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Tax rule changse seen as too severe

Proposed sweeping changes aimed at tightening up rules surrounding tax avoidance will increase taxpayer uncertainty and affect already dwindling business sentiment, the Tax Institute warns.

The federal government is seeking submissions to new draft amendments that apply to taxpayers who enter into arrangements with the sole purpose of avoiding tax.

"They will not affect taxpayers unless they have obtained a tax advantage from an arrangement entered into with a relevant tax avoidance purpose," Assistant Treasury David Bradbury said in a statement on Friday.

To minimise any potential for taxpayers to obtain unintended tax advantages in the interim, the amendments will apply to arrangements entered into or started with immediate effect.

But the Tax Institute's senior tax counsel, Robert Jeremenko, said the proposed changes extended well beyond the government's announced intention of correcting minor defects in the law highlighted by recent court cases.

"By changing laws that have been in place for more than 30 years and have been extensively ruled upon by the courts, there is significant potential for widespread confusion and uncertainty," Mr Jeremenko said in a statement.

He said that under the proposed changes, the current tax benefit test would be significantly diminished, requiring taxpayers to consider the difficult "dominant purpose" test in almost all cases where tax considerations have been taken into account when making commercial decisions.

"The proposed tightening of the rules is an unnecessary overreach by the government that will take years of costly court proceedings to fully realise," he said.

"The impact on taxpayers who have limited resources to challenge the views of the tax commissioner should not be underestimated."

Mr Bradbury said the draft legislation was prepared following consultation with a roundtable of independent experts, including representatives from tax and accounting bodies, and legal academics.

Submissions will close on December 19, and the government intends to introduce legislation into parliament in the Autumn 2013 sittings.