Published on 01 Apr 12
by "AUSTRALIAN TAX FORUM" JOURNAL ARTICLE
The current asymmetric taxation of business gains and losses causes the effective tax rate to exceed the statutory tax rate. Resulting different effective tax rates across different investment and business structure choice options distort the choices among these options with a loss of efficiency. A potentially important automatic stabiliser also is lost. An ideal solution would combine refunding losses together with the removal of tax expenditures. Neither reform component seems achievable in the immediate future. A more likely reform strategy would involve a combination of carry back of losses and indexation of losses carried forward.
This strategy would reduce distortions arising from the arbitrary annual accounting tax year being shorter than the life of investments which over time generate an economic profit, but it leaves high effective tax rates on risky investments by small businesses.
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