Papers by Title and Abstract - Alphabetical order by Title

$250 Deduction Denial for Expenses of Self-Education: Retention of Section 82A is a Mystery - Dale Boccabella

Abstract
The presence of s 82A of the ITAA 1936 in Australia’s income tax law is a mystery. Section 82A denies deductions for up to $250 of expenses of self-education that [otherwise] satisfy deductibility under the general deduction section. Section 82A was introduced at a time when expenses of self-education qualified as a concessional rebatable amount (s 159U of the ITAA 1936). The ceiling for the self-education rebatable amount was $250. One unambiguous role of s 82A was to prevent double counting of the one cost, namely a deduction under the general deduction section (now s 8-1 of the ITAA 1997) and a rebatable amount under s 159U for expenses of self-education. The concessional rebate for expenses of self-education was repealed from 1 July 1985. However, s 82A was not repealed at the same time, even though the policy basis for its existence disappeared. The article broadly sets out the scope of operation of s 82A. The article then traces the history of s 82A. From there, the article searches for a new policy basis for the continued existence of the section. The search for a credible new policy basis for s 82A is not successful. Indeed, the existence of s 82A can be inequitable, and it creates unjustifiable compliance and administrative costs. Accordingly, the existence of s 82A cannot be justified. The section should have been repealed with effect from 1 July 1985. It is a mystery why the ATO did not recommend repeal of s 82A back in 1998 when it was undertaking its review of the operation of the section in the context of reviewing the tax treatment of self-education expenses. What is more surprising is how s 82A survived the recent repeal of inoperative provisions project.

A devilish tale of three cases - zero rating of going concerns: a simple concept but don’t be fooled, it’s the detail that matters! - Andrew J. Maples

Abstract
It is over 20 years since the Goods and Services Tax Act 1985 (GSTA 1985) introduced an indirect tax into New Zealand called the Goods and Services Tax (GST). The main features of the GST regime included the simplicity of its underlying principles and concepts and its comprehensive coverage. The GST regime has changed extensively since its inception. McKenzie (2002, p ix), in his book GST – A Practical Guide, laments that “The 1985 sparse garden of straightforward statutory concepts is thus long gone. Fertilised by the difficulties of applying abstract statutory principles to the everyday commercial world, the [GST] landscape has grown into a tangle of legislation, case developments, IRD rulings, statutory amendments and evolving boundaries.” The “going concern” provisions of the GSTA 1985 are a prime example of the practical issues that can arise from the application of a simple concept. Subject to certain conditions, the Act permits the sale of a taxable activity as a going concern to be zero-rated. The ability to zero-rate such transactions was intended to be a concession to ease the cash-flow cost for purchasers acquiring a taxable activity. Despite its clear objective, the application of the legislative provision has proven problematic, leading to a number of cases and two major legislative amendments.
For a supply to be zero-rated as a going concern the GSTA 1985 requires that inter alia (i) the parties to the transaction be GST registered, and (ii) their intention (that the supply be a going concern) be signified “in writing”. The courts have considered these issues in several recent cases. Three of these decisions are reviewed in this paper. In the first case, the court had to determine who the “person” was that was a party to the particular supply for registration purposes. In the other two cases the court considered what constitutes “in writing”. It is clear from the cases reviewed in this paper that (i) the courts have taken a strict interpretation of these two requirements; and (ii) a lack of attention to detail by taxpayers (and their advisors) when finalising agreements for the sale of taxable activities can have significant financial implications for the supplier and purchaser.

A discussion on income tax deductibility of donations in Australia - Eva Huang

Abstract
Australians have donated generously since colonial times, following the same determination Alfred Felton possessed. Alfred Felton once wrote in 1903 “Wealth! Get it spent.” He was determined to spend his money on “the sick and the poor; on servants and employees; on art work…” Alfred Felton is the benefactor of the National Gallery of Victoria through the Felton Bequest. He has left a lasting legacy through his Philanthropic work.
This paper looks at government sponsored philanthropy, where governments provide tax concessions for philanthropic giving. Much research has been done about charities, charitable giving by economists, lawyers and social policy makers. Toce, Abbin, Pace and Vorsatz of the Wealth and Tax Advisory Services Inc in America has researched extensively into the tax economics of charitable giving in the US and mapped out how charitable giving is done in the US. The Australian Tax Research Foundation published Charities and Philanthropic Institutions: Reforming the Tax Subsidy and Regulatory Regimes edited by Rick Krever and Gretchen Kewley to identify how charities are regulated in Australia. However, even people in the sector find it either fascinating or frustrating, that the Australian NFP landscape is different to that of its common law country counterparts, especially deductions for donations to certain NFP organisations. This paper will focus on this area of tax concessions for NFP organisations, in the Australian context, and aim to clarify the differences between charities and deductible gift recipients (DGR) to enable taxpayers to make an educated choice when they participate in philanthropy.
This paper maps out tax deductibility of gifts in the current tax law, and explores the reasons for the existence of gift deductibility and tax concessions for the not-for-profit sector in Australian tax law. It begins with a discussion of the different types of not-for-profit organisation, then the historical treatment of DGRs in Australia; and then discusses what DGRs are. The paper also deals with the administration processes for DGRs and how to become eligible for gift tax deductibility. This paper deliberately does not attempt to look at proposals for change by the industry for the sector, as the author would like to remain impartial, as she works for the government in formulating policy for the sector.

A LOAN BY ANY OTHER NAME WOULD SMELL SO SWEET - John Tretola

Abstract
When is a loan a loan? Does just naming an arrangement a loan determine the matter? When is a loan provided by an employer to a taxpayer in respect of the employment of the taxpayer and when is a loan provided to the taxpayer as a shareholder? Simple questions but do they have simple answers? In the recent Federal Court case of Commissioner of Taxation v Slade Bloodstock Pty Ltd [2007] 65 ATR 832 (Slade) handed down on 23 February 2007, the court concluded that the loan was made to the taxpayer in their capacity as an employee and hence was subject to fringe benefits tax (FBT). In an earlier decision of the Federal Court in J & G Knowles v Commissioner of Taxation [2000] 44 ATR 22 (Knowles) handed down on 3 March 2000, the court held that the loan was not made to the taxpayer in their capacity as an employee but in their capacity as a shareholder and so was not subject to FBT. Since these two cases both involved the Federal Court, the question I raise is why in one was the loan treated as a loan made by an employer to an employee and so subject to FBT and yet in the other, the loan was treated as a loan made by a company to a shareholder and so not subject to FBT (but potentially Division 7A)? Both cases involved apparently similar facts and both were concerned with the application of FBT to loans made to parties who were both directors and shareholders yet in the one, Slade, the court concluded that there was an FBT liability, yet in the other, Knowles the same court came to the opposite view. In reviewing these decisions I will begin by setting out the purpose of the FBT provisions with respect to loan fringe benefits and then examine these cases in light of these FBT provisions to consider whether these apparently inconsistent decisions can be reconciled. I will then seek to extend the review on the tax treatment of loans by reviewing another recent case Di Lorenzo Ceramics v Commissioner of Taxation [2007] FCA 1006, which also involved loans to directors, although there was no argument about FBT liability. This decision was handed down 5 July 2007 and the review will consider whether this case sheds any further light on the issue of when an arrangement between parties becomes a loan or is instead simply a repayment of capital.

A QUESTION OF STANDING: THE RIGHT TO SEEK REVIEW - Rodney Fisher

Abstract
The mid-1970s witnessed a watershed period in the reform of administrative law, with the codification of many of the common law actions, the intended outcome being a more transparent, and more accountable, government administration. A central aspect of this increased accountability allows for review of a range of administrative decisions and processes, in particular by means of the Administrative Appeals Tribunal (AAT), and by way of judicial review. This administrative law model has had a significant impact on the administration of the taxation system, in terms of the rights created for review of, and appeal against, taxation decisions. However such review or appeal rights only subsist if a party has standing to seek such review or appeal. In broad terms, for review by the AAT, standing encompasses a “person whose interests are affected” by the decision, while for judicial review the requirement is a “person aggrieved by a decision.” The question of standing in tax matters has been addressed by the courts in a number of recent decisions. This paper explores the scope attaching to the determination of ‘standing’ to seek review of taxation decisions, examining the approach taken by the courts in defining the ambit of the term. In particular the paper highlights how a narrow approach to statutory interpretation in relation to the issue of standing may undermine the taxpayer’s right of review.

An Analysis of Tax Expenditure versus Direct Expenditure - Kerrie Sadiq

Abstract
Each financial year concessions, benefits and incentives are delivered to taxpayers via the tax system. These concessions, benefits and incentives, referred to as tax expenditure, differ from direct expenditure because of the recurring fiscal impact without regular scrutiny through the federal budget process. There are approximately 270 different tax expenditures existing within the current tax regime with total measured tax expenditures in the 2005-06 financial year estimated to be around $42.1 billion, increasing to $52.7 billion by 2009-10. Each year, new tax expenditures are introduced, while existing tax expenditures are modified and deleted. In recognition of some of the problems associated with tax expenditure, a Tax Expenditure Statement, as required by the Charter of Budget Honesty Act 1988, is produced annually by the Australian Federal Treasury. The Statement details the various expenditures and measures in the form of concessions, benefits and incentives provided to taxpayers by the Australian Government and calculates the tax expenditure in terms of revenue forgone. A similar approach to reporting tax expenditure, with such a report being a legal requirement, is followed by most OECD countries. The current Tax Expenditure Statement lists 270 tax expenditures and where it is able to, reports on the estimated pecuniary value of those expenditures. Apart from the annual Tax Expenditure Statement, there is very little other scrutiny of Australia’s Federal tax expenditure program. While there has been various academic analysis of tax expenditure in Australia, when compared to the North American literature, it is suggested that the Australian literature is still in its infancy. In fact, one academic author who has contributed to tax expenditure analysis recently noted that there is ‘remarkably little secondary literature which deals at any length with tax expenditures in the Australian context.’ Given this perceived gap in the secondary literature, this paper examines fundamental concept of tax expenditure and considers the role it plays in to the current tax regime as a whole, along with the effects of the introduction of new tax expenditures. In doing so, tax expenditure is contrasted with direct expenditure. An analysis of tax expenditure versus direct expenditure is already a sophisticated and comprehensive body of work stemming from the US over the last three decades. As such, the title of this paper is rather misleading. However, given the lack of analysis in Australia, it is appropriate that this paper undertakes a consideration of tax expenditure versus direct expenditure in an Australian context. Given this proposition, rather than purport to undertake a comprehensive analysis of tax expenditure which has already been done, this paper discusses the substantive considerations of any such analysis to enable further investigation into the tax expenditure regime both as a whole and into individual tax expenditure initiatives. While none of the propositions in this paper are new in a ‘tax expenditure analysis’ sense, this debate is a relatively new contribution to the Australian literature on the tax policy. Before the issues relating to tax expenditure can be determined, it is necessary to consider what is meant by ‘tax expenditure’. As such, part two if this paper defines ‘tax expenditure’. Part three determines the framework in which tax expenditure can be analysed. It is suggested that an analysis of tax expenditure must be evaluated within the framework of the design criteria of an income tax system with the key features of equity, efficiency, and simplicity. Tax expenditure analysis can then be applied to deviations from the ideal tax base. Once it is established what is meant by tax expenditure and the framework for evaluation is determined, it is possible to establish the substantive issues to be evaluated. This paper suggests that there are four broad areas worthy of investigation; economic efficiency, administrative efficiency, whether tax expenditure initiatives achieve their policy intent, and the impact on stakeholders. Given these areas of investigation, part four of this paper considers the issues relating to the economic efficiency of the tax expenditure regime, in particular, the effect on resource allocation, incentives for taxpayer behaviour and distortions created by tax expenditures. Part five examines the notion of administrative efficiency in light of the fact that most tax expenditures could simply be delivered as direct expenditures. Part six explores the notion of policy intent and considers the two questions that need to be asked; whether any tax expenditure initiative reaches its target group and whether the financial incentives are appropriate. Part seven examines the impact on stakeholders. Finally, part eight considers the future of tax expenditure analysis in Australia.

