Australian Tax Forum

Australian Tax Forum Vol 28 (3) 2014
Outside of Australia
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Australian Tax Forum is a prestigious quarterly journal with the objective of providing discussion on issues in tax policy, law and reform amongst tax professionals.

It is an essential reference source for understanding and contributing to the development of taxation systems worldwide. Australian Tax Forum is aimed at those who want to influence the future development of tax policy. It is an important journal for tax policy makers, academics and libraries.

Articles from the current issue:

  • Now you see it now you don’t: Who is the taxpayer in the Macquarie Bank case Add to cart

    01 Sep 2014

    The Macquarie Bank case is possibly the modern case on the issue “who is the taxpayer”. However, it differs from Federal Coke on a critical point. While the Commissioner failed to identify the correct taxpayer in Federal Coke, there is no chance that he could have identified the correct taxpayer in Macquarie Bank. This is because, through the ‘magic’ of the consolidation regime, the correct taxpayer did not exist at all. Macquarie Bank Ltd successfully took advantage of the consolidation regime and reduced an otherwise taxable gain of $318 million to $41 million. The ATO challenged the arrangement under Part IVA, but was in vain.

    The interaction between the consolidation regime and Part IVA dictates that the company – that, in the absence of the scheme, would have made the gain of $318 million – was no longer a taxpayer under the definition of “tax benefit” in Part IVA. Despite the desperate attempt of issuing duplicate assessments with respect to the same $318 million gain to two different companies, the Commissioner was doomed to defeat, as no taxpayer could have obtained a “tax benefit”.

    This outcome defies common sense and highlights the difficult interaction between the enterprise doctrine – under which a corporate group is treated as one single enterprise for income tax purposes – and the separate entity doctrine which treats each company as a separate taxpayer, even if the company is a wholly owned subsidiary of another company. This paper first reviews the facts and decisions of the case. This is followed by the analysis of two key issues arising from the case with respect to the interaction between the consolidation regime and Part IVA: the issue of “who is the taxpayer”, and the problematic application of the definition of “tax benefit” to a consolidated group.

    The paper then explores possible policy options to address not only the particular issues arising in the Macquarie Bank case, but also the more general problem of inserting a strong application of the enterprise doctrine in the income tax system.

  • VAT compliance cost indicators Add to cart

    01 Sep 2014

    This article reviews recent surveys of the tax compliance costs associated with Value Added Taxes (like the Australian GST). It uses such surveys to identify what aspects of VAT seem to be associated with higher compliance costs. This provides a form of ‘litmus test’ which might be used, without the need to embark on an expensive survey in any jurisdiction, to judge whether the VAT of a particular country may be a cause of higher than necessary compliance costs and why.

  • A politically viable strategy for limiting personal income tax deductions: The case for a global cap Add to cart

    01 Sep 2014

    For governments confronting rising fiscal deficits and substantial public debt, every tax inevitably comes under close scrutiny – especially the personal income tax because of its broad base and significant contribution to revenue. If increasing tax rates or broadening the income base is seen as inappropriate in difficult economic times, an alternative option is to reduce the availability of deductions against income. This paper compares and contrasts the approach taken in Australia, New Zealand, UK and the US to restricting the availability of deductions. Particular attention is given to managing the politics of such reforms and how Australia’s poor record at constraining the availability of deductions could be improved by learning from international experience.

    The paper concludes that Australia should move away from its politically divisive approach of capping each specific deduction and towards one which puts a global cap on total deductions - an approach which is simpler to communicate in a politically charged environment and has the added benefit of potentially improving equity and economic efficiency in the tax system.

  • Cash flow benefit from GST: Is it realised by small businesses in Australia? Add to cart

    01 Sep 2014

    When introducing the GST the Federal Government expressed that there would be the potential for business operators to gain a cash flow benefit from holding the GST revenue collected before remittance. However, it is not clear whether this has been realisable by all business sizes especially small businesses. Considering that small businesses are a major contributor of employment in the private sector and recognised as being capable of having a significant influence on future economic stability of the nation, it is important to determine how the GST affects small business cash flow and assess whether a benefit is in fact obtained.

    This article reports a multiple case study of small (including micro) businesses with annual turnover of less than $10 million and a full time work force of less than 20 employees. The research explored whether small business participants perceived that there was a cash flow benefit from holding the GST liability for a period of time before it was due to be paid to the Australian Taxation Office. Findings suggest that the realisation of cash flow benefit for businesses trading with other businesses appears to be restricted, particularly as a result of terms of trade with other businesses.

