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.

Developing nations need more than words from G20 tax reform

Tax reform is squarely on the agenda for the G20 Brisbane summit in November. The current international tax regime is broken and it’s going to take significant effort on a global scale to fix it. In a recently released CEDA Report on securing the G20’s future, I recommended the role Australia could play in ensuring real and substantive progress is made in international tax reform. There’s a very real need to ensure the Brisbane summit is not just a “talkfest”. One group that stands to significantly win or lose from reform, or lack of it, is developing nations.

What if tax reform was a fundamental human right?

As an election looms in Australia, the tax debate continues unabated. Self-interest abounds. When we remove self-interest, we are often reduced to standard design principles for a taxation system. Lost in this discussion is the fundamental purpose of tax, which is to finance government expenditure. Most would argue that tax revenue should be sufficient to meet basic economic and social needs of the community. But how does a community determine what these basic economic and social needs should be? One way is by using a human rights framework. This can provide guidance for both developing and developed countries considering tax reform.

The 1998 tax reform proposal fringe benefits tax and nonprofit organisations

Fringe Benefits Tax (FBT) is a tax payable by employers on the value of certain fringe benefits that have been provided to their employees or to associates of those employees. It was introduced on 1 July 1986 to improve the equity of the taxation system because non-salary and wage benefits were escaping the taxation base. FBT ensures that tax is paid on those fringe benefits provided in place of, or in addition to, salary or wages of employees.

An unrelated income tax for Australia?

The Australian tax regime for not for profit organisations is notable because of its tolerance of such organisations generating untaxed trading income, unlike the United States and United Kingdom tax regimes. In 2011, the Australian government announced new arrangements for untaxed trading income after a High Court case drew attention to it. This chapter identifies issues experienced on a practical level in the US and the UK, where unrelated business income is taxed, and offers directions for any future Australian attempt to tax this income.

G20 tax reform plan should prevent another Lux leaks

The G20 Communique is good news on the international tax reform front. As part of the G20 commitment to boost economic resilience the Communique commits G20 nations to taking action to ensure fairness in the international tax system. This means they are looking at ways to ensure profits are taxed where economic activities deriving the profits are performed and where value is created.

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.

Should tax incentives for charitable giving stop at Australia's borders?

Around the world, philanthropic gifts are increasingly crossing borders, driven by globalisation and facilitated by liberalised cross-border tax incentives. Australia is considered to have one of the strictest regimes for the tax treatment of cross-border donations. With bipartisan political support for a significant reduction in the amount and scope of Australian foreign aid, the nation’s international presence through the ‘soft power’ of aid will fall increasingly upon private philanthropy. Are the current tax incentives for Australian cross-border philanthropy and the supervision of those incentives appropriate to both facilitate and regulate international giving? To address this question, this article analyses the amount of Australian cross-border philanthropy and explains the current legislative architecture affecting the tax deductibility of cross-border gifts. It then examines the Australian Government’s proposed ‘in Australia’ reform agenda against the underlying fiscal and regulatory policy imperatives, and makes recommendations for the future tax treatment of Australian cross-border philanthropy.

The allocation of taxing rights of ship and aircraft leasing profits under Australia's tax treaties

The Australian Federal Commissioner of Taxation recently released Draft Taxation Ruling TR 2008/D3 with the stated purpose of clarifying ‘what profits derived from the leasing of ships or aircraft fall within the ship and aircraft articles of each of Australia’s tax treaties’. In particular, TR 2008/D3 explains the taxing rights over different types of leasing profits, such as a full basis lease in respect of any transport by a ship operated in international traffic and bareboat leases which are ancillary to the lessor transport operations of ships in international traffic. This article outlines the Commissioner’s views on the application of the standard ships and aircraft articles in the tax treaties to which it is a party as well as considering the major variations on the standard adoption. In doing so, guidance is provided as to the allocation of taxing rights of ship and aircraft leasing profits under Australia’s tax treaties.

