Tax Reform Complexity Sparks Warning of Court Backlog

Australia's latest tax overhaul, passed with limited input from the professional bodies that traditionally shape such legislation, is so poorly drafted that it could trigger a surge in court disputes and erode public trust in the democratic process, a leading tax lawyer has warned.

Speaking at the Tax Summit in Sydney, Tracey Dunn, an associate director at Birchstone Legal Group and a former director at EY with more than 25 years of experience, said the changes were 'awfully' legislated and needlessly complex. She argued that the government's decision to sideline experienced practitioners, particularly from the big four consultancy firms, has created a legislative framework that will be difficult for everyday Australians to navigate.

Why did the government bypass big business consultation?

Ms Dunn believes the Albanese government avoided consulting the big four firms, PwC, EY, Deloitte and KPMG, because of the fallout from the PwC tax leak scandal. That affair involved former partner Peter Collins leaking confidential Treasury plans to clients, allowing multinationals to sidestep anti-avoidance laws before they were enacted.

'My concern is that what seems to be a move away from consultation and unwillingness to consult with the profession seems to have come from the unfortunate events of a few years ago with a certain partner at PwC,' Ms Dunn said. 'So, I think as a result of that there seems to be less of a willingness or desire on behalf of the government to consult with the professionals that they need to consult with.'

She added that the perception of the big four as 'evil' due to a few 'bad apples' in firms employing roughly 30,000 Australians was unfortunate and had broader implications for the profession and taxpayers.

What makes the new tax changes so complex?

Ms Dunn, a self-described 'super nerd' who enjoys reading legislation, said the capital gains tax (CGT) changes were particularly difficult to interpret. She noted that calculating a basic gain now requires 41 pages of primary legislation, and using the proportionate method involves a nine-step process that is 'really quite complicated'.

This complexity creates a domino effect. Everyday Australians who cannot afford specialised advice risk making errors, tax agents struggle to apply the law in practice, and the Australian Taxation Office (ATO) faces an administrative burden. The situation is worsened by the government releasing legislation in piecemeal 'tranches', leaving practitioners to reconcile conflicting explanatory memorandums.

Was the legislation rushed through Parliament?

Ms Dunn pointed to a highly unusual sequence of events: an exposure draft intended for public feedback until August 21 was introduced to the House of Representatives and passed into law on August 19, before the consultation window had closed.

'In my entire life and my 25-plus year career in public practice, I have never seen a situation where legislation that was currently open for consultation has actually been introduced and passed into law before that consultation has closed,' she said. 'And that is very concerning, and everybody should be concerned about that.'

Could Australia see a surge in tax litigation?

Ms Dunn warned of 'horrendous' unintended consequences, predicting that Australia is 'absolutely going to see more litigation' as ordinary taxpayers who are trying to comply face court action. She cited deeply ambiguous drafting, such as a provision in the exposure draft on deceased estates that refers to 'a purpose other than a purpose, including a purpose that includes a broad purpose'.

'When you have ambiguity, then it's open to interpretation and then that results in potential disputes,' she said. The fallout could extend beyond tax disputes to trust law, with trustees and advisers potentially restructuring without fully understanding their obligations, leading to claims in courts to unwind decisions.

What does Treasury say about the consultation process?

A Treasury spokeswoman defended the process, stating that 'Treasury has engaged in extensive consultation including targeted consultation with tax and other professions in progressing consultation papers and exposure drafts relating to tax reforms announced in the 2026-27 Budget.'

She noted that Treasury had released four packages of consultation material, covering the minimum tax on trusts, Tranche 2 of the CGT and negative gearing reforms, and CGT for innovative start-ups. Targeted consultations were conducted with industry associations, peak accountancy bodies, and various accounting and law firms.

Why does this matter for public trust in government?

Ms Dunn warned that the lack of consultation risks severing a historically strong relationship between the government and tax professionals. If experts decide it is no longer worth committing resources to policy design, the integrity of the tax system could be compromised.

'Australian taxpayers need to have trust in government and in the tax office, and if the government goes, well, we're open to consultation, and we want to ensure that we're listening to the Australian people, but we're just going to push this through anyway, what message does that send?' she asked.

She described the current situation as 'really sad', noting that tax reform is notoriously difficult to push through and that the profession broadly supports it. 'If people now reflect on how things are in the current state, and say, well, I don't know if I want to commit the resources to contributing to consultation, that has a really bad outcome for everybody.'

Frequently asked questions

What are the main concerns with the new tax changes?

Experts like Tracey Dunn argue the legislation is overly complex and was passed without adequate consultation with tax professionals, increasing the risk of errors, disputes, and litigation for everyday Australians.

Why didn't the government consult the big four firms?

Ms Dunn suggests the government sidelined firms like PwC and EY due to the fallout from the PwC tax leak scandal, which created a perception that they could not be trusted with confidential policy work.

Could the tax changes lead to more court cases?

Yes, Ms Dunn warns that ambiguous drafting and complexity will likely lead to more disputes between taxpayers and the ATO, as well as potential litigation under trust law.