AUSTRALASIAN AND SOUTH EAST ASIAN VENTURE CAPITAL TAX INITIATIVES - Stephen Barkoczy* and Peter Edmundson

Abstract
Venture capital is an important catalyst for stimulating micro-economic development and has played a critical role in the growth of many small and medium sized enterprises (“SMEs”). It has contributed to the creation of new jobs and resulted in the emergence of innovative products and technologies that have changed the world. The United States, in particular, has benefited greatly from the opportunities created by its venture capital industry. Among the many, once small, United States companies that have been recipients of venture capital funding are some of the world’s most well-known technology companies, including: Apple, Cisco Systems, Compaq, Google, Oracle, Microsoft and Sun Microsystems. As one commentator has aptly noted, companies such as these have had a tremendous effect on the United States economy and industrial development: The venture capital market and firms whose creation and early stages were financed by venture capital are among the crown jewels of the American economy. Beyond representing an important engine of macroeconomic growth and job creation, these firms have been a major force in commercializing cutting-edge science, whether through their impact on existing industries as with the radical changes in pharmaceuticals catalyzed by venture-backed firms' commercialization of biotechnology, or by their role in developing entirely new industries as with the emergence of the Internet and World Wide Web. Venture capital funding is, however, not always readily available and there is plenty of anecdotal evidence suggesting that there is often a considerable gap between appropriate sources of finance and the needs of SMEs – particularly “start-ups” involved in innovative high-risk areas of business. In comparison with the United States, the birthplace of the modern day “formal venture capital industry”, the venture capital markets of many other countries around the world remain relatively immature. Even in the United States, the formal venture capital industry is highly localised, concentrated predominantly on the northeast and southwest coastline. As governments around the world are becoming increasingly aware of the important link between venture capital and economic growth, they are also becoming increasingly prepared to introduce programs to stimulate venture capital activity. In an effort to emulate the high-profile success stories of the United States and in order to address potential market failures in their own countries, many nations have designed specific programs to promote the development of their local venture capital markets. One of the most common ways in which governments support venture capital investment is by enacting specific “tax expenditure” programs to encourage such activity. Tax expenditure programs are an indirect mechanism for supporting the growth of a country’s venture capital industry as they do not involve governments making any direct investments in SMEs. Rather, these programs use tax incentives as a “carrot” to encourage the private sector to make venture capital investments. Tax incentives can be provided to investors in the form of either “front-end” or “back-end” incentives. Front-end incentives provide up-front concessions to investors, in the form of deductions or tax credits, for making eligible investments. “Back-end” incentives provide exit concessions to investors, such as income tax or capital gains tax (“CGT”) exemptions, when eligible investments are realised. A key difference between front-end and back-end incentives is that front-end incentives often provide tax relief in respect of both successful and unsuccessful investments while back-end incentives tend only to reward successful investment. Many tax expenditure programs prescribe the specific kinds of investment vehicles or funds in which investors must invest to benefit from the tax incentives. These entities are often regulated by specific government agencies or boards to ensure that they only invest in those kinds of SMEs which a government has specifically targeted. The cost of a tax expenditure program is measured by reference to the revenue that a government has foregone in providing the tax concessions and should also take into account any administrative expenses involved in regulating the program.

CAPITAL VS REPAIRS AND MAINTENANCE: CONFLICT BETWEEN A-IFRS AND INCOME TAX LAW AND THE SEARCH FOR A PRACTICAL RESOLUTION - Ian Ross-Gowan

Abstract
Repairs and Maintenance (R&M), a relatively benign tax deduction for many businesses takes on a whole new level of risk and complexity for long-term capital-intensive manufacturing and mining operations. In these industries there can be great conflict in classifying expenditure as a capital or an expense item. This is exacerbated by the differences between Australian accounting standards and income tax law. Changes under IFRS and the uniform capital allowance system have not eased the distinction between the two. On top of this, whilst the expenditure on capital overhauls or improvements and R&M can be more than 15% of gross taxable revenue, the vast majority of jobs are projects that are low value (less than $5,000) and are classified by non-tax and non-accounting people. This paper explores the differences between accounting standards, especially AASB 116 and the application of income tax law through the courts and ATO. Such differences include:

• The definition of what makes up an asset and what should be included in the cost of that asset,
• The potential differences between the concepts of maintaining existing functionality and creating future economic benefits,
• The definitions and applications of the terms “useful life” and “effective life.” The application of effective life is reviewed as applied by the Commissioner or by self-assessment.
• The treatment of depreciation under the standards and the law.

The paper considers the impact that the assessment of expenditure by non- tax or accounting professionals can have. It uses hypothetical case studies based on real world examples such as the Coke Ovens through wall repairs at the Whyalla Steelworks. By reviewing control processes that may be applied in a large-scale manufacturing and mining environment it seeks to find pragmatic solutions to manage the differences achieving good compliance and minimal impacts whilst capturing material benefits.

CGT REFORM AND THE REDUCTION OF TAX LAW COMPLEXITY - C John Taylor

Abstract
Under a comprehensive income tax all accretions to a taxpayer’s wealth in a particular accounting period should be given equivalent tax treatment. As is the case in many jurisdictions, Australia’s capital gains tax departs from this ideal in several respects. The most fundamental point of departure is that, as is the case in most jurisdictions that tax capital gains, Australia’s capital gains tax uses a realisation basis. As a direct consequence of this fundamental departure Australia’s capital gains tax contains further departures in that quarantines capital losses for all taxpayers. Other major departures from the comprehensive income tax ideal, however, are not consequences of this fundamental departure but are products of particular policy choices that Australia has made in designing its capital gains tax regime. The most important departures fitting into this category are the failure to tax gains on pre CGT assets, the exemption of a taxpayer’s main residence and the discounting of capital gains for some taxpayers. Consistently with previous research the paper notes that while a realisation basis needs to be retained for the taxation of capital gains the problems associated with the use of a realisation basis could be counteracted by the imposition of a compensatory tax on realisation aimed at producing neutrality between a realisation basis and an accruals basis. Problems associated with imposing a compensatory tax are noted. The paper develops a suggestion for a relatively simple form of compensatory tax and argues that problems previously suggested with compensatory taxes in general may be overstated. The proposals made in the paper contain features intended to counteract these problems to some degree. It is submitted that the use of a compensatory tax would also significantly lessen the ‘lock-in’ problem. The approach suggested in the paper could also be adjusted to deal appropriately with the problem of ‘bunching’. Consistently with previous analyses the paper argues that the deferral aspect of the lock in problem is significant in the case of the exemption for gains and losses on pre CGT assets and, to a lesser extent, in the case of the main residence exemption. The paper suggests that both of these exemptions should be removed and, in the case of the main residence exemption, submits that the proposal that it advances would mean that some of the arguments usually made in favour of a main residence exemption have less validity. The approach proposed in the paper could also be adjusted to compensate for the effects of inflation in a more appropriate way than the current discounting system. Most significantly the paper suggests that under the reforms it proposes a general quarantining of capital losses would no longer be necessary subject to appropriate anti avoidance provisions being in place. The paper argues that the system that is proposes would enable significant simplification of Australia’s capital gains tax and more generally of the structure of Australia’s income tax legislation. In particular, the proposal should enable a fairly significant reduction in the number of relevant CGT rules.

ClientView - Julie Cassidy

ABSTRACT
Apart from learning substantive legal principles, law students need to develop certain professional skills, such as client interview skills. While the necessary skills can be developed through role-playing in on-campus environments, the challenge was to find a mechanism that is also accessible by off-campus students. ClientView seeks to facilitate such through an e-simulation that will be integrated into my units MLL221 Business Organisations and MLL406 Taxation. Students will interview their new client (‘Miranda’). In the course of this interview they will practice their note-taking skills, develop an ability to discern relevant/irrelevant material provided by Miranda and hone their own ability to ask relevant questions. I will be able to track the questions asked by each student so that I might also gauge the appropriateness of student questions and responses. ClientView will be integrated into the assessment of the units. A primary assessment task that follows the interview is the writing of a letter of advice to Miranda. ClientView thus provides a fun teaching initiative that will promote the development of substantive law and practical legal skills.

Close Relationships in an SME Environment: Some Devilish Detail - Tom Delany

Abstract
The small to medium enterprise (SME) environment is populated by entities1 or associations of entities that are connected by various relationships. The primary relationship between entities in an SME environment revolves around the nuclear family where members of a family (or extended family) carry on a commercial activity or a series of related commercial activities. SME relationships can also be based on ownership interests that are direct or indirect, while other interests may be merely discretionary as in the case of non-fixed trust2. Because of the close relationships between the parties there is an expectation that normal commercial terms may be compromised3. While some of the SME tax provisions seek to protect the integrity of the tax base4 ensuring that the correct amount of tax is paid other measures seek to promote access to tax concessions5. The trigger mechanism6 for many of the SME tax provisions relies on whether the parties have or have not a particular close relationship7. There is however no consistent definition of a close relationship for tax purposes in an SME environment. Definitions of close relationships in a SME environment include whether the parties; are associates of each other8; are connected with each other9; are affiliates of each other10; are controlled by another11; are in the same family group or are family members of a group12; or are related to each other13. This paper initially identifies the various definitions of this close relationship, it then analyses those definitions and categorizes them based on their characteristics and finally the paper investigates whether there is an argument for a consistent definition(s) of a close relationship of an SME kind.

DETERMINANTS OF INDIVIDUAL TAX COMPLIANCE: A COMPARATIVE STUDY ON COMPLIANT AND NON-COMPLIANT TAXPAYERS. - Gioak-Faa Sia*, Arfah Salleh, Murali Sambasivan, Jeyapalan Kasipillai

Abstract
In a tax system based largely on voluntary compliance, understanding factors affecting compliance of individuals is of vital importance as it determines the ultimate tax one pays. Previous researchers tend to examine factors that affect tax compliance amongst individuals in general, without making a distinction between compliant and non-compliant taxpayers. Little has been done to carry out a comparative study between these two groups of taxpayers. This study is, therefore, unique as it endeavors to specifically examine the factors affecting compliance behavior of compliant vis-a-vis non-compliant taxpayers. Based on the behavioral approach, the factors examined include perception of fairness, peer influence and perceived moral intensity. Data for this study are gathered by using a mail questionnaire. Descriptive and comparative analysis is used to discuss the differences in the compliance behavior between the non-compliant and compliant taxpayers. Understanding these factors can extend our knowledge on ways to improve tax compliance and at the same time provide useful information to the revenue authorities in formulating better tax policies. Tax compliance has always been a major concern for all tax administrations. It is becoming more important with the introduction of self assessment and the surge in the use of electronic commerce. The Malaysian tax system underwent a major tax reform with the implementation of Self Assessment System (SAS) in the year 2001 for companies and in year 2004, the SAS was extended to all other taxpayers. This move towards a regime where taxpayers’ themselves determine and report their tax liability is inevitable since resources are always limited and no tax administration can audit and verify the Returns of potential taxpayer. In this regard, the main objectives for implementing self assessment in Malaysia are to enhance voluntary compliance among taxpayers, minimize administrative costs and lessen the burden of the tax authority.1 With the implementation of self assessment, voluntary compliance amongst individual taxpayers is of vital importance because it is the key to the success of self assessment. Understanding the factors that affect compliance will provide inputs for policy makers to design more appropriate strategies to improve compliance. This paper examines the influence of behavioural factors which include perception of fairness, peer influence and perceived moral intensity on voluntary compliance of individual taxpayers in Malaysia following the implementation of Self Assessment. Comparisons amongst the compliant and noncompliant taxpayers are carried out to see if there exist any statistical differences in the behavioral factors between two groups examined. The motivation for this study is due to the lack of research examining these factors in Malaysia, particularly in the light of a changing environment of tax administration.

