Income tax treatment of financial instruments : theory and practice

Examines the theoretical and practical aspects of the treatment of financial instruments under a realisation-based income tax. Argues that, within such a context, a system of expected-return taxation in preferable. The argument is developed through a review of the academic literature and selected legislative regimes.

The holy grail : the search for the optimal gaar

The sustainability of a taxation system relies in part in reducing effective tax avoidance as far as is possible. Tax avoidance impacts on the economy both because it results in revenue loss and because it diverts people into devising, marketing and implementing avoidance arrangements, rather than engaging in economically productive activities. Revenue losses in turn weaken the government's ability to formulate and implement fiscal policies. Moreover, the very integrity of a tax system, necessary for its long-term sustainability, is attacked by tax avoidance. The goal of equity is undermined by tax avoidance as typically these schemes are accessed by the wealthy. Thus, tax avoidance results in an unfair shift in the tax burden to the less wealthy in society. As one commentator recently noted, combating 'tax avoidance ... will serve to lessen the overall burden on all taxpayers'. Further, legislative responses to tax avoidance increase the complexity of a taxation scheme. Tax avoidance schemes also undermine the neutrality of a taxation system by distorting trade and investment decisions. Thus, tax avoidance attacks every aspect of a fair, and hence, sustainable, taxation system.

Aid, economic reform, and public sector fiscal behaviour in developing countries

This paper looks at interactions between foreign development aid, economic reform, and public sector fiscal behavior. It proposes a model of the public sector fiscal response to aid inflows, which allows for changes in structural relationships due to an exogenously imposed program of economic reform. This model is applied to 1960–99 time series data for the Philippines, which embarked on an IMF- and World Bank-funded structural adjustment program in 1980. Estimates of structural and reduced-form equations paint a dismal picture of the effectiveness of foreign aid to, and the structural adjustment program in, the Philippines so far as fiscal impacts are concerned. Both bilateral and multilateral aid inflows, and the presence of an economic reform program, are associated with decreases in public fixed capital expenditure, decreases in taxation and other recurrent revenue, and decreases in public sector saving. Multilateral aid also appears to be highly fungible.

Black fella land – white fella tax : changing the CGT implications of aboriginal/native title

The taxation of aboriginal/native title payments gives rise to a number of complex and difficult legal and policy issues. Reform measures announced on 13 February 1998 by the then Federal Treasurer and Attorney-General did not address the possible capital gains tax (‘CGT’) implications and even those relating to ordinary income under s 6-5 Income Tax Assessment Act 1997 (Cth) remain unimplemented. The much anticipated Report of the Native Title Payments Working group (6 February 2009), while primarily focusing on non-taxation issues, also recognises the need for taxation reform and makes some recommendations in regard to such. Most recently, on 18 May the Assistant Treasurer, Senator Nick Sherry, the Minister for Families, Housing, Community Services and Indigenous Affairs, Jenny Macklin, and the Attorney General, Robert McClelland, announced the commencement of a national consultation on the tax treatment of native title, including the interaction of native title, Indigenous economic development and the tax system. The Assistant Treasurer recognised the need for “greater clarity and increased certainty for native title holders on how the tax system and native title interact.” At the same time, they released a paper entitled Native Title, Indigenous Economic Development and Tax to guide the national consultation. The proposed measures considered in the paper, including exempting Native title payments and/or creating a new tax exempt Indigenous Community Fund, provide a welcome step towards reform in this area. This article is part of a broader research project that explores the CGT implications of aboriginal/native title. While these provisions impact on both Indigenous traditional owners and relevant payers, such as mining companies, the focus in the project is particularly on the CGT implications for the traditional owners. This first part of the project examines the status of aboriginal/native title and incidental/ ancillary rights as CGT assets. The broader research project will then build on this analysis in the context of relevant CGT events. As the preliminary findings in this article evidence the CGT implications of aboriginal/native title are far from certain. The application of CGT to aboriginal/native title raises more issues than it answers. The key reason is that the current law is entirely unsuitable to communally held inalienable aboriginal/native title. Nevertheless, it will be seen that it is arguable that aboriginal/native title and/or incidental rights are post-CGT assets and acts in relation to such could trigger a CGT event with tax implications for the traditional owners. It will be suggested that these current tax provisions provide a very pertinent example where the law operates as a blunt tool that does not appropriately promote justice and reconciliation. To tax Indigenous communities as a result of acts that extinguish or impair their traditional ownership is incongruous. A specific provision(s) should be included in the capital gains provisions to ensure any such payments are exempt from taxation. This is not only fair given the history of uncompensated extinguishment of aboriginal title Australia, but also promotes the ability of Indigenous communities to optimise the financial benefits stemming from aboriginal/native title agreements.

Australia's superannuation system : a critical analysis

Australia’s superannuation system consists of individual retirement accounts that cannot be accessed until the taxpayer reaches the legislated preservation age. Most of the deposits to these accounts are the mandatory contributions that employers make. Some of the claimed justifications for superannuation are weak. Specifically, claims that superannuation is necessary to prevent a looming ageing crisis and is justified on the grounds of intergenerational equity lose much of their force when examined in the context of substantially higher future incomes. One of the justifications for superannuation that has merit is that it helps promote income smoothing. Although there are some strong arguments for retirement policies that help promote income smoothing, given the long term trend towards income inequality, there are also convincing arguments towards an emphasis on retirement policies that distribute incomes more equally. If income smoothing is on balance seen as a desirable goal then there is merit in Australia’s superannuation system being complemented by a fully funded government run defined benefits scheme.

