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Some of the inconsistency and uncertainty surrounding Division 7A highlights the need for certain areas of tax law to be reviewed, BDO has said.
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Division 7A rules in need of ‘care and maintenance’, says tax partner
18 December 2024
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The complexity surrounding Division 7A and how it applies, along with the ATO's increased guidance and focus on this area, demonstrates the need for greater care and maintenance in certain parts of the tax system, according to BDO tax partner, Mark Molesworth.
The accounting firm said the government should explore ways that different parts of the tax law could be reviewed and revised to ensure they are operating efficiently and fairly.
Molesworth said the post-implementation review of Division 7A by the Board of Taxation highlighted the need for a more coherent set of principles for Division 7A in its finalised report on 4 June 2015. However, nothing has happened since then, he explained.
"This is an example of targeted tax reform that would have benefits in reducing uncertainty for taxpayers that has gone nowhere," he said.
Division 7A is just one area of the law where more care and maintenance are needed, he added.
"There is, in our view, a need for constant revisiting of the law to ensure that it is operating efficiently and providing certainty to taxpayers. That is currently not happening," Molesworth said.
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"We just pile new provisions on top of new provisions and we never go back and take stock."
Molesworth said he would like to see both sides of politics to have a hard look at the tax laws Australia has and the new laws that they want to enact and implement a care and maintenance requirement for these laws which is currently not being met.
"We need to be always asking ourselves 'Are these provisions still operating efficiently in the way that they're intended and in a way that is fair to taxpayers in as much as taxpayers in similar situations are being taxed in the same way?'"
"I don't think in the case of Division 7A and indeed many other areas of the tax law we can say that's being met."
Molesworth said Division 7A was first introduced in 1997 and has been amended multiple times since then to provide a band-aid solution to various problems.
"We need to step back and have a look at it as a whole. It is operating as intended? Are there inefficiencies in it? I would say there are."
"Let's make it work and make sure that we don't unfairly capture people that this provision was never meant to capture. We need to ensure that there aren't loopholes in it but we also need to ensure there is efficiency in its operation so that all taxpayers in the same situation who are meant to be caught get caught [by that provision]."
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