Devil’s in the detail: Non-Commercial Business Losses - Julie Cassidy

Abstract
"When the theme for the 2008 Australasian Tax Teachers’ Conference was announced (Devil’s in the Detail), the author immediately thought of the non-commercial losses provisions. The non-commercial losses provisions are contained in Division 35 of the ITAA 1997 and restrict individuals from offsetting losses from non-commercial activities against other income. Division 35 was introduced following the Review of Business Taxation A Tax System Redesigned (the ‘Ralph Report’). The Ralph Report stated that the primary rationale for this reform was to improve the integrity of the taxation system by restricting loss deductions for hobby style taxpayers. The Report asserted: Many of these activities are no more than hobbies and/or lifestyle choices but even those that have business like characteristics (according to existing law) are often unlikely to ever make a profit and do not have a significant commercial purpose or character. They continue in a net loss position year after year, offsetting so-called business losses against other income, notably salary and wages. On average they make little or no contribution to the revenue-raising task but gain a significant tax advantage. The Ralph Report stressed the consequent leakage of revenue caused by individuals carrying on unprofitable non-commercial business activities and claiming deductions from such against their taxable income. Following on from the Ralph Report recommendations, Division 35 introduces a framework for determining whether losses from a business activity can be offset against other sources of income. Echoing the Ralph Report, s 35-5(1) provides that the object of Division 35 “is to improve the integrity of the taxation system by preventing losses from non-commercial activities that are carried on as businesses by individuals (alone or in partnership) being offset against other assessable income.” The concept underlying Division 35 is, therefore, at first glance very simple – preventing losses from non-commercial activities being offset against other sources of income. The devil, however, is in the detail. The new rules are highly complex. These complexities permeate every aspect of the legislation, in particular:

• the operation of the loss deferral rules;
• the four threshold tests that prima facie determine the applicability of the loss deferral rules;
• the need to identify and separate a particular business activity;
• the grouping principles;
• its application to partnerships; and
• the exercise of the Commissioner’s discretion where the four threshold tests are not met.

This complexity is reflected in the number and size of the taxation rulings and interpretative decisions that attempt to deal with these complexities. Ultimately it is concluded that a simple concept has been masticated by detail. This paper also suggests that other times the devil is in the lack of detail. A number of the above tests/exception are based on the application of undefined terms. In particular, despite the Ralph Report highlighting the problems with the existing law pertaining to the definition of a business, the legislation also fails to define a “business” or a “business activity.” This again has led to numerous and voluminous Rulings and Interpretative Decisions and the current trickle of cases will undoubtedly increase with time.

DIVISON 250 ITAA1997 POLICING HIGHWAYS NO LONGER LOSES YOU DEPRECIATION - Gordon D Mackenzie

Abstract
Toll road owners could lose their capital allowance deductions because the police control drivers using their toll road. Difficult to believe? Well, indeed it is correct and comes from the ‘terrible twins’ anti avoidance rules, section 51AD and Division 16D, the bete noir of anyone providing assets or services to government. Simply, those rules denied the private sector participant’s capital allowance deductions if government could ‘control the use’ of the asset providing, or used to provide, the service to government. That kind of amorphous definitional problem, which gave both the ATO and the private sector grief, together with the ‘overly robust’ nature of the older of the two twins (it denied capital allowance, interest and repair expenses, but taxed the payments in full) may be a thing of the past now Division 250 has replaced them. Ralph identified the problems and made provisional recommendations for measuring whether the private sector participant should be entitled to capital allowance deductions when government was a user of the asset. What was the point of all this definitional testing? Here is how it is described in the EM. ‘The tax exempt entity effectively guaranteed the taxpayer a return of the taxpayers investment in the relevant asset. Thus, the taxpayer was effectively lending money to the tax exempt entity and had little or no interest in the economic performance of the asset –that is the taxpayer was essentially the legal but not the economic owner of the asset.’ So, no economic ownership, no capital allowance deductions- qed! Unfortunately there is more to it than that. This paper proceeds by first considering the underlying problem that these new rules address, which is that, with careful structuring, tax deductions that would not otherwise have existed can be created where government is the user of an asset. Next it discusses the two sets of provisions inserted to cure that problem and the difficulties that they created in terms of taxpayers achieving self assessment with any certainty, and what Ralph recommend to solve the problem. Then Division 250 is discussed, including the two pivotal criteria of ‘use’ and ‘predominant economic interest’, the exclusions and some of the detail in the Division. Finally, there is some discussion about whether Division 250 does, indeed, achieve the reduced compliance objective of certainty and then observes that the provisions have inserted a new test for debt into the Act. A devilish tale of three cases - zero rating of going concerns: a simple concept but don’t be fooled, it’s the detail that matters!

Eliminating Income Tax Barriers to inbound Islamic Investment - Dr Justin Dabner

Abstract
The increase in the revenues of Arab nations arising from the surge in the World oil price, together with the withdrawal of Arab investment from the United States, presents an opportunity for Australia to increase its share and quantum of Arab investment. However Islamic investors are expected to invest only in Shariah compliant financial products and structures. Under Shariah law returns in the nature of interest are prohibited. Therefore, Shariah compliant financial products are structured in such a way as to avoid the investment returns being characterised as interest.
Whilst these financial products/structures can be accommodated under Western legal principles they can suffer a tax bias as against other investment products/structures which can render them less attractive. This is because the returns will not be categorized as interest but more likely as capital profits, business profits or rent. The result is that investments into Australia, for example, are likely to suffer a higher Australian tax impost that, in the absence of income taxes in many Arab nations, will not be creditable under a foreign tax credit system.
This paper explores whether reforms to the Australian income tax laws should be enacted to remove this tax disincentive, thereby, potentially facilitating greater Arab investment into the country.

EUROPEAN TAXATION OF PASSIVE INCOMES - Marco Greggi*

Abstract
National States have always been jealous of their tax sovereignty, especially when it involves direct taxes. For this reason, when the Treaty of Rome was signed in 1957, a progressive harmonisation was considered in indirect taxes such as VAT and customs duties, but not in personal income or corporate taxes. In these latter fields, the Treaty used self-restraint to foster the bilateral relations between nations, especially through Double Taxation Conventions (DTCs). In subsequent years, however, it became more and more evident that the DTCs, although fundamental, were not enough to guarantee the full free movement of capital across the Union and that the remaining differences between Member States could constitute a limit to foreign investments in the common market as well. The European Court of Justice (ECJ) played (and still plays) a fundamental role in this respect. The basic idea of the case law is that, even if direct taxation is excluded from an intervention by the Council (similar to what happens with VAT), nonetheless the fundamental freedoms enshrined in the Treaty must be respected. Where a direct intervention is lacking, a progressive interpretation of the four freedoms and the principle of non-discrimination could be successful, although in a sort of “second-best” approach. In recent years, academics and practitioners have recorded an ever-increasing number of cases decided by the ECJ using the Treaty in the field of direct taxes. Despite the efforts of the ECJ, it is evident that a harmonisation of such a complex field as direct taxation can’t be demanded to the activity of the judiciary and to the interpretation of specific cases based on specific circumstances. More to the point, it is fundamental for the business to know exactly and in advance the amount of taxes to be paid and, even more to the point, what State would legitimately exercise its taxing powers in the EU framework. This problem was particularly evident when flows of dividends, interests and royalties were considered, because of the more volatile nature of the underlying assets (while compared to business income or profit from real estate investments) and thus also the need for a level playing field across Europe was (and still is) more urgent. That’s why the Union introduced a number of Directives touching upon some fundamental aspects related to passive income taxation. The first ones (on dividends and M&A operations) were implemented in 1990 and later updated and amended because of the EU accession of the new States; another one (involving interests and royalties), although drafted in the same moment, had to wait 13 years. The aim pursued by the Commission was twofold: on one side the policymakers tried to avoid any double taxation within the European Union related to the free flow of these incomes. On the other side they indirectly offered foreign investors useful tools to optimise their investments across the continent.
Even if Europe is still characterized by 25 different tax jurisdictions, the goal was to minimise such differences for those investing on assets, loans or intangibles in EU companies using EU parents established in any one of the European countries. Unluckily, neither the text of the European Constitution signed in Rome nor the thinner text drafted by the Member States in Berlin seem to add anything interesting in this respect. Tax law is once more set aside by the European lawmakers: it could be argued that it is not considered a priority or (more likely) that it is still impossible to reach a unanimous consensus of the Member States to introduce common rules in direct taxes. In a forthcoming paper, I’ll try to describe the “state of the art” of Eurotaxation of passive incomes with detailed attention to the non-EU investor wishing to establish a subsidiary in Europe to make the most of his investments on the old continent.

Explorations of Structure and Choice in Taxing Capital Gains in New Zealand: A Tax Practitioners' Perspective - Alvin Cheng

Abstract
In New Zealand, capital gains tax (CGT) is considered by many tax practitioners a necessary devil. Compared with other OECD countries, New Zealand is one of the few that has no comprehensive CGT, and this could provide lucrative business opportunities for tax practitioners to advise their clients to convert taxable income to tax-free capital gain. However, evidence that the loss of tax revenue due to such tax planning activities is not significant. In New Zealand, certain capital receipts are subject to the income tax legislation such as the accrual regime and the fair dividend regime for foreign investments. A plausible reason for the strong opposition to a CGT is that the tax practitioners are more concerned with the compliance cost and the detail of the CGT legislation. This paper explores the tax practitioners' professional views on taxing capital gains. An 8-page questionnaire was sent to 500 tax practitioners to discuss various tax issues of taxing capital gains such as taxation on property, roll over relief, indexation and so forth. This study utilized both a quantitative and qualitative research approach to determine the extent of the tax experts’ perceptions towards CGT in the New Zealand context. It was an attempt to capture a more complete understanding of certain tax issues and measures that were vital in the tax experts’ CGT adoption decision process. Four major themes for CGT adoption decision emerged from the qualitative data analysis: 1) CGT and the New Zealand tax system, 2) CGT and its worst possible outcomes, 3) social and political themes, and 4) the theoretical gap between practice and theory.

Federal Commissioner of Taxation v Hart: Did the High Court set the threshold too low ? - Linda Zeman

Abstract
When does legitimate taxation planning become tax avoidance proscribed by Part IVA? The High Court considered this question in Federal Commissioner of Taxation v Hart. This paper argues that the High Court in Hart broadened the application of Part IVA contrary to the requirements of the legislation. The result is that arrangements Part IVA was not enacted to proscribe may now be caught in its net. Has the High Court in Hart spelt the end of “legitimate taxation planning”?

From Whitehall to Wagga Wagga: The Legacy of UK Taxation Law in Australia - Michael Walpole and Chris Evans*

Abstract
This paper explores the influence of UK tax concepts on the development of the income tax in Australia. It shows how certain aspects of the UK’s 1842 Income Tax Act found their way initially into the various income taxing provisions enacted by the Australian states in the second half of the nineteenth century and ultimately into the federal income tax provisions that were developed in the first half of the twentieth century. It also shows how that influence was contemporaneously and subsequently reinforced by shared judicial interpretation of sometimes differing legislative provisions. Finally, it identifies the impact of the UK’s capital gains tax (CGT) provisions on the development of Australia’s own CGT regime in the latter half of the twentieth century, again with sometimes shared jurisprudence. The analysis concludes that while the UK influence is evident, it is only one of a number of powerful factors that have shaped the manner in which income and capital gains are taxed in Australia. The paper also argues that the influence is not always direct, and nor is it always one way.

Losing My Losses: Are the loss restriction rules applying to Australia’s tax
transparent companies adequate? - Brett Freudenberg

Abstract
It has been argued that the Australian government prefers an entity tax approach when a business form provides member(s) limited liability protection and separate legal entity status. This position can be in contrast to a number of overseas jurisdictions that have provided tax transparency to such business forms (‘tax transparent companies’), with income and/or losses being directly allocated to members for tax purposes. Overseas examples of tax transparent companies include S Corporations and Limited Liability Companies in the United States, Limited Liability Partnerships in the United Kingdom; and Loss Attributing Qualifying Companies and new limited partnerships in New Zealand. A reason for the Australian Government’s position may due to concerns that unfettered access to tax losses by members with liability protection may result in the tax system distorting economic investments. Nevertheless, there are two recent, although restricted, examples of the Australian government providing tax transparency to business forms with limited liability protection and separate legal entity status. This is in respect of Incorporated Limited Partnership used for venture capital investments (‘venture capital ILPs’) and amendments to controlled foreign hybrid companies (‘CFC hybrids’). However, restrictions apply to allocated losses through these tax transparent companies. Are these restrictions adequate to ensure that the integrity of the Australian tax system is not compromised? This paper will consider whether the loss restriction rules applying to venture capital ILPs and CFC hybrids are adequate by comparing them to rules utilised in overseas jurisdictions with a history of transparent companies. This paper will conclude by considering whether sufficient ‘losses are lost’ to justify broadening the availability of tax transparency in Australia.