Enabling organisational cultural change using systemic strategic human resource management - a longitudinal study

The paper reports on a longitudinal assessment of sustained organizational cultural change in the Australian Taxation Office. Results from a major action research change project are provided. A clear finding from this research is that the cultural change had been sustained through the systemic application of strategic human resource management.

Forensic accounting and Benford's law

An article [1] in the Journal of Forensic Accounting reviewed the background and development of forensic accounting using Benford’s Law (BL)—an interesting property in natural occurring numbers that can help identify fraudulent data in corporate financial records. The field of forensic accounting, and this law in particular, are relevant in light of several recent events that required the identification of false or otherwise misrepresented information in corporate financial statements. Such information was used or intended to be used to fraudulently misappropriate company funds, cover up illegal transactions, or evade taxation. In this article, we comment on forensic accounting and BL from a signal processing (SP) perspective.

Takeover deterrent effect of on-market share buyback in Australia

This study examines whether Australian firms use on-market share buybacks to deter unwanted takeover risk. We found a statistically significant and positive relationship between a firm’s ex-ante takeover probability and its on-market share buyback activities. Our result is robust to alternative modelling techniques, namely TOBIT and Censored Quantile Regressions. This paper found evidence that in a dividend imputation credit taxation system the yield of share buyback is positively related to dividend payments. However, on-market share buyback activity is closely related to temporary cash flows rather than to permanent operating cash flows. This might indicate that, besides dividend payments, Australian firms take advantage of the financial flexibility that comes with share buybacks to redistribute nonpermanent cash flows to their shareholders.

Auditor independence : shared meaning between the demand and supply sides of the audit services market?

Purpose – The purpose of the paper is to examine the extent to which there is shared meaning of the concept of auditor independence between the three major groups of parties on the demand and supply sides of the audit services market – auditors, financial report preparers and financial report users.

Design/methodology/approach – The paper utilises the measurement of meaning framework (semantic differential analysis) originally proposed by Osgood et al. in 1957. The framework is used to investigate the extent to which there is shared meaning (agreement in interpretations) of the independence concept, in response to alternative audit engagement case contexts, between key parties to the financial reporting communication process. The study's research data was collected in the period March 2004-May 2005.

Findings – Findings indicate a robust and stable single-factor cognitive structure within which the research participants interpret the connotative meaning of the auditor independence concept. An analysis of the experimental cases finds similarities in connotations (interpretations) of an audit firm's independence for the participant groups for most cases, with the exception of cases involving the joint provision of audit and non-audit (taxation) services.

Research limitations/implications – The usual external validity threat that applies to experimental research generally applies to the study. That is, the results may not be generalisable to settings beyond those examined in the study. An important implication of the study is that it emphasises the continuing problematic nature of the joint provision of audit and non-audit services, even in situations where the non-audit services comprise only traditional taxation services.

Originality/value – The study is the first to examine the concept of auditor independence by means of the Osgood et al. measurement of meaning research framework using, as research participants, the three major groups on the demand and supply sides of the audit services market.

Population-level changes to promote cardiovascular health

Background: Cardiovascular diseases (CVD) cause 1.8 million premature (<75 years) death annually in Europe. The majority of these deaths are preventable with the most efficient and cost-effective approach being on the population level. The aim of this position paper is to assist authorities in selecting the most adequate management strategies to prevent CVD.

Design and Methods: Experts reviewed and summarized the published evidence on the major modifiable CVD risk factors: food, physical inactivity, smoking, and alcohol. Population-based preventive strategies focus on fiscal measures (e.g. taxation), national and regional policies (e.g. smoke-free legislation), and environmental changes (e.g. availability of alcohol).

Results: Food is a complex area, but several strategies can be effective in increasing fruit and vegetables and lowering intake of salt, saturated fat, trans-fats, and free sugars. Tobacco and alcohol can be regulated mainly by fiscal measures and national policies, but local availability also plays a role. Changes in national policies and the built environment will integrate physical activity into daily life.

Conclusion: Societal changes and commercial influences have led to the present unhealthy environment, in which default option in life style increases CVD risk. A challenge for both central and local authorities is, therefore, to ensure healthier defaults. This position paper summarizes the evidence and recommends a number of structural strategies at international, national, and regional levels that in combination can substantially reduce CVD.

Strange bedfellows? Tax administration and human rights brought together

This article considers the implications for tax administration if a Human Rights Act is introduced into Australia.

Policy change and industry associability: the Australian mining sector

In this paper we use evidence from the recent trajectories of mining industry associations in the Australian federation to argue for the significance of institutional explanations for the formation and maintenance of interest groups. We argue that the recent lack of consultation by the Commonwealth government with the Minerals Council of Australia over resources rent taxation proposals reflected a weakness that resulted from the shifting basis of associability stemming from institutional changes.