The inherent international tax regime and its constraints on Australia's sovereignty

On 1 November 2011 the Minister for Financial Services and Superannuation, the Honourable Bill Shorten MP, announced that Australia would be undertaking a reform of the ‘transfer pricing rules in the income tax law and Australia’s future tax treaties to bring them into line with international best practice, improving the integrity and efficiency of the tax system.’ Mr Shorten stated that the reason for the reform was that ‘recent court decisions suggest our existing transfer pricing rules may be interpreted in a way that is out-of-kilter with international norms.’ Further, he stated that ‘the Government has asked the Treasury to review how the transfer pricing rules can be improved, including but not limited to how to be more in line with international best practice.’ He urged all interested parties to participate in this consultation process. On 16 March 2012, an Exposure Draft and accompanying Explanatory Memorandum outlining the proposed amendments to implement the first stage of the transfer pricing reforms were released. Within the proposed changes is the explicit embedding of the use of the OECD’s Model Tax Convention on Income and on Capital and Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations to help determine the arm’s length price. Does this mean that Australia engages in an international tax regime?

Australia's adoption of an international tax regime : to engage or not to engage?

On 1 November 2011 the Minister for Financial Services and Superannuation, the Honourable Bill Shorten MP, announced that Australia would be undertaking a reform of the ‘transfer pricing rules in the income tax law and Australia's future tax treaties to bring them into line with international best practice, improving the integrity and efficiency of the tax system.’ Mr Shorten stated that the reason for the reform was that ‘recent court decisions suggest our existing transfer pricing rules may be interpreted in a way that is out-of-kilter with international norms.’ Further, he stated that ‘the Government has asked the Treasury to review how the transfer pricing rules can be improved, including but not limited to how to be more in line with international best practice.’ He urged all interested parties to participate in this consultation process.

Who claims gifts as a tax deduction? An examination of tax deductible gift statistics

Many donors, particularly those contemplating a substantial donation, consider whether their donation will be deductible from their taxable income. This motivation is not lost on fundraisers who conduct appeals before the end of the taxation year to capitalise on such desires. The motivation is also not lost on Treasury analysts who perceive the tax deduction as “lost” revenue and wonder if the loss is “efficient” in economic terms. Would it be more efficient for the government to give grants to deserving organisations, rather than permitting donor directed gifts? Better still, what about contracts that lock in the use of the money for a government priority? What place does tax deduction play in influencing a donor to give? Does the size of the gift bear any relationship to the size of the tax deduction? Could an increased level of donations take up an increasing shortfall in government welfare and community infrastructure spending? Despite these questions being asked regularly, little has been rigorously established about the effect of taxation deductions on a donor’s gifts.

Revitalising the Australian Shipping Industry through Tax Reform: Alchemy or Piracy?

The Australian Federal Government has recently passed reforms to the shipping industry. These reforms are aimed at removing barriers to investment in Australian shipping, fostering global competitiveness and securing a stable maritime skills base. The shipping reform package adopts a two pronged approach designed to achieve its stated goals by providing both a ‘stick’ and ‘carrot’ to industry participants. First, the ‘stick’ is delivered via the provision of tighter regulation of coastal trading operations through a new licencing system, along with the introduction of a civil penalty regime and an increase in existing penalties. Second, the ‘carrot’ is delivered via taxation incentives available to vessels registered in Australia where the registrant meets certain specified criteria. These incentives, introduced through amendments to the Income Tax Assessment Act 1997 and the Income Tax Assessment Act 1936 and contained in the Tax Laws Amendment (Shipping Reform) Act 2012, provide five key tax incentives to the shipping industry. From 1 July 2012, amendments give effect to an income tax exemption for qualifying ship operators, accelerated depreciation of vessels, roll-over relief from income tax on the sale of a vessel, an employer refundable tax offset, and an exemption from royalty withholding tax for payments made for the lease of certain shipping vessels.

Small business entity tax concessions : through the eyes of the practitioner

Australia’s small business sector has pursued often-competing imperatives of simplicity, equity and efficiency in the income tax regime (particularly focusing on the notion of simplicity) over the last decade. In 2001, there was an attempt to provide such simplification and reduce the compliance burden faced by Australian small businesses through the ‘simplified tax system’ (‘STS’). However, despite amendments over the years, the regime is much criticised. This article explores how the STS (now known as the ‘small business entity’ regime or ‘SBE’) is utilised from the perspective of tax practitioners, by analysing their recommendations to small business clients in respect of the regime. The results indicate that practitioners believe the regime did nothing to simplify the tax system for small businesses or reduce tax compliance costs. Indeed, the practitioners believed that the introduction of small business concessions had actually achieved the opposite result — it had increased tax compliance costs for their small business clients. However, tax practitioners still recommend the regime highly because it minimises their client’s tax liability.

