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Revisiting tax losses

Published on 01 May 09 by "AUSTRALIAN TAX FORUM" JOURNAL ARTICLE

Australia, like most other countries, taxes positive and negative income asymmetrically. This asymmetric tax treatment is designed to protect government revenue. However, it distorts investment decisions towards less-risky investments and can disadvantage small businesses and firms with start-up or closing-down expenditure without other income to offset losses. Further, measures to restrict loss utilisation may add complexity to the tax system and often result in pressure for specific compensatory concessions. However, movement towards greater utilisation could require integrity measures which may, in turn, add complexity. This paper examines the economic consequences of the asymmetric tax treatment of gains and losses under company income tax. The paper compares the tax treatment of losses in Australia to that in several OECD countries and then explores possible alternative loss-utilisation arrangements for Australia. Such alternative arrangements can have broader implications for the taxation of capital income under the company tax system, including because of the integration of company and shareholder taxation under Australia’s dividend imputation system. The present Australia’s Future Tax System Review offers a suitable opportunity to consider the treatment of losses in this broader context.

Author profiles:

Thomas ABHAYARATNA
Thomas holds the following qualifications/positions: Research Fellow, Taxation Law and Policy Research Institute, Monash University and Senior Analyst, the Department of the Treasury.
Current at May 2009

 
Shane JOHNSON
Reuven holds the following positions: Research Fellow, Taxation Law and Policy Research Institute, Monash University and Senior Analyst, the Department of the Treasury.
Current at May 2009
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