Australia's taxation system is excessively complex for a
nation with a relatively small population base. This complicated system is most
likely a product of our electoral system, and the reluctance of governments to
make changes, which historically are not well accepted by their constituents.
Our income tax legislation was originally drafted in 1936
and you may be surprised to learn that a large part of this initial legislation
is still in place today. Various governments have undertaken reviews of our tax
system with the Tax Law Improvement Program introduced in 1997.
Instead of rewriting the legislation and starting with a
blank canvas, the 1936 legislation was amended and adapted with clauses inserted
to update the law. This process has continued over the years resulting in a
bulky volume of information resembling an old piece of furniture covered in
plaster and tape with bits of timber nailed onto the sides to hold it together.
I started my career in the mid 1980s and during that decade
I saw major taxation changes that substantially affected how businesses handled
their accounting processes. We had the introduction of Capital Gains Tax, new
substantiation rules to support deductions, the introduction of Fringe Benefits
Tax (FBT as we fondly refer to it), plus the implementation of the imputation
system; just to name a few. The next big change was the introduction of the
Goods and Services Tax (GST) in July 2000. Is your head hurting yet?
This process has created a complicated set of laws that can
take years, and sometimes decades, to be tested. The Australian Taxation Office
is aware of these issues and will often release public rulings, interpretive
decisions and other documents which, in essence, outline their interpretation of
the law. It doesn't mean they are correct, but if you follow their guidelines,
they won't take action if ultimately the courts rule otherwise.
This brings me to the current problems with our tax system.
My experience in dealing with the tax office over many years has highlighted
that at times even they become confused in interpreting the law. As well as
having a complicated taxation system, we also have a situation whereby
governments are constantly under pressure with allocating resources.
So we end up with an overly complicated system being
monitored by an under-resourced department in an ever-changing environment. To
combat this problem, the Federal Government ensures the penalty regime is sufficiently
scary to stop taxpayers pushing boundaries.
In my opinion, this can create an unfair marketplace where
taxpayers, either purposely or naively, do not comply with the law as it is
interpreted. It can create a competitive advantage to those who push the boundaries, but only until they get
If you're a punter and you want to test your luck by either
doing the wrong thing or testing the law, then the odds of either getting
caught or challenged are probably in your favour. But beware, the stick wielded
by the Australian Taxation Office is a big one, and if you get caught or lose
the argument, it will hurt!