An examination of tax-deductible donations made by individual Australian taxpayers in 2010-11

Each year, The Australian Centre for Philanthropy and Nonprofit Studies (CPNS) at Queensland University of Technology (QUT) collects and analyses statistics on the amount and extent of tax-deductible donations made and claimed by Australians in their individual income tax returns to deductible gift recipients (DGRs). The information presented below is based on the amount and type of tax-deductible donations made and claimed by Australian individual taxpayers to DGRs for the period 1 July 2010 to 30 June 2011. This information has been extracted mainly from the Australian Taxation Office's (ATO) publication Taxation Statistics 2010-11. The 2010-11 report is the latest report that has been made publicly available. It represents information in tax returns for the 2010-11 year processed by the ATO as at 31 October 2012.

Tax Deductible Giving in 2010 - 2011:ACPNS Current Issues Information Sheet 2013/1

Each year The Australian Centre for Philanthropy and Nonprofit Studies (ACPNS) at QUT analyses statistics on tax-deductible donations made by Australians in their individual income tax returns to Deductible Gift Recipients (DGRs). The information presented below is based on the amount and type of tax-deductible donations made by Australian taxpayers to DGRs for the period 1 July 2010 to 30 June 2011 extracted from the Australian Taxation Office's publication Taxation Statistics 2010-2011.1

Success or failure : the NRAS

Many Australian families are unable to access homeownership. This is because house prices are very high to the severely or seriously unaffordable level. Therefore, many low income families will need to rely on affordable rental housing supply. The Australian governments introduced National Rental Affordability Scheme (NRAS) in July 2008. The scheme aims to increase the supply of affordable rental housing by 50,000 dwellings across Australia by June 2014. It provides financial incentive for investors to purchase new affordable housing that must be rented at a minimum of 20% below the market rent. The scheme has been in place for four years to June 2012. There are debates on the success or failure of the scheme. One argues that the scheme is more successful in Queensland but it failed to meet its aims in NSW. This paper examines NRAS incentive designed to encourage affordable housing supply in Australia and demonstrates reasons for developing properties that are crowded in areas where the land prices are relatively lower in the NSW using a discounted cash flow analysis in a hypothetical case study. The findings suggest that the high land values and the increasing cost of development were the main constraints of implementing the scheme in the NSW and government should not provide a flat rate subsidy which is inadequate to ensure that affordable housing projects in high cost areas.

The CGT small business concessions : recent evidence from the perspective of the tax practitioner

On 21 September 1999 Division 152 was inserted into the Income Tax Assessment Act (1997) (ITAA 1997). It was subsequently subject to amendments in 2006. Division 152 contains the small business CGT concessions, which enables eligible small business taxpayers to reduce the amount of tax payable on capital gains arising from certain CGT events (including the sale of the small business itself) that occur after 11:45 am on 21 September 1999. One of the stated principal objectives of the legislation was to provide a concessionary regime for small business owners who did not have the same ability to access the concessionary superannuation regime (particularly the superannuation guarantee charge) generally available to employees. The then Federal Treasurer, Mr Peter Costello, when announcing the introduction of the concessions, specifically stated that the object of Div 152 was to provide “small business people with access to funds for retirement or expansion”. The purpose of this project is to: one, assess the extent to which small business taxpayers understand the CGT small business concessions, particularly when considering sale of their business; two, determine which of the four small business CGT concessions are being adopted and/or recommended by tax advisors to clients; and three, determine whether the recent superannuation changes announced by the Federal Government in relation to the capping of the concessional superannuation thresholds have had an impact on the use of the small business retirement concession. It is anticipated that the results of this study will reveal that that small business owners are reliant on their tax advisors to explain the operation of Division 152. It is plausible that give the complexity of the CGT concessions, most small business owners are completely unaware of the four small business CGT concessions contained in Division 152 and do not understand how these concessions apply. Our study will also reveal the extent to which each CGT small business concession has been adopted (and reasons why). In particular, emphasis will be placed on the adoption of the small business retirement concession contained in Subdivision 152-D (and specific reasons for its adoption). This study also seeks to understand whether the recent (and impending) changes to the concessional superannuation cap has resulted in the retirement concession being more widely adopted (or recommended) by tax advisors. We would expect that the results of our study to confirm this to be the case, particularly coupled with the recent economic downturn, which has led to lower superannuation fund balances. By providing accounting firms with this information, small business owners will benefit from the information, becoming better placed to be long-term self funded retirees, providing not only financial benefits to the individuals and the country, but a significant increase in social self-assurance by these members of the community.

Symone Anstis : the tax advocate for higher education students

Many who have taken a tax course in the last few years will be aware of the plight of Ms Symone Anstis. Her story is a simple one. The year is 2006 and Ms Anstis, an undergraduate student is undertaking a teaching degree at the Australian Catholic University. To support herself she works at Katies earning $14,946, and receives Youth Allowance of $3,622. In her tax return for that year Ms Anstis claims $920 for ‘self-education expenses’ comprising travel, supplies, student administration fees, depreciation on her computer, textbooks and stationery. These expenses totalling $1,170 are correctly reduced by the non-deductible first $250, per s 82A of the Income Tax Assessment Act (1997) (Cth) (ITAA97). Ms Anstis claims a deduction for ‘self-education expenses’ on the basis that a condition of receiving Youth Allowance is the enrolment and satisfactory progress in an acceptable course of study. Generally, a deduction is allowed where a loss or outgoing is incurred in gaining or producing assessable income and that loss or outgoing is not of a private or domestic nature. Ms Anstis claims the expenses are incurred to meet the requirements of maintaining Youth Allowance so the nexus is satisfied. On assessment, the Commissioner of Taxation disallows the deduction claimed on the basis that ‘self-education expenses’ are only deductible if they have a relevant connection to the taxpayer’s current income-earning activities or they are likely to lead to an increase in a taxpayer’s income from his or her current income-earning activities in the future.