Mentoring First Year Distance Education Students in Taxation Studies - Fiona Martin and Shirley Carlon

Abstract
The Bachelor of Taxation (BTax) commenced in 1991 and is offered by the School of Taxation Studies (Atax), Faculty of Law at the University of New South Wales. The BTax is offered nationally and delivered in off-campus delivery mode. The dropout rate for first year students is traditionally higher than for later years with external or distance students posing the highest risk of withdrawal from studies of any group. In view of this, Atax introduced a mentoring program in 2002 aimed at improving the adjustment of first year students to studying at university. The development of this program was part of the ‘First Year Experience Project’ established by the University of New South Wales to improve the quality of the educational experiences and outcomes for first year students. Mentors were selected from current BTax students and the program was adapted to suit the demands of a student cohort studying at a distance. The aims of the program are to provide mentors to first year students who would:

• provide support for these students and assist them to become familiar with the approaches and operation of Atax;
• encourage students to form study groups in the courses that they were studying; and
• provide advice on the services available to students by Atax and the University in general.

his article considers the development and effectiveness of the program from three perspectives. Firstly, it considers the theoretical underpinnings for the introduction of a mentoring program, particularly as it relates to distance education; secondly, it describes the actual program developed; and thirdly, it analyses the feedback obtained from both the mentors and the mentees. It concludes that the feedback from students found that the majority of students considered that the program was of assistance in helping them to adjust to university study. Furthermore, the mentors considered that the program improved the mentees learning approaches and adjustment to university as well as increasing their own self-confidence, social skills and communication skills.

New Zealand’s Social Security Conventions: Merely DTAs In Reverse? - Andrew M.C. Smith

Abstract
In common with many countries, New Zealand provides a comprehensive range of social security benefits for its residents the origins of which can be traced back to the 1890s. As New Zealand has traditionally been a country that attracts migrants and, more recently, a source of migrants for other countries, cross-border issues relating to social security benefits is an important issue both for the individuals concerned and also the New Zealand Government. It is for this reason that many countries, including New Zealand, have entered into bilateral treaties (known as “social security conventions” or “SSCs”) to coordinate the provision and funding of social security benefits across borders. The objective of this paper is to review New Zealand’s network of SSCs in the context of New Zealand’s social security regime. Consideration will also be made of the fiscal risks arising to New Zealand from such conventions especially in the context of the CER agreements between Australia and New Zealand.

Non-Residents and Capital Gains Derived in New Zealand - David G Dunbar and Andrew M C Smith

Abstract
New Zealand is unusual by OECD standards because it does not comprehensively tax capital gains. This has lead to the common impression that all capital gains are free of tax in New Zealand. Such a conclusion is not correct as in fact New Zealand taxes capital gains in a piecemeal fashion with some gains of a capital nature being taxed as ordinary income while other capital gains retain their capital status and are not liable to income tax. Perhaps unsurprisingly given this piecemeal taxation of capital gains, non-resident investors enjoy no special status under New Zealand domestic law with regard to the taxation of capital gains derived from the disposition of any property situated in New Zealand apart from a minor exemption recently introduced for non-resident investors in New Zealand venture capital funds. Therefore it is inadvisable for non-residents to assume that they enjoy an exemption from New Zealand tax on any capital gains derived from New Zealand sources as may the case in other countries that comprehensively capital gains such as Australia. As a consequence, non-resident investors like New Zealand resident ones need to carefully determine whether the proceeds from the sale of property situated in New Zealand is assessable to tax. If the proceeds from such a sale are taxable, the only advantage a non-resident investor has over a resident one is the possibility of invoking relief under one of the 35 double tax agreements (DTAs) New Zealand has negotiated. The objective of this paper is to review New Zealand’s DTA network to determine to what extent non-resident investors can obtain relief from tax on capital gains derived from New Zealand sources under those agreements.

Part IVA and Wash Sale Arrangements – Will it all Become Clear in the Wash?? - Patricia O’Keefe

Abstract
This paper concerns the recently released Draft Taxation Ruling TR 2007/D7 regarding the application of Part IVA of the Income Tax Assessment Act 1936 to “wash sale” arrangements. The paper proposes that the Draft Ruling, and the legislation on which it is based (Part IVA of the ITAA 1936), will present problems for investors and advisors due to ambiguity and uncertainty. Both Part IVA and the ruling are drafted in very broad, general terms and do not provide the specific guidance and certainty required for taxpayers to be able to confidently interpret and predict which transactions will be covered by the ruling. This is perceived as a serious problem given the number of taxpayers that could be affected by the ruling. The paper covers a brief history of the legislation currently relating to the use of wash sales. It then critically appraises this legislation and the draft ruling mentioned above in terms of their ambiguity and lack of guidance offered to taxpayers and advisors. It discusses possible “solutions” to the problems discussed relating to the draft ruling and cites the US and Canadian rules concerning wash sales as a possible alternative that could be followed.

PHILOSOPHICAL PARADIGMS, STRATEGIES OF INQUIRY AND KNOWLEDGE CLAIMS: UNDERSTANDING THE DETAIL OF RESEARCH DESIGN IN TAXATION - Dr Margaret McKerchar

ABSTRACT
Taxation is a fundamental part of our way of life and it comes as no surprise that it attracts great interest from policymakers, academics, business and the wider community both in Australia and overseas. However, as academics we have very diverse interests when it comes to research in taxation from law to accounting, economics, political science, history and to psychology. Our prior learning does tend to be in the study and application of the law and we often have little training in or exposure to the detail of the theory and practice of research design. This is a limitation for both ourselves and for the growing body of research students that we are being called upon to supervise. As tax academics, there is capacity to improve our research capability by evaluating our own best practice and exploring that of other disciplines that could have relevance to taxation. The paper explores the fundamental aspects of research design, including a range of philosophical paradigms and strategies of inquiries that could have application to taxation. The framing of research questions (or hypotheses) is considered, as is the need for alignment between research objectives, research questions, philosophical paradigms, strategies of inquiry and knowledge claims. The application of mixed-method designs is also considered. Pitfalls in research design to be avoided are discussed as are suggestions by which the robustness of tax research can be improved.

Public Policy, Principles and Politics: the La Rosa Amendment - Jillian Hall

Abstract
In April 2005, s26-54 of the Income Tax Assessment Act 1997 was enacted, effectively denying tax deductions for convicted criminals. This event was brought about by a decision in a case, La Rosa, which allowed a convicted criminal to claim a tax deduction for money stolen during a drug deal. It was claimed that the provision was enacted on public policy grounds, however a closer analysis shows that the provision was more likely enacted as a political measure and ignores important principles underlying the tax system. It is concluded that the Government should not have intervened and that the provision should be repealed.

Putting taxation in its place: Personal income taxation and history (A work in progress) - Rob Vosslamber

Abstract
Lamb (2005) argues that, “As an object for research, taxation can be seen to represent an ‘interdisciplinary problem’. As such, this may be a problem of knowledge and practice that would best be understood and pursued in the round". The expression “in the round” may refer to theatre performed with the stage encircled by the audience. Similarly, interdisciplinary research exposes taxation to the gaze of a range of disciplines and perspectives. The phrase might also equally describe the role of history itself, which could include all aspects of human thought and activity within its scope. This paper commences by arguing for the inclusion of history as a discipline in the “theatre” of taxation studies to overcome ectopia, i.e. the displacement of taxation from its context. If ahistorical discussions of taxation dislocate taxation studies from the world in which tax exists, history may provide an anchoring and humanising perspective that would contribute to our understanding of the social phenomenon of taxation. Next, approaches to history in general are discussed. The several general approaches are seen to be mirrored in the study of other disciplines, such as law. The usefulness of historical perspective is then illustrated by the development of the New Zealand personal income tax in the 1930s. This is illustrated by discussions of taxation in the annual President’s addresses of the New Zealand Society of Accountants, and by reference to articles in the Accountants’ Journals of those years.

Reforming Controlled Foreign Company (CFC) Rules in Light of Challenges Presented by Globalisation and Electronic Commerce - Professor Dale Pinto

Abstract
Many fear that there is a risk of many electronic commerce transactions escaping taxation by residence countries if highly mobile electronic commerce businesses shift their operations to tax havens. At the same time, it must be recognised that residence countries are not powerless against such actions and they may resort to countermeasures, such as controlled foreign company (‘CFC’) rules, to guard against the improper use of tax havens or low-tax jurisdictions as a base for such business operations. This Paper argues that despite the existence of CFC rules, their scope and effectiveness is limited and these limitations are likely to be further exacerbated by business that is conducted over electronic networks, like the Internet. Specifically, two related problems exist with the scope and effectiveness of CFC rules. Firstly, these rules are limited by their underlying design features, including that they only typically apply to foreign ‘companies’, and then only to those that are ‘controlled’ by residents. Even if these limitations are overcome, the rules usually only apply to ‘tainted’ income (passive income and sometimes foreign base company sales income) but not usually to active business income. This disparate treatment which applies among categories of income can lead to difficult characterisation issues and inevitable tax planning activities. Secondly, CFC rules may not be well-equipped to accommodate emerging challenges, including the increased use of hybrid entities, which can be used to avoid the operation of CFC rules. The onset of electronic commerce is likely to intensify these challenges. Apart from administrative concerns regarding likely enforcement problems that tax authorities could face in trying to enforce CFC rules in an electronic commerce environment, it is likely that there will be substantive problems encountered with applying these rules in an electronic commerce setting. Electronic commerce may also present challenges to CFC rules as these rules look to where transactions or activities take place and the determination of the location of these activities may become more problematic for electronically-conducted transactions. Also, as the economy continues to shift from manufactured goods to services, this is likely to place further pressure on the already artificial process of classifying income, which in turn, could affect how successfully CFC rules may operate. This is because CFC rules depend on how a payment may be classified, and characterising income as either active or passive is likely to become more problematic, artificial, and therefore manipulable, in an electronic commerce setting. In short, while electronic commerce may not necessarily create new problems for CFC rules, it is likely to make the application of existing rules more difficult, as well as increasing the ease with which structures that were not contemplated by such rules may be used. The existence of these concerns suggests that a review of CFC rules is needed, for if it can be shown that these rules are limited in their scope and effectiveness, as well as by developments in electronic commerce, then any system of taxation based on residence could be severely undermined. Of the possible options for reform that will be analysed in this Paper, it will be argued that ending deferral of income altogether may best address the expressed concerns and therefore represent the ideal solution to the problems with CFC rules. At the same time, however, and in the face of international competitiveness concerns, as well as political realities, it is recognised that this is an unlikely outcome. Therefore, the Paper will proceed to argue that if CFC rules are to remain effective, their scope needs to be extended, both in terms of the number of countries that should consider adopting such rules, and also in terms of extending the operation of these rules to ensure that harmful tax practices that may be carried on by preferential tax regimes are within the scope of the rules. Also, it is argued that for CFC rules to remain effective, they need to be strengthened through the adoption of supporting rules (eg, foreign investment fund (‘FIF’) regimes). Finally, and perhaps most significantly, it is argued that supplementary measures at the multilateral level are needed. In this regard, two initiatives of the OECD, the 1998 OECD Report on Harmful Tax Competition and the 2000 OECD Towards Global Tax Co-operation report, both represent initiatives which seem to be the next logical step forward in this area. However, while the work undertaken by the OECD in this area is commendable, it is argued that the scope of this work needs to be broadened to become truly multilateral. In this respect, there is currently no international tax body that can take this work forward in a truly multilateral way. One possibility might be to establish a World Tax Organisation to assume this responsibility. The role of such an organisation would not be to impose tax or to collect tax; rather such an organisation could represent the forum where emerging problems that are caused by developments, such as electronic commerce and harmful tax competition, can be discussed in a coordinated and inclusive multilateral way that would extend beyond just OECD countries. This proposal therefore represents an important adjunct and continuation of the proposals to be put forward in this Paper. The structure of this Paper is as follows. The next part of the Paper will briefly examine the problem of deferral, as well as the impact of tax havens and preferential tax regimes, as this provides an important background to the need for CFC rules. Following this analysis, the specific limitations of CFC rules will be considered and finally alternatives to overcome these problems will be analysed before conclusions are drawn.