  • Re-defining the land tax base in highly urbanised locations Add to cart

    01 Sep 2014

    Despite numerous calls for land to contribute more to government revenue, the difficulty governments confront is that recurrent land taxation is assessed on a number of different bases both within Australia and internationally, and not all are economically efficient. While there is broad support for a base which reflects unimproved land value in that it reflects highest and best use since taxing it will not influence what improvements are made on the land, in practice the existing use of capital improved value is most often adopted even though it is not an economically efficient base.

    If increased revenue is to be raised from an efficient land tax, the base must be efficient. While unimproved land value is an efficient base, as there are few  vacant land sales available in highly urbanised cities, there is a paucity of information and evidence on which to determine unimproved land value. As a result of this paucity tax liability assessment is neither simple nor transparent when determining land value using improved property transactions.

    This paper argues that two issues must be resolved if an efficient, simple and transparent land tax is to operate in Australia. Firstly, that whether this base is land value or the value of land and improvements, the base must reflect highest and best use. Secondly, whichever base is chosen, particular attention must be given to the simplicity and transparency of the valuation process. Using simulations for land valuers, and surveys of the rationale for their responses, this paper provides insight into the relatively little understood practices and preferences of valuers when determining the unimproved land value.

    The paper finds that if capital improved value highest and best use is the preferred base of land tax (given vacant land transactions are absent), then improvements must reflect highest and best use and the valuation process must be codified when accounting for the added value of improvements in a way which ensures that what results is a base which is economically efficient, simple and transparent to taxpayers, valuers and tax administrators.

  • The legislative interface between the creation of a liability to tax and the right to challenge that liability Add to cart

    01 Sep 2014

    The “conclusive evidence” provisions in the taxation legislation have the effect of establishing conclusively (except in Pt IVC proceedings) that the amount and all the particulars in a notice of assessment produced by the Commissioner are correct. Provision is made in Pt IVC of the Taxation Administration Act 1953 (Cth) (TAA) for objections to assessments and for reviews by the Administrative Appeals Tribunal and appeals to the Federal Court. Together, the conclusive evidence provisions and Pt IVC of the TAA give voice to a legislative policy in respect of the interface between the creation of a liability to tax upon assessment under statute by an officer of the Executive, the Commissioner and the constitutionally necessary ability for the recipient of an assessment to be able to challenge that asserted liability by an invocation of judicial power. Sections 14ZZM and s14ZZR of the TAA also give voice to a legislative policy in respect of this legislative interface.

    This paper examines the operation of this legislative interface and highlights that the current taxation regime does not adequately address the protection of taxpayers against the impact of erroneous assessments.

  • The current retirement system in Australia needs to be more attuned to a mobile international workforce: A case for reform Add to cart

    01 Sep 2014

    Dealing with the fiscal impacts of Australia’s ageing population is potentially the most important issue for the next 30 years. The majority of countries in the developed world are facing an ageing population due to sustained low fertility and increased life expectancy. In order to reduce the fiscal burden following this decreased labour force participation and increased age-related spending, governments must appropriately design retirement savings systems to protect their budget, the taxpayers and the elderly. Individuals are increasingly taking up employment in foreign countries. Such international labour mobility provides a number of economic benefits for both the home and host country and may assist in stimulating the economy in light of an ageing population. Despite the internationalisation of labour, there is no consensus or uniformity regarding a model of retirement taxation.

    Australia’s model of retirement taxation is unique in the world, sitting as an outlier in comparison with other Organisation of Economic Co-Operation and Development (OECD) nations. As a result of mobile retirees and workers, and with a variety of incongruous models of retirement taxation, the retirement taxation systems of the world present major problems in allocating the right to tax. Expatriate employees will often find themselves subject to double taxation on portions of their retirement funds or subject to harsh penalties for the transfer of their retirement benefits and the home or host state will often lose its right to tax. The aim of this paper is to identify a number of problems that a globally mobile work force presents to the current state of retirement fund taxation, especially from an Australian perspective. The paper will also provide a number of recommendations for reform in this area of law.

  • The primacy of client privilege: Designing a statutory tax advice privilege for accredited non-lawyer tax advisors Add to cart

    01 Sep 2014

    There are several types of professional groups that provide tax advice in Australia: lawyers, accountants, and financial advisors, many of whom are registered tax agents. In many cases, the type of advice provided is the same; however, currently whilst lawyers can extend to their clients a blanket legal professional privilege (“LPP”) over confidential tax advice, clients of non-lawyer tax advisors (“NLTAs”) are presently only granted an administrative concession by the Australian Taxation Office (“ATO”) and then only over a limited range of documents.

    This article argues in favour of the enactment of a separate statutory tax advice privilege in Australia for accredited NLTAs and suggests a framework for determining which taxation professionals should be able to offer a tax advice privilege to their clients.