The Two-Act Dilemma
Australia’s income tax system has a long-standing quirk: the fact that its core rules are split across two separate laws – the Income Tax Assessment Act 1936 and the Income Tax Assessment Act 1997.
In our article, we explore whether this “split tax code” creates additional burdens for tax professionals and whether it would be worthwhile to complete a long-abandoned project to consolidate the law into a single, unified statute.
How Did We Get Here?
The split system is the legacy of a reform effort in the 1990s, known as the Tax Law Improvement Project (TLIP). This initiative aimed to simplify Australia’s tax legislation by rewriting it in clearer, more accessible language. However, instead of replacing the old law entirely, the rewrite was only partially completed. Some provisions were transferred into the newer 1997 Act, while many remained in the older 1936 Act.
As a result, tax practitioners today must navigate both Acts, which differ in style, structure, and terminology. Notably, while the TLIP focused on improving the presentation of the law (using plain English, better organisation, and clearer numbering), it did not attempt to change the underlying policy or complexity of the tax system itself.
The Compliance Burden: Our Research Questions
Our recent study set out to address two main questions:
- Does splitting Australian tax law across two Acts genuinely increase the compliance burden for tax professionals?
- Should the effort to consolidate the tax law into a single Act be revived and finally completed?
When we talk about ‘compliance burden’, we aren’t just looking at the monetary costs, like professional fees and billable hours. We are also looking closely at the psychological costs: the stress, anxiety, and frustration that come with interpreting highly complex legislation. These psychological costs are harder to measure, but they are crucial for understanding the real-world impact of a complicated tax system.
Our Research Approach: Surveying the Frontline
To answer these questions, we conducted a survey of Australian tax practitioners. These professionals are key users of tax legislation, who bear the brunt of interpreting and applying these laws daily. The survey collected both quantitative and qualitative data: quantitative responses provided general trends in practitioner opinions, while qualitative comments offered deeper insights into their experiences and perceptions.
While a relatively low response rate means our findings cannot be confidently generalised to all tax practitioners, the detailed feedback still provides valuable insights into how experienced professionals view the system.
Key Findings
One of the more notable findings is that most practitioners reported becoming accustomed to working with the two Acts. Over time, familiarity has reduced the practical difficulties of navigating between them. This suggests that, while the split system may appear inefficient in theory, in practice, many professionals have developed ways to manage it effectively.
Despite this adaptation, a significant number of practitioners reported experiencing psychological strain when working across the two Acts. Frustration with inconsistent language and structure, difficulty locating relevant provisions, and increased mental effort required to interpret the law all contributed to mental friction. These issues do not necessarily translate into measurable financial costs but contribute to stress and reduced efficiency. Such psychological burdens, though often overlooked, are an aspect of tax compliance that warrants analysis.
However, the division of Australian tax law between the two Acts is not the only source of tax complexity. Practitioners frequently identified broader factors such as frequent legislative changes, ambiguity in legal rules, the existence of detailed and technical provisions, and administrative requirements imposed by the tax authority. This aligns with earlier research showing that complexity often arises from policy design and real-world application, rather than just the wording or structure of legislation.
While some practitioners supported the idea of consolidating the tax law into a single Act, most did not see it as a high priority. The general view was that a unified Act might improve usability to some extent, however, it would not address the fundamental sources of complexity. In other words, simply reorganising the law—without tackling the underlying policy—would not significantly reduce compliance burdens.
Broader Insights from the Literature
These findings echo a broader theme in the body of research on tax simplification: better language only goes so far. If the underlying rules are convoluted or poorly designed, rewriting them in plain English does not eliminate that complexity.
The TLIP itself is a textbook example of this limitation. While it succeeded in making some provisions easier to read, it did not fundamentally simplify the tax system. This helps explain why the project lost momentum and was never completed. International comparisons reinforce this point: successful simplification typically requires both clearer drafting and substantive policy reform.
Conclusion: Where to From Here?
While the split tax code in Australia does impose an additional burden on tax practitioners, it is a symptom rather than the disease. Practitioners have largely adapted to the dual-Act system, and while consolidation into a single Act may be desirable, it is not seen as a solution to the most pressing problems. Those problems lie in the underlying design of the tax system – its complexity, rate of change, and administrative demands.
If policymakers are serious about reducing compliance burdens, they need to look beyond structural rewrites. Meaningful change requires a comprehensive review of the underlying tax policy, addressing the true sources of complexity.
This post draws on the authors’ recent research, “Unfinished Business? Assessing and Addressing the Burden of the Split Tax Code in Australia,” published in the Australian Tax Forum.
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