An examination of tax deductible donations made by individual Australian taxpayers in 2011–12

This study uses information based on published ATO material and represents the extent of tax-deductible donations made and claimed by Australian individual taxpayers (i.e. not including corporate entities or trusts) to DGRs, at Item D9 Gifts or Donations, in their income tax returns for the 2011-12 income year. The total amount claimed as tax-deductible donations in 2011-12 was $2.24 billion (compared to $2.21 billion in 2010-11), representing 6.85% of all personal taxpayer deductions. Since 1978-79, the actual total tax-deductible donations claimed by Australian individual taxpayers has outpaced inflation-adjusted total tax-deductible donations, measured against the Consumer Price Index. The average tax-deductible donation claimed in 2011-12 increased to $494.25, but the absolute number and percentage of taxpayers claiming donations dropped (to 4.54 million or 35.62%). Analysis is given of individual taxpayers' donation claiming by Gender, State of Residence, Postcode, Income Band, Industry of employment, and Occupation.

The small business CGT concessions: Evidence from the perspective of the tax practitioner

On 21 September 1999 Division 152 was inserted into the Income Tax Assessment Act (1997) (ITAA 1997). Division 152 contains the small business CGT concessions, which enables eligible small business taxpayers to reduce the amount of tax payable on capital gains arising from certain CGT events that occur after 11:45 am on 21 September 1999. One of the principal objectives of the legislation is to provide a concessionary regime for small business owners who do not have the same ability to access the concessionary superannuation regime generally available to employees. When announcing the introduction of the concessions the then Federal Treasurer, Mr Peter Costello, specifically stated that the objective of Division 152 was to provide ‘small business people with access to funds for retirement or expansion’. The purpose of this article is to: one, assess the extent to which small business taxpayers understand the CGT small business concessions, particularly when considering the sale of their business; two, determine which of the four small business CGT concessions are most commonly adopted and/or recommended by tax practitioners to clients; and three, to determine whether the superannuation changes in relation to the capping of the concessional superannuation thresholds have had an impact on the use of the small business retirement concession.

The dilemma of international capital tax competition in the presence of public capital and endogenous growth

Using an OLG-model with endogenous growth and public capital we show, that an international capital tax competition leads to inefficiently low tax rates, and as a consequence to lower welfare levels and growth rates. Each national government has an incentive to reduce the capital income tax rates in its effort to ensure that this policy measure increases the domestic private capital stock, domestic income and domestic economic growth. This effort is justified as long as only one country applies this policy. However, if all countries follow this path then all of them will be made worse off in the long run.

Embracing Sharia-Compliant products through regulatory amendment to achieve parity of treatment

This article recognises the potential importance of Islamic finance products in Australia, along with the current regulatory impediments preventing Australia from becoming a leader in the Asia-Pacific Islamic finance market. Taking into account the potential importance of, and impediments to, Islamic finance, this article highlights, through the historical development and contemporary state of Islamic finance, its economic, social and political benefits to Australia. Once a case for embracing Islamic finance is made, the main current regulatory impediments to Australia becoming a key player in the Islamic finance market within the Asia-Pacific region are highlighted. This article then argues that, rather than requiring any separate regulatory regime, the current regulatory impediments may be overcome through amendments to existing laws to ensure parity of treatment in Australia between the Islamic finance market and the conventional finance market. The Australian income tax regime is utilised as a case study demonstrate how parity of treatment could be achieved via amendment by taking two frequent and separate Islamic finance transactions. This article concludes that the economic, social and political benefits potentially warrant Australia embracing Islamic finance and that, with the right regulatory measures, Australia could lay the foundation to become a leader in the Asia-Pacific Islamic finance market.

An examination Of tax–deductible donations made by individual taxpayers in Australia for 1999/2000

Each year QUT’s Centre of Philanthropy and Nonprofit Studies collects and analyses statistics on the extent of tax-deductible donations claimed by Australians in their individual income tax returns to deductible gift recipients (DGRs). The information presented below is based on the amount and type of tax-deductible donations claimed by Australian taxpayers to deductible gift recipients (DGRs) for the period 1 July 1999 to 30 June 2000. This information has been extracted from the Australian Taxation Office's publication Taxation Statistics 1999-2000 which provides an overview and profile of the income and taxation status of Australian taxpayers using information extracted from their income tax returns for the period 1 July 1999 to 30 June 2000. The 1999/2000 report is the latest report that has been made publicly available...