia, the Australian Society of Accountants and members of individual accounting firms for their valuable advice on this Bill. Although many accountants and lawyers would like the amendment to be wider than I have proposed, I think the Bill before the Senate will address many of the anomalies that have been identified. I earnestly believe that this simple Bill will remedy an anomaly which exists in the complicated area of taxation. I commend the Bill to the Senate.

Debate (on motion by Senator Robert Ray) adjourned.