Earnings management in response to the introduction of the Australian gold tax

Earnings from gold mining in Australia remained tax-exempt for almost seven decades until January 1, 1991. In the early 1980s, rapid economic prosperity induced by escalated gold prices brought the Australian gold-mining industry under intense political scrutiny. Using a variant of the modified Jones model, this paper provides evidence of significant downward earnings management by Australian gold-mining firms, which is consistent with their attempts to mitigate political costs during the period from June 1985 to May 1988. In contrast, test of earnings management over a similar period in a control sample of Canadian gold-mining firms produced insignificant results. Further, empirical results are robust to several sensitivity tests performed. During the period from June 1988 to December 1990, the Australian firms were found to have engaged in economic earnings management. This is consistent with the sample firms' incentive of maximizing economic earnings immediately prior to the introduction of income tax on gold mining. The findings of this study help to understand the impact of earnings management on the efficient resource allocation in an economy. They also contribute toward understanding the linkage between regulation of accounting for special purposes and general-purpose financial. reporting.

The public management issues of access to electronic gaming machines (EGMs) : a case study of policy in Victoria, its effects and requirements for evaluation

Wynne and Schaffer (2003) have highlighted both the strong growth of gambling activity in recent years, and the revenue streams this has generated for governments and communities. Gambling activities and the revenues derived from them have, unsurprisingly, therefore also been seen as a way in which to increase economic development in deprived areas (Jinkner-Lloyd, 1996). Consequently, according to Brown et al (2003), gambling is now a large taxation revenue earner for many western governments, at both federal and state levels, worldwide (for example UK, USA, Australia). In size and importance, the Australian gambling industry in particular has grown significantly over the last three decades, experiencing a fourfold increase in real gambling turnover. There are, however, also concerns expressed about gambling and Electronic Gaming in particular, as illustrated in economic, social and ethical terms in Oddo (1997). There are also spatial aspects to understanding these issues. Marshall’s (1998) study, for example, highlights that benefits from gambling are more likely to accrue at the macro as opposed to the local level, because of centralised tax gathering and spending of tax revenues, whilst localities may suffer from displacement of activities with higher multipliers than the institutions with EGMs that replace them. This also highlights a regional context of costs, where benefits accrue to the centre, but the costs accrue to the regions and localities, as simultaneously resources leave those communities through both the gambling activities themselves (in the form of revenue for the EGM owners), and the government (through taxes).

Can risk management boost the supply of affordable housing development and management?

Purpose: The purpose of this paper is to analyse the risk management process conducted by some private and not-for-profit affordable housing providers in South East Queensland, and draw conclusions about the relationship between risk assessments/responses and past experiences.----- Design/methodology/approach: In-depth interviews of selected non-government housing providers have been conducted to facilitate an understanding of their approach to risk assessment in developing and in managing affordable housing projects. Qualitative data are analysed using thematic analysis to find emerging themes suggested by interview participants.----- Findings: The paper finds that informal risk management process is used as part of normal business process in accordance with industry standards. Many interviewees agree that the recognition of financial risk and the fear of community rejection of such housing projects have restrained them from committing to such investment projects. The levels of acceptance of risk are not always consistent across housing providers which create opportunities to conduct multi-stakeholder partnership to reduce overall risk.----- Research limitations/implications: The paper has implications for developers or investors who seek to include affordable housing as part of their portfolio. However, data collected in the study are a cross-section of interviews that will not include the impact on recent tax incentives offers by the Australian Commonwealth Government.----- Practical implications: The study suggests that implementing improvements to the risk mitigation and management framework may assist in promoting the supply of affordable housing by non-government providers.----- Originality/value: The focus of the study is the interaction between partnerships and risk management in development and management of affordable rental housing.

Tax expenditures in Australia : the elevation from ‘disguised’ expenditures to architectural pillars of the 21st century

The current Australian Treasury approach to tax expenditures management and reporting is a culmination of 36 years of Government and Parliamentary reviews and reports. The most notable outcome of these reviews and reports is the publication of the annual tax expenditures statement, which commenced in 1986. Since its inception, the Australian annual tax expenditures statements have themselves been the subject of review. Most recently, the Australian National Audit Office has undertaken a performance audit in the Department of the Treasury and released its report entitled Preparation of the Tax Expenditures Statement. In addition to this 2008 report, a second recent opportunity to consider tax expenditures within the Australian tax regime has arisen. The Australian tax system is currently undergoing a comprehensive and broad review with the terms of reference requiring a consideration of all relevant tax expenditures. While the recommendations of the Australian National Audit Office are not novel, and it is not unusual for a broader review to consider the role of tax expenditures within the Australian tax system, both the recommendations of the Australian National Audit Office and the views of the current Review Panel take on a renewed sense of importance given the proliferation of tax expenditures in Australia. Tax expenditures, in terms of number and pecuniary value, have increased significantly in Australia in recent years. The latest Tax Expenditures Statement lists around 320 tax expenditures with the pecuniary value of those expenditures estimated at $73.69 billion or 7.1% of GDP. The largest category of tax expenditures listed in the 2008 Tax Expenditures Statement, totalling $29.23 billion, relate to concessions aimed at retirement savings.