Reliance Carpet Co Pty Ltd: Was the Full Federal Court right? - Maheswaran Sridaran*

Abstract
After it received a security deposit from a prospective purchaser, the taxpayer entered into a contract with the prospective purchaser for the sale of a property the taxpayer owned. That purchase was not completed by the prospective purchaser, and that deposit was forfeited. The Commissioner assessed the taxpayer for GST payable on the forfeited deposit, but the taxpayer objected to that assessment, an objection which the Commissioner disallowed. The taxpayer then appealed to the Administrative Appeals Tribunal, which disallowed the appeal. The taxpayer then appealed to the Full Federal Court, which unanimously allowed the appeal. This article argues that the Full Federal Court’s decision is wrong. It argues so, on either of two grounds: the Full Federal Court erred on drawing the proper conclusion on applying the relevant legislative provisions to the facts; or it applied an approach to statutory interpretation which was not the best. The submissions made on behalf of the Commissioner to the Full Federal Court did not include the first of those two grounds. Those submissions did include the second, but not underpinned by the analysis articulated in this article. The Commissioner has been granted leave by the High Court to appeal the Full Federal Court’s decision, which the Commissioner has announced he will appeal to the High Court. It is to be hoped that the Commissioner will, in that appeal, advocate to the High Court the arguments developed in this article.

ROSA’s last gasp: The final steps in self assessment’s 21 year journey - Michael Dirkis and Brett Bondfield*

Abstract
Income tax self assessment has operated in Australia for over of 21 years. The introduction of self assessment fundamentally altered the balance of power and focus of responsibilities between taxpayers and the ATO. It has also impacted dramatically on the triangular relationship between the ATO, taxpayers, and their tax advisers creating in the past an often fractious relationship. Although there had been some changes in the early 1990’s, it was the release in March 2004 of the discussion paper, Review of Aspects of Income Tax Self Assessment (ROSA) before the Government finally accepted that this imbalance need redressing. The resultant changes to the penalty regime and interest charge provisions were enacted by Tax Laws Amendment (Improvement of Self Assessment) Act (No 1) 2005 and the Shortfall Interest Charge (Imposition) Act 2005. The changes expanding the scope of the ruling system and the shortening of the periods of review (including nil assessments) were enacted by the Tax Laws Amendment (Improvement of Self Assessment) Act (No 2) 2005. Since these changes there has been no action on the balance of the ROSA legislative recommendations until Minister for Revenue and Assistant Treasurer announced on:

• 2007 a review into unlimited amendment periods in the income tax 27 March 2007 that the Board of Taxation would consult publicly on the scope to apply consistent self assessment principles across all federally administered taxes;
• 26 June 2007 the release of a discussion paper examining options for reforming liability discretions in the income tax law; and
• 22 August laws and released a discussion paper.

The focus of this paper is to review the liability discretion and unlimited amendment period Treasury papers to evaluate the effectiveness of the approach adopted in the papers and the likely impact of any reforms upon the self assessment system.

Short Changed? Intergovernmental financial relations 10 years on. - Richard Eccleston

Abstract
2008 marks the 10th anniversary of the release of the A New Tax System (ANTS) package and the initial Premier’s agreement which paved the way for the Intergovernmental Agreement on the Reform of Commonwealth-State Financial Relations (1999). This paper assesses the impact of the IGA on State public finances and whether the GST has ‘provided the large financial gains’ which were promised by the Commonwealth at the time. It argues that while GST revenues to the States have grown faster that initially anticipated, this growth has failed to match the rising cost of key public services provided by the States. Given the growing financial pressure confronting State Governments combined with the States diminished capacity to use own-source taxes it seems inevitable that further significant reforms to intergovernmental financial relations are inevitable.

SMALL BUSINESS ATTITUDES TO THE AUSTRALIAN GOVERNMENT’S
TAX REFORM -Dr Nthati Rametse

Abstract
This paper predominantly discusses key findings on small business attitudes to the Australian tax reform of the year 2000. Using a survey to determine start-up costs of complying with the GST requirements and a five point Likert attitude scale to measure and summarise respondents attitudes to the Australian tax reform, mean gross GST start-up compliance costs by respondents’ attitudes were ascertained and analysed. Empirical evidence suggests that small business supported the overall Australian tax reform. Additionally, small businesses that were positive about the overall government’s tax reform tended to have incurred lower start-up costs than those who were more critical, at $5,116 and $11,336 respectively. The paper is organised as follows. To start with, the instrument used in the questionnaire (Likert Five Point Scale) to measure small business attitudes based on statements outlined in the questionnaire is discussed. This is followed by analysis of the results on attitude regarding small businesses doing GST work and its complexity. The next part of this paper focuses on attitudes of small businesses to the overall tax reform. Additionally, an analysis of mean gross GST start-up compliance costs by respondents’ attitudes is performed. Small business attitudes by location of the business, the method of accounting for GST, lodgement of GST returns and main business activity (sector) is also elaborated. Qualitative responses (open-ended comments) from small business owners are also discussed. Finally, this paper provides a conclusion, articulating policy implications that affect small business attitudes to the Australian tax reform.

Small Business Entities: Division 328 ITAA 1997 - Paul Kenny

Abstract
This paper examines the new Small Business Entities (SBE) framework that replaced the former Simplified Tax System (STS) on 1 July 2007. The STS affected the following income tax accounting provisions: the accruals system of tax accounting; treatment of prepaid expenses; depreciation of plant and equipment and stocktaking. However, the STS resulted in significant departures between accounting and income taxation principles. The STS generally resulted in a cash accounting method for income and expenses. Further, certain prepaid expenses that extended to future income year were expensed outright under the STS. Both of these measures departed from the accounting requirement for accruals treatment. Also, under the STS small business taxpayers that joined the simplified tax system also obtained 100% deductions for depreciating assets costing less than $1,000 to the extent of taxable use. Further, simplified pooling arrangements provided accelerated depreciation deductions for other assets. Again, the accelerated depreciation contravened the accounting requirement for depreciation to be based on the useful life of an asset. Also, where the difference between the value of the trading stock on hand at the start of an income year and the reasonably estimated value at the end of the year was $5,000 or less, an STS taxpayer did not have to value each item of trading stock at year end and account for any changes in the value of trading stock. This also contravened the accounting requirement to include trading stock in the financial accounts. As numerous commentators have noted the STS has thus weakened the relevance of accounting principles for the taxation affairs of small business and has added to complexity.The new SBE framework retains many of the features of the former STS and thus is open to the same criticisms. The SBE regime though provides a more flexible framework for small business and it is better integrated with other small business taxation concessions. This paper seeks to make an overall tax policy assessment of the SBE measures.

Some Perspectives from America on the Worldwide Taxation vs. Territorial taxation Debate* - Professor Cliff Fleming, Robert J. Peroni and Stephen E. Shay

Abstract
Because of political gridlock and lack of enthusiasm by the business community, the prospects of the United States moving from its hybrid worldwide system for taxing income to an explicit territorial (exemption) system are not good. Nevertheless, in the United States, the subject of worldwide taxation v. territorial taxation has recently generated two high-level government proposals and a lively academic and political debate. In this paper, my co-authors and I attempt to share the outlines of this controversy with our Australasian colleagues while arguing the merits. We concede that a well-designed exemption system is superior to the badly-flawed worldwide system currently operated by the U.S. We argue, however, that the proper way to frame the debate is to ask whether an exemption system is superior to a worldwide system where both are well-designed. We conclude that when the debate is so framed, efficiency and fairness concerns indicate that the prize should be awarded to worldwide taxation. We critique the competitiveness rationale that serves as the principal justification for exemption systems and find it wanting. We also critique the ownership neutrality defense of territorial taxation that has been recently developed in the United States by Professors Desai and Hines. We conclude that this defense is simply a slightly tweaked version of the competitiveness rationale and shares its flaws.

SONS OF GWALIA –A TAXING DECISION - Kalmen DATT

Abstract
This article considers the tax effects, from the perspective of the shareholder, of the High Court decision in Sons of Gwalia Ltd v Margaretic; ING Investment Management LLC v Margaretic [2007] HCA 1 (Sons of Gwalia). This case held that where a person acquires shares in a company that were in fact valueless due to a breach by the company of its continuous disclosure obligations they could proceed against the company for damages as creditor and not as shareholder. The article initially considers the capital gains tax (CGT) implications of the decision. The problem from a CGT perspective is that more than one asset may be subject to the CGT provisions of the Income Tax Assessment Act 1997 (ITAA 97) with the resultant potential for double taxation. Once the CGT assets have been determined the enquiry on CGT continues by considering whether any CGT event applies to such assets. The article then reviews the ‘look through’ approach of the Commissioner of Taxation (Commissioner) in Taxation Ruling 95/35 Income Tax: Capital Gains: Treatment of Compensation Receipts (TR 95/35). This latter review includes consideration of the recoupment provisions relating to CGT, which if operative, result in a reduction in the cost base of an asset. The author concludes that both the look through approach of the Commissioner and the recoupment provisions ITAA 97 are not of application. The article suggests a solution to the problems encountered with TR 95/35, completes the review of CGT and related issues (including the dividend and deemed dividend provisions of the Income Tax Assessment Act 1936 (ITAA 36)) and continues with a consideration of the tax implications should the shares acquired by the taxpayer have been of a revenue nature. The final section of the paper summarises the author’s conclusions and recommendations. The article first sets out the facts and surrounding circumstances of the decision in Sons of Gwalia.

State Taxation: Past history, present issues and future possibilities - Department of Treasury & Finance State Revenue Office

Abstract
Despite a greater focus in recent years, State taxes continue to have a far lower profile than Commonwealth taxes. This lack of focus can often lead to the impact of state taxation on business transactions being overlooked or at best under estimated with obvious financial effects on those liable to pay state taxes.
In this regard, tax teachers can play an important role in imparting tax knowledge to students who may end up as legal practitioners, accountants, financial planners and, undoubtedly, taxpayers.
Additionally, one of the State Revenue Office’s (SRO) strategic goals is to raise the profile of state taxation. Achievement of this goal will make future professionals more aware of the key aspects of the various state taxes and better equipped to provide high quality advice to their clients.
Where possible this paper discusses issues from a multi-jurisdictional viewpoint; however, where this is not practicable comments will be made from a Tasmanian perspective.

Tax compliance issues for the self employed and the small business entrepreneurs in New Zealand : An initial examination - Sue Yong

Abstract
New Zealand self employed and the small business entrepreneurs contribute significantly to the economy in terms of employment and tax revenue. Government statistics showed that this sector is made up of nearly 90% of all the businesses in the country. Despite its contribution significance, this sector also has the highest tax evasion statistics due to the voluntary self assessment tax regime. This paper examines the core compliance issues faced by small business taxpayers relating to how and why compliance decisions are made. With this, the qualitative approach is considered more suitable in gaining a holistic understanding of how tax compliance decisions are made at the micro level. The stance taken is that one’s opinion does not necessarily reflect the opinion of others using the social constructionist framework. The data are collected from semi structured interviews of actual small business taxpayers. For reliability reasons, taxpayer’s verifications are sought on transcribed data. The taxpayers’ accounts are also triangulated with the accounts from the tax agents for validity reasons.
The initial investigation reveals that a blend of neo classical economics and psychological factors are important influences affecting compliance for this sector. An understanding of the actual compliance decisions by the small business taxpayers will help inform the tax authority in addressing any compliance issues unique to this sector. Among the many advantages of using the qualitative approach is the rich data provided by actual participants. However, the often cited limitation of qualitative research lies on the relatively small sample thus limiting the ability to generalise the findings to the wider population. Despite this limitation, this approach is viewed as complementing and not substituting the findings of the more conventional experimental and survey research methods. With this, the research findings will extend the present knowledge on the tax compliance phenomenon.

Tax Free Websites - Colin Fong

Abstract
There are a myriad of Australian and overseas tax websites. This paper concentrates on the free websites without subscription costs involved. A lot of taxation information is contained in websites which are not specifically dominated by taxation. The primary source materials are usually well known to academics. The secondary source materials are in abundance and many of these are not so well known to academics. Some of these can be found using search engines others by using the grapevine. This paper will also assist overseas colleagues who wish to research Australian taxation law, but do not have access to subscription websites.