Conceptualising tax expenditures : commentary

The tax expenditures concept has been part of the Australian tax review system since 1973. In view of the fact that tax expenditures are considered part of the tax-transfer system, and that paragraph 9 of the terms of reference for the Review Panel requires a consideration of all relevant tax expenditures, we can be confident that they will be considered once again in the final report of Australia’s Future Tax System Review Panel. However, an examination of previous Government and Parliamentary reviews suggests that few of the resulting recommendations are adopted. Previous recommendations have resulted in the acknowledgement of and concern over tax expenditures, but have led to only one significant advancement: the publication of an annual tax expenditures statement. It is apparent that Brooks in his paper aims to ensure, and makes a compelling case for, the significance and central role tax expenditures should play in the Review Panel deliberations. In doing so, Brooks explores the concept itself as well as the conceptual implications impacting on the more pragmatic aspects of tax expenditure analysis. At the outset, Brooks explains why tax expenditures cannot be evaluated using traditional criteria of equity, neutrality, and simplicity, but rather can only be understood and evaluated using budgetary criteria.

An examination of tax-deductible donations made by individual taxpayers in Australia for 1997/98

This paper analyses the amount and type of tax-deductible donations made by Australian taxpayers to charities for the period 1 July 1997 to 30 June 1998. The information has been extracted from the Australian Taxation Office's publication Taxation Statistics 1997-98 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 1997 to 30 June 1998. This report is the latest publicly available summary. At the time of writing.

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

The often competing imperatives of equity, simplicity and efficiency in the income tax regime, particularly the notion of simplicity, has been most evident within Australia’s small business sector over the last decade. In an attempt to provide tax simplification and reduce the tax compliance burden faced by Australian small businesses, provisions collectively referred to as the ‘simplified tax system’ or STS were introduced. The STS was designed to provide eligible small businesses with the option of adopting a range of ‘simplified’ tax measures designed to simplify their tax affairs whilst at the same time, reducing their tax compliance costs. Ultimately, a low take-up rate and accompanying criticisms led to a remodelled and rebadged concessionary regime known as the ‘Small Business Entity’ (SBE) regime which came into effect from 1 July 2007. This paper, through a pilot study, investigates the SBE regime though the eyes of the practitioner. In line the Australian Federal Government’s objective of simplification and reduced compliance costs, the purpose of the study was to (1) determine the extent to which the SBE concessions are being adopted by tax practitioners on behalf of their clients, (2) gain an understanding as to which individual SBE tax concessions are most favoured by practitioners, (3) determine the primary motivation as to why tax practitioners recommend particular SBE concessions to their clients, and (4) canvass the opinions of practitioners as to whether they believed that the introduction of the SBE concessions had met their stated objective of reducing tax compliance costs for small businesses. The findings of this research indicate that, while there is a perception that the SBE concessions are worth embracing, contrary to the policy intent, the reasons behind adopting the concessions was the opportunity to minimise a clients’ tax liability. It was revealed that adopting particular concessions had nothing to do with compliance costs savings and, in fact, the SBE concessions merely added another layer of complexity to an already cumbersome and complex tax code, which resulted in increased compliance costs for their small businesses clients. Further, the SBE concessions allowed tax practitioners the opportunity to engage in effective tax minimisation, thereby fulfilling the client advocacy role of the tax practitioner in maximising their clients’ tax preferences.

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

Neither an international tax, nor an international taxing body exists. Rather, there are domestic taxing rules adopted by jurisdictions which, coupled with double tax treaties, apply to cross-border transactions and international taxation issues. International bodies such as the OECD and UN, which provide guidance on tax issues, often steer and supplement these domestic adoptions but have no binding international taxing powers. These pragmatic realities, together with the specific use of the word ‘regime’ within the tax community, lead many to argue that an international tax regime does not exist. However, an international tax regime should be defined no differently to any other area of international law and when we step outside the confines of tax law to consider the definition of a ‘regime’ within international relations it is possible to demonstrate that such a regime is very real. The first part of this article, by defining an international tax regime in a broader and more traditional context, also outlining both the tax policy and principles which frame that regime, reveals its existence. Once it is accepted that an international tax regime exists, it is possible to consider its adoption by jurisdictions and subsequent constraints it places on them. Using the proposed changes to transfer pricing laws as the impetus for assessing Australia’s adoption of the international tax regime, the constraints on sovereignty are assessed through a taxonomy of the level adoption. This reveals the subsequent constraints which flow from the broad acceptance of an international tax regime through to the specific adoption of technical detail. By undertaking this analysis, the second part of this article demonstrates that Australia has inherently adopted an international tax regime, with a move towards explicit adoption and a clear embedding of its principles within the domestic tax legislation.