Entity Taxation: The Inconsistency between Stated Policy and Actual Application

Abstract:     
In 1998 when the government announced its proposal for a new tax system in its White Paper, Not a New Tax, A New Tax System (ANTS), it perceived there were a lot of inadequacies with the Australian tax system. The emphasis the government put on selling its reforms can be seen in the title of its paper, which tried to reassure Australians of the government’s overall aims.

One of the proposals contained in the White Paper was for the introduction of a new consistent entity regime for the taxing of income and distributions, known as entity taxation. The justifications put forward by the government for this recommendation was to provide simplicity, clarity and fairness, while also addressing techniques highlighted by the High Wealth Individual Taskforce (HWIT).

This paper will examine the concerns that led to the government’s proposals, and what these proposals entailed. The paper will then critique the government’s initial justifications for its proposals by analysing the submissions lodged in response to the government’s Exposure Draft Bill. The paper will then determine whether there was any consistency between the government’s stated policy objectives and the actual application of the proposals. This analysis is important in explaining the government’s lack of success in implementing these reforms, as the government needs to appreciate that there needs to be consistency between its stated objectives and the actual legislation. Otherwise any proposed reforms can be easily discredited and shown to be lacking by comparing the reforms against their stated objectives.

Keywords: Australia, entity taxation, High Wealth Individual Taskforce, HWIT

JEL Classifications: K34

Accepted Paper Series