Tax Lecturer Replaced by a Computer: Using technology in your teaching – dispelling some of the myths - Colleen Mortimer

Abstract
This paper will challenge the view that technology may replace lecturers and/or adds to their workloads.It will be argued that technological innovations such as iLectures, Discussion Boards and frequently asked questions (FAQs) can actually assist in enhancing the learning experience for students. Rather than removing the human element, when correctly used, these innovations can result in an enhanced experience for student learning and reduce the workload of the lecturer. Technology can remove the necessity to constantly answer basic questions and allow lectures to move beyond the basic (and static) transmission of content from lecturer to student to more interactive and meaningful learning experiences.The university environment has changed – many students now need to work and no longer spend all day at university. Discussion Boards allow students to create an on-line community in which students can indulge in academic discussions at their convenience – both in terms of where they interact (home or university) and when they do so. iLectures can be used to provide the basic knowledge that students need. If they are viewed before class then students already possess this basic knowledge. The formal lecture can now move from this basic transmission of knowledge to revision of the information and then the application of the knowledge in small case studies. This makes for a more interactive and engaging learning experience. The structure of this paper is as follows. The first part will examine the view often expressed that technology may replace lecturers and adds to the workload. Reasons for this view will be examined. The next part will challenge this view and will firstly look at the use of discussion boards and FAQs and how they can both result in enhanced student learning experiences while reducing academic workloads. Following this, the use of iLectures will be explored. Finally some conclusions and areas for future research will be articulated.

TAX POLICY AND GLOBALISATION: A COMPARATIVE CASE STUDY OF RETIREMENT SAVINGS TAXATION- Lisa Marriott

Abstract
Economic growth and population ageing have been important influences on social policy spending since the mid 1960s (Castles 2005:412). However, over the past 20 years the potential impact of a third influential factor has been introduced: globalisation. While economic factors remain highly relevant, questions are being raised about the role of globalisation in social policy. A number of theories exist on the impact of globalisation on social policy. Two theories are most frequently debated; firstly that globalisation limits the ability of the state to control social policy and secondly, its counter, that globalisation is not the cause of the perceived ‘welfare state crisis’ and factors such as cultural perspectives and ideologies create resistance to the path of globalisation in social policy. As spending on the aged is a significant expenditure in welfare state budgets among OECD countries it may be expected that such substantial expenditures may be pursued for rationalisation to assist in maintenance, or improvement, of competitive advantage in the global arena. The paper investigates the influence of globalisation on tax policy, using the taxation of retirement savings in Australia and New Zealand as a comparative case study. Over the past two decades Australia and New Zealand have adopted vastly different policy solutions to the ‘problem’ of population ageing; Australia with generous tax concessions and compulsory occupational superannuation, New Zealand with few incentives and a universal state pension. These different approaches are analysed within the framework of the globalisation literature using interview data from individuals involved in the development of retirement savings policy in both countries during the 1980s, together with primary and secondary source documents, to analyse the extent to which international pressures influenced the policy direction adopted in each country.

TAX REFORM – AND DEMOCRATIC REFORM – IN HONG KONG: WHAT DO THE PEOPLE THINK? - Richard Cullen and Richard S. Simmons

Abstract
Tax reform and political reform are currently matters of deep and widespread concern in Hong Kong. This paper presents a preliminary study of the opinions of Hong Kong citizens on a range of taxation practice and policy issues coupled with a simultaneous review of opinions on certain political reform issues. Its aim is to inform the debate over the two sets of reforms, and to investigate potential linkages between them. A face-to-face survey of almost 800 permanent residents of Hong Kong was undertaken in May 2007. The demographic distribution of the sample was broadly similar to that of the population as a whole. From an analysis of the survey data, significant views on a range of matters are apparent. The study suggests that Hong Kong citizens remain notably apprehensive about the introduction of new taxes. However, they are also concerned about the deteriorating environment, and thus may be receptive to the Hong Kong government implementing certain new “green taxes”. Further, it appears that the demand for greater democratization in Hong Kong is high. Some linkages between tax reform and political reform are apparent, but the two reform areas are seen, overall, as giving rise primarily to stand alone issues. It also seems clear that, despite exhibiting large (and increasing) wealth disparities, Hong Kong does not present fertile ground for creating a democracy-driven, western-style, advanced welfare state.

Tax Risk Management: A review of recent developments in tax risk management and an analysis of the impact of tax risk management on the tax function within a large corporation. - Catriona Lavermicocca

Abstract
Business decisions of a corporation include matters relating to taxation and are made by management whilst the financial impact of those business decisions, to a large extent, are borne by the shareholders. Corporate governance practices seek to provide a mechanism whereby the interests of management are aligned with those of the shareholders. Current expectations of good corporate governance now include tax risk management and this paper will outline the relevant obligations on a corporation such as Principle 7 of Australian Stock Exchange Principles of Good Corporate Governance and Sarbanes-Oxley Section 404 in the US. Tax risk management by large corporations has recently been the focus of the Australian Taxation Commissioner’s statements on appropriate tax compliance policies. Other tax authorities around the world have also raised tax risk management as integral to a company’s tax compliance strategy. This paper will look at pressures in Australia and around the world on large corporations to address tax risk as part of a corporate governance strategy and how corporate attitudes and practice towards managing tax risk have evolved. This paper also looks at the impact of the tax risk management through a review of surveys carried out by a number of organisations including international chartered accounting firms.

Tax Teaching in China - Li Jin

Abstract
China's moves towards a market economy has shifted the primary source of government revenue from dividends from state owned enterprises to conventional taxation, with company taxation providing the largest share of taxation revenue. As a result, tax courses have become an important part of the curriculum of business and commerce schools, as they are in market economies. Teaching taxation law in China poses a number of challenges not found in other jurisdictions. To begin with, the source of the law is unique, with much of the law found outside the statute. The tertiary education system in China is also different from counterparts abroad in many respects in terms of teaching style, student attitudes, the content of courses. The difficulty of teaching a dialectic subject in which there is not necessarily a single "correct" answer are multiplied many times in an environment in which not only do students seek "the answer", but tax authorities also start with the assumption that there is only one interpretation possible.This paper first introduces the structure of Chinese taxation law, explains how it is current taught to university students, and then explores some of the teaching issues that arise in China which may be of interest to Australian teachers, particularly those with large overseas contingents in their taxation law classes.

Taxation Drifts and Issues in the People’s Republic of China: 1949 to 2006 - Pak K. Auyeung

Abstract
This study attempts to trace the development of the Chinese taxation system since the revolution in 1949. It examines the political and economic forces that shaped its taxation development, the intended roles of China’s taxation system, the challenges it has encountered and how successful its new tax regime in tackling these challenges. The development of China’s taxation system can be divided into three broad periods: the pre open-door period (1949-1979), the post open-door period (1980-1990) and the Pacific Rim Era (1991- present). During the closed-door period from 1949 to 1979, simplicity and unification were the principles underlying the tax reforms. In the late 1970s, the Deng Xiaoping administration opened the doors to massive foreign investment. This created grave concern over the adequacy of the Chinese legal infrastructure to cope with the problems of joint venture activities. As a consequence new tax laws were enacted in 1980s to support Deng’s pragmatic economic programme. The rise of China's foreign trade and the rapid increase in foreign investment in the Pacific Rim Era have added pressure on the Chinese government to improve its taxation system in order to keep pace with the development in the new era. With effect from 1991, all foreign investment enterprises are subject to one unified income tax law, known as the Income Tax Law of Foreign-Investment Enterprises and Foreign Enterprises. A large proportion of China’s export has transited through Hong Kong which is also the most important source or conduit of external investment in China. Many multinational corporations have established their Asia-Pacific regional headquarters in Hong Kong as a spring board to the vast Chinese market and to take advantage of its well-developed physical and financial infrastructure. Increasing economic links are reflected by the rapid growth in cross-border transactions, and hence double taxation is becoming a major problem. To tackle the problem, a double taxation agreement was enacted in 1998.

Taxation issues and policy implications for the New Zealand KiwiSaver retirement scheme - Sue Yong and Professor Noel Cox

Abstract
In an attempt to invigorate private savings for retirement, the New Zealand Government had introduced the KiwiSaver from 1 July 2007. It is a work-based retirement scheme with the goal to lift the wealth of retiring New Zealanders with investments that will supplement the pre-existing New Zealand Superannuation income. The uniqueness of the KiwiSaver lies in its combination of voluntary enrolment, coupled with various financial “sweeteners”, contribution holidays and exemptions for early withdrawals. Various tax credits are also given to both employees and employers. In the first year of implementation, the employer contribution matching is not compulsory. However, this will change from 2008 onwards whereby employers are required to contribute 1% of the employee’s salaries or wages. The rate will rise by 1% per annum every year to a maximum of 4% by 2011. The employers is expected to have increased compliance and business costs from the KiwiSaver but these will be partly offset by tax credits and the 3% reduction in the business income tax in 2008. Other employer incentives include exemption from the Specified Superannuation Contribution Witholding Tax (SSCWT) of up to 4% of the employees salaries, for contributions made by the employers. The KiwiSaver scheme has many implications for key stakeholders such as employers, employees, taxpayers, Government and the investment providers. Increased business compliance costs and Government spending are some of the operating costs of KiwiSaver. Other implications include potential growth in the financial market, the encouragement of habitual savings, and decreasing of pensioners’ reliance on state support for retirement. The clear winners for the KiwiSaver scheme are the investment providers and employees. Other stakeholders will gain some benefits and incur some costs with the scheme. This paper will also examine the policy implications as the KiwiSaver will ultimately be funded from tax revenues.

Taxation of illegal profits in New Zealand - Ranjana Gupta*

Abstract
The paper considers the extent of illegal enterprises within the New Zealand economy and its significance to the tax base. The paper poses and answers the following questions: Whether there is any conceptual distinction between treatments of income from illegal activities when compared to income earned by ordinary taxpayers? Did the legislature contemplate wholly illegal activities when enacting income tax legislation? The paper shows that while some criminal activities are taxable others are not. The paper sets out the tests applied by the Courts to determine whether an illegal activity is taxable. It explores the gaps that exist with regard to taxation of illegal activities and the impact of proposed legislative reform on the application of constructive trusts in the area of taxation. The author then considers the deductibility of expenses, particularly fines imposed by the Courts, incurred through criminal activity. The judiciary and the Commissioner of Inland Revenue have relied upon a number of arguments to deny deductibility of expenses that would otherwise appear to meet the general statutory test for deductibility. Broadly these reasons are that: illegality severs deductibility on a quasi-capital basis; and for public policy reasons and treating fines as private expenditure. Upon examination, it is submitted none of these arguments are particularly convincing. In the absence of a clear statutory prohibition the paper attempts to establish a direction on which expenses should be deductible. The author hopes that this will serve as a guide in the event of future disputes in the area.

Taxation of Multinational Corporate Groups under Enterprise Doctrine – Conflicts and Compromises - Antony Ting

Abstract
Corporate groups are very significant and influential players in the modern commercial world. A recent United Nation report showed that many multinational corporate groups were bigger in size than many countries. Of the 100 largest “economies”, 29 were multinational corporate groups. Furthermore, multinational corporate groups had been growing in size at rates exceeding those of many economies. The modern commercial world dictates a change of paradigm in respect of certain aspects of corporations law. Instead of a universal adoption of the traditional separate entity principle to corporate groups, a growing number of areas in corporations law are being supplemented by the doctrine of “enterprise law”. The enterprise doctrine focuses on the business enterprise as a whole, instead of its fragmented components. Under the doctrine, the economic substance overrides the legal form of individual companies that make up the corporate group. How should tax law respond to this changing paradigm? One of the fundamental building blocks of income tax law is to treat a company as a separate taxpayer. This is a logical consequence of the traditional “separate entity doctrine” in corporations law. However, the doctrine is increasingly being challenged by the emergence of corporate groups. The enterprise doctrine is arguably more appropriate for taxation of corporate groups under the fairness and efficiency principles. Under the doctrine, residence of a company should not be relevant. However, in practice, the vast majority of group taxation regimes in the world are restricted to resident companies. Only a few countries adopt worldwide group taxation regimes. This paper focuses on the application of the enterprise doctrine to multinational corporate groups on a cross border basis. Three of such regimes exist respectively in Denmark, France and Italy. They will be analysed in detail to identify why the regimes were adopted in the first place, highlight the conflicts of the enterprise doctrine with established tax principles and practices, and the compromises necessary for the effective application of the doctrine. The paper concludes with a discussion of an alternative system to apply the doctrine to multinational corporate groups: the formulary apportionment method. Though it may have been considered utopian in the past, the method looks increasingly promising.