Prescriptions for reform of Australia's superannuation tax concessions

The highly controversial and often politicised issue of Australia’s retirement savings regime featured prominently throughout the two day Federal Government’s October 2011 Tax Forum. Calls for reform of this regime are by no means new. Reform debate over the years has focused on each of the three separate pillars: the age pension, compulsory superannuation, and voluntary saving, as well as the interaction of those three elements. However, recently there has been a significant shift away from reliance on the age pension, with its associated risks falling to the government, to a defined contributions scheme where the associated risks fall to the individual taxpayer. Consequently, Australia’s superannuation regime is predominantly subject to current debate, and, as such, the subject of this article. This article considers the history of Australia’s retirement savings regime, along with a framework for evaluating the superannuation tax concessions. It then discusses the recommendations of the Australian Future Tax System (AFTS) Review Panel and ensuing debate at the Tax Forum. Finally, it suggests two proposals to achieve the objectives of the AFTS Review in relation to retirement, those objectives being a system which is broad and adequate, acceptable to individuals, robust, simple and approachable, and finally sustainable. The first, whilst potentially requiring some tinkering’, is relatively simple and a blue print has already been provided to the Federal Government – the adoption of Recommendations 18 and 19 of the AFTS Review. The second is one of management. Superannuation concessions are fundamentally categorised as tax expenditures and the management of these tax expenditures, not just the reporting, should be undertaken.

Advance pricing arrangements : an Australian Tax Office success or a legislative failure?

Australia’s domestic income tax legislation and double tax agreements contain transfer pricing rules which are designed to counter the underpayment of tax by businesses engaged in international dealings between related parties. The current legislation and agreements require that related party transactions take place at a value which reflects an arm’s length price, that is, a price which would be charged between unrelated parties. For a host of reasons, it is increasingly difficult for multinational entities to demonstrate that they are transferring goods and services at a price which is reflective of the behaviour of independent parties, thereby making it difficult to demonstrate compliance with the relevant legislation. Further, where an Australian business undertakes cross-border related party transactions there is the risk of an audit by the Australian Tax Office (ATO). If a business wishes to avoid the risk of an audit, and any ensuing penalties, there is one option: an advance pricing arrangement (APA). An APA is an agreement whereby the future transfer pricing methodology to be used to determine the arm’s length price is agreed to by the taxpayer and the relevant tax authority or authorities. The ATO views the APA process as an important part of its international tax strategy and believes that there are complementary benefits provided to both the taxpayer and the ATO. The ATO promotes the APA process on the basis of creating greater certainty for all parties while reducing compliance costs and the risk of audit and penalty. While the ATO regards the APA system as a success, it may be argued that the implementation of such a system is simply a practical solution to an ongoing problem of an inherent failure in both the legislation and ATO interpretation and application of this legislation to provide certainty to the taxpayer. This paper investigates the use of APAs as a solution to the problem of transfer pricing and considers whether they are the success the ATO claims. It is argued that there is no doubt that APAs provide a valuable practical tool for multinational entities facing the challenges of the taxation of global trading under the current transfer pricing regime. It does not, however, provide a long term solution. Rather, the long term solution may be in the form of legislative amendment.

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.

Tax morale, Eastern Europe and European enlargement

This study tries to remedy the current lack of tax compliance research analyzing tax morale in 10 Eastern European countries that joined the European Union in 2004 or 2007. By exploring tax morale differences between 1999 and 2008 we show that tax morale has decreased in 7 out of 10 Eastern European countries. This lack of sustainability may support the incentive based conditionality hypothesis that European Union has only a limited ability to influence tax morale over time. We observe that events and processes at the country level are crucial to understanding tax morale. Factors such as perceived government quality, trust in the justice system and the government are positively correlated with tax morale in 2008.

International tax cooperation in the Post-GFC era

Over the last five years we have observed the fallout from the global financial crisis (GFC). International cooperation and jointly adopted policies have dominated many of the solutions to the problems which have arisen. Initially, many nations in response to the GFC, implemented a two pronged short term solution by undertaking fiscal intervention and delivering rescue packages aimed at first, bailing out financial institutions and second, preventing or minimising the impact of a recession. Both programs involved large amounts of domestic spending. It was difficult in early 2007 to foresee the reduction that nations were about the face in domestic revenue collected. Five years on, not only have the first line effects of the GFC reduced the revenue raised by governments around the world, but the consequential costs associated with the rescue packages have also depleted domestic revenue bases. The response by stakeholders has been to attempt to secure domestic revenue bases through fiscally sustainable measures. Domestic sovereignty allows the levying of taxes as a nation chooses. However, rather than raise domestic taxes, revenue may also be increased by stemming the flow of income and capital to low and no-tax jurisdictions. The intervening five-year period since the GFC allows a unique insight into the response by nations and international organisations to tax evasion, tax avoidance and aggressive tax competition through the cross border flows of capital and the resulting affect that the GFC has had on international tax cooperation. By investigating the change in the international tax landscape over the last five years, which reveals the work done by stakeholders in developing fiscally responsible responses to the problems that have arisen, it may be possible to predict the trajectory of the international tax landscape over the next five years.

Embedded tax liabilities and portfolio choice

his study presents an improved method of dealing with embedded tax liabilities in portfolio choice. We argue that using a risk-free discount rate is appropriate for calculating the present value of future tax liabilities. Supportive of recent research, our results found a taxation-induced preference of holding equities over bonds, and a location preference of holding equities in the taxable account and bonds in retirement accounts. These important findings contrast with traditional investment advice which suggests a greater capacity for risk in retirement accounts.

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.