Australian Tax Forum

Articles from the current issue:

• Australia’s 50% CGT discount: Policy oversight?

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  Since its enactment in 1999–2000, the 50% capital gains tax (CGT) discount has become an entrenched feature of the Australian tax system. The CGT discount is effectively a tax rate preference that, we argue, remains in place despite its tax policy shortcomings. These include that the CGT discount is inequitable from the perspective of horizontal and vertical equity, and it is inefficient in that it may encourage an overinvestment in assets that produce most of their return in the form of capital gains. This article is a critique of the CGT discount which draws on a chronologically organised analysis of the views and commentary on the CGT discount from individuals and organisations outside of government. Views and commentary on the CGT discount are sourced from the news media, submissions to government discussion papers, and other publicly available information. This article critically evaluates the policy basis and evidence for the 50% CGT discount and is, in part, concerned with whether there is an overall justification for the preference. It is argued that the justifications made by policymakers in favour of the CGT discount, at the time of its enactment, lacked sound tax policy foundations. It follows that the case for the CGT discount continuing in its current form is diminished.

• Tax law, policy and energy justice: Re-thinking biofuels investment and research in Australia

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  Tax law and policy can encourage investment in innovative research into biofuels as part of a just transition to a low carbon economy. This multi-disciplinary paper aims to re-think those fiscal levers. Biofuels such as ethanol can be categorised by the type of feedstock used for processing into the final product. Triggered by the rise in oil prices, many biofuel studies were conducted in Australia over the period 2007 to 2014. We ask whether there is a contemporary tax policy narrative to elicit from previous Australian studies on biofuel innovation, and take a qualitative research approach in our investigation. We next consider the type of fiscal support that might encourage further biofuels research. The framework of energy justice is used for analysis. Findings suggest that stability in contemporary government tax law, policy and national energy co-ordination is required for biofuel innovation. Australia needs to use a greater diversity of energy resources: the gap that this paper addresses.
  Globally, tax law and policy drive investment towards a sustainable energy mix.

• The case for tax in democracies

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  The power to tax is one of the most basic power to assure state revenues. This article attempts to investigate the interaction between tax and democracy, asserting that the two form an important basis for a fiscal, social contract between the state and its subjects. The hypothesis is that taxation is the mechanism for legally taking a part of one’s wealth in return for freedoms/services and that compliance with taxation works best with representation. The article outlines the earliest emergence of democracy and taxation, specifically within New Zealand’s historical landscape. It explores what drives tolerances towards taxation and an overview of taxation in undemocratic states. The article concludes by considering whether, at this time in history, democracy
  would seem to have a significant bearing, positive or otherwise, on taxation. The author’s ambition is that this analytical paper will serve as a guide for policymakers.

• Book-tax relations of large Australian companies

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  Using the data from the corporate tax transparency reports of entity tax information released by the Australian Taxation Office for the three income years 2013-14 to 2015-16, this study investigates the relations between (a) ‘taxable income’ in corporate tax return and ‘profit before tax’ in financial report and (b) ‘tax payable’ in corporate tax return and ‘tax expense’ and ‘current tax expense’ in financial report, as well as other variables that may explain these book-tax relations. This study finds that on average a 1% increase in profit before tax from continuing operations is associated with 0.66% increase in taxable income. On average a 1% increase in tax expense in income statement is associated with 0.71% increase in tax payable in tax return, and a 1% increase in current tax expense is associated with 0.95% increase in tax payable in tax return. Profits from discontinued operations, profits attributable to non-controlling (or minority) interests in the corporate group, the extent of foreign operations and the tax losses carried forward indicator also explain these book-tax relations.

• Recognising the cost of purchased goodwill

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  The nature of “goodwill” for tax purposes was an important issue in Australia long before the adoption of the Commonwealth income tax, with the relationship between goodwill and sales of business premises a central issue in colonial stamp duty assessments (and consequent litigation). Judicial precedents and doctrines were transferred into the income tax arena as a result of a provision in the first Commonwealth income tax law that allowed depreciation of goodwill associated with leasehold interests. Judicial views were subsequently refined when the nature of goodwill was considered in the context of small business concessions for gains on the disposal of goodwill and in an important case in which a vendor created a notional goodwill asset in the course of a financial arrangement. Importantly, since 1964, Australian taxpayers have not been able to depreciate the cost of any form of purchased wasting goodwill. The Australian tax position stands in contrast with that of the UK, Canada, the US and many other countries. This article reviews the concept of goodwill in Australian tax law and suggests allowance of depreciation of purchased goodwill would be a logical reform to make, contributing to better alignment of the law with benchmark income tax principles.