Taxing Power: consumption tax reform in Australia and the United States - Kathryn James

Abstract
A wide array of factors has been proffered to explain the success or failure of tax reform initiatives. An analysis of the experience of two countries with consumption tax reform – Australia, the last of the OECD countries to adopt a VAT apart from the U.S., and the U.S., the only OECD nation without a VAT – suggests that it is the confluence of a number of political and economic factors that influences reform outcomes and that history is the key to understanding these outcomes. This paper highlights the manner in which political power has influenced consumption tax reform outcomes in Australia and the United States.

Taxing the Family – the Tax Unit - Helen Hodgson

Abstract
The tax system is based on the unit of taxation. In Australia, this has always been the individual. In applying the principles of equity, families are entitled to certain benefits, currently delivered primarily through the welfare system. This results in a mismatch between the unit taken into account for tax and welfare. In this paper I shall explore the concept of the tax unit, and whether the family should be recognised for tax purposes as well as for welfare purposes. There have been a number of proposals as to how this may be achieved, including income splitting, increased tax thresholds, a quotient system and joint taxation systems. Each of these variations is, or has been, in use in other jurisdictions. This paper will examine the practical application of such systems in those jurisdictions, and drawing from that experience will consider whether similar reforms should be implemented in Australia.

The Commissioner’s compliance strategy: Compliance Pyramid to Compliance Diamond to Compliance Cube? - Mark Burton

Abstract
The purpose of this paper is to argue that the ‘compliance pyramid’ - the cornerstone of the cooperative compliance model adopted in both Australia and New Zealand – suffers from significant shortcomings. In particular, the pyramid portrays all non-compliance as under-compliance and therefore ignores taxpayer over-compliance. Under-compliance arises where a person does not comply with a legal obligation and this produces a disadvantage to the revenue. Conversely, over-compliance arises where a person does not comply with a legal obligation and this produces an advantage to the revenue. By ignoring over-compliance, the pyramid reinforces an adversarial ideological framework and therefore undermines the Commissioner’s desire to promote a cooperative administrative environment. To overcome this shortcoming of the pyramidal compliance model I recommend that the pyramid be replaced by a compliance diamond. This compliance model would expressly recognise that non-compliance can entail both underpayment and overpayment of tax, with recognition of the fact that the Commissioner’s administration of the taxation system requires that he adopt appropriate strategies to procure ‘compliance’ amongst both underpayers and overpayers of tax.

The Compliance Model: The Devil’s in the Detail - Clare Hyden

Abstract
The 1990s saw regulatory regimes shift from command-style regulation to responsive regulation. The Compliance Model (CM) adopted by the Australian Taxation Office (ATO) in 1998, sets out which regulatory strategies should be used according to the circumstances of the taxpayer. However, many of the details of the Compliance Model have escaped close scrutiny, despite the CM being adopted in other jurisdictions. For example, the CM depends on the ATO being able to accurately identify a taxpayer’s subjective motivational posture (or attitude). It also assumes that motivational posture influences intention and that intention influences behaviour. However, there is evidence that this is not always the case. Finally, the CM draws relationships between motivational postures and regulatory strategies that are said to be most effective given the taxpayer’s motivational posture. However, these regulatory strategies are sometimes counter-instinctive and their relative effectiveness has not been tested. This paper discusses these details and some of the related literature and is a prelude to my research in the area. This paper will begin by setting out the significance of research in this area. It will then provide a brief background to the CM and discuss its evolution. It will then discuss some of the literature that is relevant to determining taxpayer attitudes, the relationship between attitudes and behaviour, and the relationship between attitudes and regulatory strategies. Research into effective regulatory strategies and models is clearly important for a number of reasons. Such research seeks to promote compliance, thereby ensuring that one person’s liberty is not impinged on by another citizen’s disobedience. In the taxation field, this might happen through tax avoidance causing a loss of revenue to the government, which in turn prevents the government from providing public goods. Alternatively, one person might have to pay additional taxes to cover the revenue lost from another’s non-compliance. Such research also protects a person’s liberty by ensuring that the government does not unjustly impinge on a person’s liberty. For example, ensuring that the minimum effective penalty is selected ensures that a person’s liberty is not impinged by an excessive penalty. Research into the CM is particularly important for a number of reasons. First, the CM represents a significant paradigm shift away from the traditional punishment based regulatory models towards self-regulation, but without requiring deregulation. This ‘responsive regulation’ is a relatively new development in terms of compliance research. However, it is surprising that so little research has been done into the CM itself given that it was formally adopted by the ATO almost 10 years ago. For example, although the Centre for Tax System Integrity (CTSI) has examined a range of issues such as how the ATO officers perceive the CM and how taxpayers perceive the CM, the causal relationship between the motivational postures, the regulatory strategy utilised and the actual compliance behaviour has not yet been tested. Second, the CM has been adapted and adopted by a number of other jurisdictions, including the UK, New Zealand, Timor Leste (Indonesia) and Pennsylvania (USA). As such, any improvements that are developed may impact on those jurisdictions. The CM also has potential for application as a regulatory model outside of the taxation field.

The Impact of Australia’s Fringe Benefits Tax for Cars on Petrol Consumption and Greenhouse Emissions - Ms. Dianne Harvey

Abstract
Petrol consumption has become one of the most important sustainability issues for Australia. The central question in this article is whether Australia’s current Fringe Benefits Tax (FBT) regime is promoting unnecessary mileage (and use of petrol) in salary packaged vehicles to obtain tax concessions under the FBT ‘statutory method’ for cars. This article draws together the results of FBT survey data collected via a questionnaire and analysed by the authors. The evidence assembled generally supports the central contention. We have also reviewed and included commentary on similar studies that support our key claim. The findings are important because the questionnaire responses represent a statistically significant sample. The outcomes of our FBT research described herein provide further support for a call to amend the current FBT legislation and therefore foster more environmentally sustainable car salary packaging polices for Australian business.

THE IMPORTANCE OF RAP(PING) IN TAXATION - A REVIEW OF THE REWRITE ADVISORY PANEL’S CONTRIBUTION TO UNCOVERING THE HIDDEN DETAIL - Dr Adrian Sawyer

Abstract
Upon commencing the rewrite of the Income Tax Act (ITA) in New Zealand (NZ) in the early 1990s the importance of independent oversight throughout the redrafting of the legislation was recognised. The Rewrite Advisory Panel (RAP), set up in 1995 under the chairmanship of Colin Blair, was initially requested to consider and advise on issues arising during the rewriting of the ITA 1994. The RAP comprises a chairman and representatives from Inland Revenue, the Treasury, the New Zealand Institute of Chartered Accountants (NZICA) and the New Zealand Law Society (NZLS). In 2004 the RAP, under the chairmanship of Rt Hon Sir Ivor Richardson, took on an additional role, namely considering potential unintended change issues arising from the ITA 2004. In this latter role, the RAP was charged with two tasks: responding to submissions alleging instances of unintended outcomes arising from the rewrite process, and reporting to the Government on how it should respond. These tasks involve an unenviable search for the ‘devil is in the detail’ with significant consequences for the quality of new tax legislation.
This paper provides an in-depth narrative of the role the RAP has played in the Rewrite Project, both from an outsider’s perspective (the author) and from a major contributor, Rt Hon Sir Ivor Richardson. An important theme that emerges is the necessity for paying close attention to detail. Such detail may be overlooked in a drafting process that focuses on (re)writing in plain English according to a format promulgated in 1993. One important observation is that without the influence of the RAP the quality and accuracy of NZ’s Rewrite Program (including ITA 2007) would be much the poorer, with flow-on effects increasing compliance costs, creating uncertainty and invoking more judicial involvement. The importance of “rap(ping) in tax” in NZ therefore should not be underestimated.

The Influence of Tax Audit Probability and Tax Rate on Transfer Pricing Reporting Behaviour in Indonesia - Yeni Mulyani

Abstract
It is very challenging to measure tax compliance, especially on transfer pricing, since there are many factors that may influence the compliance result. M.G. Allingham and A. Sandmo’s model(1972) reveals the connection between the tax rate and the tax compliance. Their model is studied and developed by many others academic scholars. For example, S. Yitzhaki (1974) develops Allingham and Sandmo’s model (1972) by adding fine or penalty into the model. He believes that the increase on the tax rate will decrease the cheating behavior when the penalty applies proportionally to the amount of tax evasion. The term tax compliance itself includes the administration of transfer pricing which deals the procedural of tax compliance and the technical compliance which involves the calculation of tax due as required by the law. While the administrative compliance involves some questions such as whether the tax returns are filling in time or tax due are paid in time, the technical compliance covers the correct computation of tax liability. This paper focuses on the technical compliance only. It discusses the correlation between the transfer pricing compliance in Indonesia and law enforcement based on Yitzhaki (1974) theory. It will examine whether the penalty and tax rate have a significant effect in increasing or decreasing the transfer pricing compliance performance. The data presented are before and after 2000 since the Indonesian tax regulation was reform in 2000.

THE MORALITY OF TAX AVOIDANCE: WHY THE LEGAL DIFFERENCE BETWEEN EVASION AND AVOIDANCE IS INSUFFICIENT TO GROUND A MORAL DISTINCTION - ZOË PREBBLE AND JOHN PREBBLE

Abstract
Tax evasion and avoidance involve conduct that is factually similar but legally distinct. Both aim to reduce or minimise tax liability, but avoidance is legal whereas evasion is illegal. This paper responds to a line of judicial authority that stands for the general proposition that there is a moral entitlement to avoid taxes. The proposition has some intuitive and popular appeal but this paper will demonstrate that it is not supported by sound reasoning, but predicated on deeply flawed assumptions. The conclusion that tax avoidance is moral appears to rest on four main assumptions that will be set out and critiqued in the course of this paper. Section III addresses the first assumption: that taxpayers have a moral entitlement to their pre-tax incomes. Section IV discusses a second assumption: that tax avoidance and evasion are not seriously harmful and therefore are not immoral. It will clarify the harms that both types of conduct cause. Section V will address a third key assumption: that tax evasion is malum prohibitum rather than malum in se. That is, the sole moral content of tax evasion is derived from its legal status. According to this assumption, since avoidance lacks illegality, the one quality that differentiates it from evasion and the one source of evasion’s immorality, then avoidance must be moral. This section will demonstrate that despite the traditional conception of mala prohibita and mala in se as mutually exclusive and exhaustive categories, there is logical space for other hybrid types of legal wrongs to exist between the two extremes. The assumption to be addressed is that morality exists wholly independently of the law; this will be addressed in section VI with particular reference to the views of Professor Tony Honoré. It will be demonstrated that not only do all four assumptions fail to justify the view that tax avoidance is moral, but that the evidence supports the opposite view. I TAX EVASION AND TAX AVOIDANCE. Tax evasion and tax avoidance involve similar taxpayer behaviour and are each undertaken in pursuit of the same broad aim: to reduce or minimise tax liability. They are factually similar, but legally distinct. Tax evasion is illegal. It consists in the wilful violation or circumvention of applicable tax laws in order to minimize tax liability. Tax evasion generally involves either deliberate under-reporting or non-reporting of receipts, or false claims to deductions. This conduct is legally straightforward to identify; a taxpayer has committed tax evasion only if he has breached a tax law. Indeed, evasion ordinarily involves criminal fraud. Tax avoidance is not illegal. Rather, it is the act of taking advantage of legal opportunities to minimize one’s tax liability. Since a tax-avoider engages only in legal tax behaviour, even when the Commissioner of Inland Revenue detects his avoidance scheme, he is not ordinarily subject to criminal punishment. This is not to say however that the Commissioner will always allow legal tax avoidance schemes to stand. Section BG 1 of the Income Tax Act 1994 is the most potent general anti-avoidance rule, known as a GAAR, that the Commissioner of Inland Revenue has at his disposal. It provides that: (1) A tax avoidance arrangement is void as against the Commissioner for income tax purposes. (2) The Commissioner, in accordance with Part G (Avoidance and Non-Market Transactions), may counteract a tax advantage obtained by a person from or under a tax avoidance arrangement. Section OB 1 is the definitions section. “Arrangement” is defined broadly and includes any “contract, agreement, plan, or understanding (whether enforceable or unenforceable) including all steps and transactions by which it is carried into effect”. The section also widely defines “tax avoidance” to include “relieving,” “altering” and “avoiding, reducing or postponing” the incidence of tax. Section GB 1 sets out the consequences that follow from an avoidance arrangement being void under section BG 1. Section GB 1 provides that the Commissioner may adjust the amounts of gross income, allowable deductions and net losses associated with the arrangement “as he thinks appropriate, so as to counteract any tax advantage obtained … under that arrangement”. Essentially, in so adjusting these figures, the Commissioner may have regard to the business reality of the transactions that would have eventuated but for the arrangement. Together with sections GB 1 and OB 1, section BG 1 allows the Commissioner to undo or ignore avoidance schemes that taxpayers may have devised. Suppose a tax avoidance scheme has the effect of splitting income or of generating deductions. In such cases section GB 1 would operate to unwind the scheme’s surface effect by “un-splitting” the income or “un-generating” the deductions. The GAAR allows the Commissioner to look behind legal appearances of tax avoidance schemes and to give effect to the true substance of the transactions.

The OECD and its Campaign Against Harmful Tax Competition: Is this International Law? - John McLaren*

Abstract
Since the late 1990’s, the OECD (Organisation for Economic Co-operation and Development) has been very active in its campaign against ‘harmful tax competition’. The campaign against tax havens and offshore financial centres involved the naming and shaming of some 36 tax havens. Since then a number of tax havens have agreed with the OECD to reform their bank secrecy laws and to become more transparent in their dealings with other countries. To some extent there have been threats of sanctions against tax havens if they did not agree to co-operate but generally most tax havens have accepted the views of the OECD. The question raised by this is does the OECD make ‘law’ in the area of taxation policy? If it does, is this ‘soft law’ and what is meant by the term ‘soft law’? The paper will commence with an analysis of what is’ international law’ and how it is made, followed by a discussion of the distinction between soft and hard international law. The question of what constitutes ‘soft law’ will then be assessed within the framework developed by Professor Baxter, of international norms being considered soft international law. Having then assessed the OECD guidelines and norms within the ‘Baxter’ framework, it will be possible to answer the question as to whether or not the OECD makes international law. Some of the OECD member countries have rejected many of the norms contained in the guidelines campaigning against harmful tax competition and some commentators have gone so far as to contend that the campaign has failed to achieve its objectives. If this is the case then there is an argument that in relation to taxation matters, and in particular tax competition which effects the fiscal sovereignty of the nation, the OECD does not make’ international law’ or if it does, then the soft law is of a non-binding nature.

THE RELATIONSHIP BETWEEN TAX PREPARERS AND THE ATO - Eric Clubb

Abstract
Taxpayer compliance relies to a substantial extent on the services and diligence of registered tax preparers. This stakeholder group provides an important link in the sustainability of the quality control process which allows the Australian Taxation Office (ATO) to promote effective taxpayer compliance. The tax preparer not only provides a communication and lodgement channel, but is a defacto educator in the taxpayers understanding of and compliance with taxation principles and procedures. The accounting profession in Australia has for some time argued that the profession struggles to adequately resource the needs of its expanded client base and to be appropriately compensated for the core functions it provides. This concern may be intensified with current ATO initiates relating to the introduction of a professional code of conduct and the increase liability of tax preparers for errors and omissions in taxpayer’s income tax returns. This paper seeks to identify some historical key factors influencing to the current relationship, and identifies research to be undertaken to confirm current relationship issues which may then lead to some insight on the process to forge a more robust professional relationship.

THE ROLE OF THE TAX SYSTEM IN STIMULATING RESEARCH AND DEVELOPMENT - Mahmoud M. Abdellatif and John Taylor

Abstract
Tax policy-makers in designing a tax system may seek to achieve a number of objectives. Stimulating economic growth is often among those objectives. For this reason various technical provisions, such as tax incentives and reliefs, are frequently inclusive within tax codes. In this context incentives for research and development (R&D) are particularly significant. R&D plays an important role in developing new inventions, processes, and technologies which are necessary for fostering economic growth and achieving sustainable economic development. The experiences of industrial countries are an evidence of the role of R&D in economic development. Developing countries strive to achieve considerable level of economic development through achieving high rates of economic growth. Simulating R&D is among the various means have employed for this objective. Tax policy is one of those means which has been employed extensively through the design of specific tax provisions relating to R&D. This paper examines the current tax treatment of R&D in two developing countries: Egypt and India. Both countries are ranked as middle income countries, have experience in using tax system to encourage economic growth and are leading countries in their region. However, the current treatment of R&D in both countries might not be the most appropriate means for promoting R&D. The objectives of this study are threefold: to highlight the role of tax system to foster R&D; to analyse the current tax treatment of R&D in Egypt and India: and to suggest an appropriate tax treatment of R&D for developing countries. The paper is divided into five sections as follows: an introduction: a literature review; a discussion of the current tax treatment of R& D in Egypt: a discussion of the current tax treatment of R&D in India; and an analysis and recommendations based on the results of the second, third and fourth sections.

The Unicorn in the stable – A detailed assessment of the potential for a successful negligence claim against the Commissioner of Taxation - John Bevacqua

Abstract
Negligence has never been successfully claimed against the Commissioner of Taxation in Australia. Very few writers in the field of taxpayer rights have ventured to affirm that a successful claim is a real prospect. Curiously, though, there is no judicial or academic comment suggesting the impossibility of such a claim in this country. If it is true that with tax, ‘the devil’s in the detail’, then the possibility that a taxpayer could successfully seek damages from the Commissioner through alleging negligence warrants detailed scrutiny rather than off-hand acceptance or dismissal. This paper examines the legal and practical impediments to bringing a negligence claim against the Commissioner with a view to answering the question of whether a tortious claim in negligence is a real or illusory right for Australian taxpayers. Part 1 examines the scope of the partial immunity from suit in negligence enjoyed by public authorities and identifies particular fact scenarios which might fall outside of the scope of this immunity and give rise to a prima facie cause of action against the Commissioner. Part 2 looks at a number of the legal obstacles which might arise in an action against the Commissioner, even when a prima facie case might otherwise lie, such as the ability to recover damages for pure economic loss, and complexities surrounding establishing sufficient proximity between an aggrieved taxpayer and the Commissioner. Part 3 examines the numerous public policy reasons that might be raised to preclude the success of an otherwise technically valid negligence claim. Such public policy issues are worthy of significant exploration in the taxation context where public policy imperatives related to the protection of the revenue can be readily raised. The paper concludes with an assessment of the circumstances in which a negligence action against the Commissioner might be a valid weapon in the armoury of the aggrieved taxpayer.

Use of the anti-avoidance provision in Australia and New Zealand - Mark Keating

Abstract
The paper examines the requirements for establishing GST tax avoidance in Australia and New Zealand. It compares the GST general anti-avoidance provisions in both countries, and examines the few cases decided under those provisions. Finally, it contrasts the scope of the GST tax avoidance provisions with the Courts’ application of income tax avoidance provisions. Tax avoidance is as much a part of the landscape of GST as it is for income tax. But while there have been many income tax avoidance cases, the number of GST tax avoidance cases have been comparatively few. It took New Zealand courts 15 years to first consider GST avoidance under sec 76 GST Act 1985. The Australian courts heard the first GST avoidance case under Div 165 in 2006. Those first cases, involving what were fairly blatant schemes to obtain unwarranted tax benefits, were each decided by the Tribunals in favour of the Commissioner. However, the law regarding GST anti-avoidance was unsettled and the scope of the Commissioner’s power to counteract such arrangements was uncertain. Finally, in 2007 the New Zealand Court of Appeal heard two GST avoidance cases, upholding the Commissioner’s assessment of tax avoidance in both instances. These cases, involving very different schemes, are the first consideration of GST avoidance by a higher court in either jurisdiction. Accordingly the reasoning of the decisions will provide a useful guide to the application of the anti-avoidance provisions in both countries.

Using the Web as a Resource to Facilitate Student Learning and Engagement on Landmark Taxation Law cases - Michael Blissenden

Abstract
There is little doubt that the teaching and study of taxation law in Australia is a very daunting task. The basic undergraduate tax course generally focuses on the concepts of income, including capital gains as statutory income and the notion of general and specific deductions. There may be some coverage of other statutory regimes such as FBT and GST but the main focus tends to be on the income tax regime in Australia. Due to the limited time available in teaching a one semester course, the coverage of these central concepts in that income tax regime usually provides a sound working knowledge for accounting and law students. Even so the coverage is normally tax technical with little focus on students acquiring learning skills. The main teaching methodology is on providing students with information on the legislative framework and relevant case law that has interpreted that legislative. Considering that the general legislative provisions of income and deductions, namely s 6-5 ITAA 97 and s 8-1 ITAA 97 are very general in their wording there is a need for case law to be studied to explore the scope of such provisions. In many respects the teaching approach revolves around providing information through lectures and then having students attempt to apply that knowledge through tutorials and seminar questioning. In that regard students are normally asked to identify the issues, find relevant tax authority (be it legislation, case law or tax ruling), interpret and apply tax authority and reach conclusions and recommendations.

VALUE ADDED TAX ADMINISTRATION IN ETHIOPIA: A REFLECTION OF ITS PROBLEMS - Wollela Abehodie Yesegat

Abstract
Good VAT administration is critical for full implementation of the design attributes of the tax and achieving policy objectives of a government at large. This paper attempts to examine VAT administration in Ethiopia and identify key problems that have bearing on the fairness and revenue productivity of the tax. The procedures that taxpayers and tax authorities follow are assessed in light of the legislation and the benchmark in the literature whenever available. In addition, the outcomes of an informal focus group discussion with tax officials and data from a compliance cost survey are examined. The analyses identified problems including lack of sufficient number of skilled personnel and gaps in the administration in such areas as refunding, invoicing and filing requirements. It is, hence, suggested that, in Ethiopia, attempting to implement what is legislated in key areas (such as refunds) deserves the government’s due attention. The study also emphasizes the need to strengthen the administration capacity in general and tax audit program in particular. Furthermore, the study concludes that in Ethiopia, which is one of the poorest countries in the world and hence VAT administration (especially at regional governments level) is likely to be weak and the intergovernmental relationship concerning VAT is unclear, assignment of VAT revenue to regional governments and their delegation for the administration should be reassessed.

‘Will the Real Taxpayer Please Stand Up: There’s Humour in the Detail’ - Alistair Hodson

Abstract
There are on occasion novel arguments presented before the courts where a taxpayer may argue for some reason that they are not required to pay tax or to comply with tax laws. The New Zealand Inland Revenue Department (Inland Revenue) is not immune to this type of litigation and like many other tax administrations, spends not only a substantial sum of money on court related costs to litigate cases of this nature, but also a significant amount of staff time and resources. Invariably the taxpayer loses in the courtroom due to the nature of their claim. Some of the cases that have appeared before the courts may be regarded as frivolous, or even as vexatious, depending on one’s standpoint. There has been a lot of discussion over whether taxation law can be simplified with the goal of clarity in mind to inter alia reduce spurious arguments on behalf of a taxpayer, yet tax legislation appears to become voluminous and more complex year on year. This paper looks at some relatively recent cases heard in the New Zealand courts where novel arguments have been presented by taxpayers. For example in Boyton v CIR the taxpayer argued that his name had “sui juris status” in that his name was a separate legal entity from his person and, therefore, he was not personally required to comply with his tax obligations. Other tax administrations also have novel arguments presented to them by taxpayers wishing to avoid the payment of tax. The United States (US) courts, even with its many pages of codified tax law, also have a devil of a time with novel arguments that have been raised to avoid paying tax or complying with the United States (US) tax code. This paper considers and critiques some of these arguments. It would appear that no matter how simplified or detailed the taxation law is, the novel arguments raised by taxpayers will continue to add some devilish humour to the field of taxation litigation.