Australian Taxation Law System

Taxation system has been introduced with the prime objective to raise the amount of revenue for the purpose of making government expenditure. Several tax reforms and reviews have been considered to evaluate the stability and sustainability to the extent of revenue generated by the current tax regulations. Accordingly, a mittee review had been adopted to analyse the future tax system of Australia together with the evaluation of sustainability of the present tax reforms[1]. Sources of tax revenue collection involvei e tax from the individual taxpayers, professionals and business organisations along with the duties and tax charges on production and sale of goods and services. One such tax known as value- added tax had been introduced by the Australian legislation in the form of Goods and Service Tax (GST) on July 8 1999. Australian regulations on GST incorporates single rate and assessed under the norms of VAT in accordance with the institutional theory that created the law for domestic consumption. Value- added tax is considered as consumption tax that has been adopted by many countries that is imposed on the production and sales of goods by wholesalers and retailers[2]. However, introduction of Goods and Service Tax under the VAT reforms failed to initiate successive rates on the Australian Government due to several political terms. It has been noted that the tax charges based on GST incorporates certain inherent problems against the prevailing tax system which was more plex and associated higher costs to administer the taxation system. In addition, the existing system of tax reflected inefficiency in the economy that affected the adequate collection of revenue and incorporated tax avoidance practices[3]. Accordingly, Asprey mittee endorsed the legislations of VAT to review the taxation system of Australia considering the various criticism of the existing taxation system in terms of inadequacy as well as inefficiency. The primary objective of the Asprey mittee review is to provide broad- based VAT regulations eliminating the existing inadequate regulations that created the space for tax avoidance practices and inadequate revenue collection. The obje ctive of Asprey mittee review included tax levy on value- added tax at the level of wholesale marketing so that the burden of tax charges should not be on i e taxation rather on goods and services taxation[4]. Further, the review provided by Asprey mittee was established with the view to broaden the base of i e tax with respect to the capital gain taxes and direct business i e to strengthen the tax reforms on estate. Review of the Asprey mittee was established to broaden the aspect to GST that incorporates applicable tax rates, taxable amount and taxable period which was reported in the case of Interchase Corporation Ltd v ACN 010 087 573 Pty Ltd (2000) ATR 445. The decided case incorporated the issue on determination of GST liability for the future liability as the supply of goods was not established. Similar to the case of Walter Construction Group Limited v Walker Corporation Ltd (2001), court held that the liability of the plaintiff to pay the amount of goods and service tax could not arise as the goods were not delivered during the taxation period. It was further held that the meaning of supply in this case was not established as per stated in the Australian legislation. Therefore, Asprey mittee review had been considered to extend the legislation of tax revenue from the supply of goods and services to incorporate the appropriate principles on tax charges[5]. The mittee review had been consi dered with the objective to create the tax collection regulations in accordance with the principles equality and fairness so that the government of Australia can collect the adequate amount of revenue. The objectives of Asprey Reports further associated with the tax regulations on capital gains which in turn related to tax collection from real- estate trading. It was noted in the earlier taxation system that the taxation government was unable to collect sufficient revenue due to excess exemption regulation on the sale of capital asset[6]. Many taxpayers considered the sale of property or estate as capital asset even if it took place under normal business activities or as isolated transaction with the intention of earning profit. Therefore, Australian government experienced inadequacy in revenue since there was no tax applicable on the i e generated from capital asset. Accordingly, Asprey review mittee provided amendments to revise the tax regime on capital asset at different rates s o that the government can collect tax revenues in fair manner[7]. As the mittee r mended to shift the tax burden to the products or services from the i e tax, it was criticized by several other tax munity. It was further noted that the political influence on considering the tax reforms r mended by the mittee of Asprey delayed the implementations. Accordingly, the initial r mendations to widen the scope of tax revenue collection in terms of VAT and GST was never implemented within the Australian Federation. It was further observed that the reports provided by Asprey addressed the concerns of equity by r mending tax collection through capital gains for sale of capital assets during the period of1970s[8]. However, this r mendation of the mittee also failed and was not implemented by the Australian government for several years since the tax levy suggested by the mittee incorporated tax rates on real estate which might affect the country’s economy. On the contrary, the Australian Government considered the single rate on value added tax for supply of goods and services as r mended by the Asprey mittee. Single tax rate on GST was considered to incorporate fair and transparent tax liability for the wholesalers who have little knowledge on measuring the appropriate amount of tax liability. Accordingly, tax ruling 2001/4 has been initiated and considered by the Australian Federation including the amended meaning of supply of goods and services so that the government can collect fair and adequate revenue to strengthen the government revenue[9].   Taxation system incorporates i e from personal purpose as well as i e from business operations that involves several tax reforms based on business resources and i e factors. Tax on business i e is required to be determined by considering i e from business, investment i e and i e from other sources as deducted by the respective costs incurred to generate such the taxable i e. In order to measure business i e, several costs and expenses that are allowed as deduction as per the regulations of federal government include non- cash charges like depreciation charges. Depreciation charges is said to be the significant factor for tax purpose, which affects the corporate tax rates that eventually influence the capital investment at corporate level[10]. It has been examined that the tax reform on the capital investment had been affected through the distribution of corporate plant as well as equipment resulted in several tax benefits under the existing taxation system. Such tax benefits to the c orporate seemed to affect the governmental revenue in Australia due to the negative alliance between the capital investment and capital costs. Accordingly, Ralph Review of Business Taxation had been proposed during the year 1999 providing several tax reform proposals that would impact the capital investment for Australian Corporate[11]. The objective of the proposal provided under the business taxation review established by Ralph was to consider the factor of accelerated depreciation factor to determine the corporate taxable i e. As per the existing tax system in Australia, many taxpayers used the accelerated depreciation charges to reduce the taxable i e, which resulted in decline of capital investment. Therefore, review on business taxation had been established with the objective of removing the extra benefits of accelerated depreciation so that the negative association between the several tax variables can be removed[12]. It was further noted that the major objective of Ralph review on business taxation was to incorporate the changes in basic design to the system of corporate tax in Australia so that the decisions on capital investment could be beneficially effective. In the existing taxation system, it has been noted that the accelerated depreciation method did not constitute the factor of economic life of asset , which resulted in charging the excess amount of depreciation and reduce the taxable i e of corporate. Therefore, the objective of Ralph review involved the potential changes in the accelerated depreciation including the factor of â€Å"effective life† on the basis of asset’s economic life to alter the incentive of corporate fixed assets. In addition, the business taxation review given by Ralph involved the proposal to reduce the tax rates on corporate from 36% to the rate of 34% during the year 2000- 2001. The objective of reduction on corporate tax was to pensate the increase affect of accelerated depreciation so that the investment cash flow of the panies reflects increased balance[13]. Establishment of Ralph review on business taxation was considered with the objective of improving the capital investment so that the country’s economy can be improved. Further, the objective of several tax reforms presented by Ralph review involved to improve the tax regulations for revenue collection by the government considering the factor of certainty and equality. Before the proposal on accelerated depreciation factor, taxation system to determine the business i e used by corporate resulted in consideration of excess benefits from the depreciation provision from large number of assets[14]. Besides, it was a problem for small business organisations since they used to employ small value of assets to operate the business i e therefore, the amount of depreciation charges reflected lower value. Such differences reflected inequality in the tax reforms and uncertainty in deducting the allowable charges measuring the net i e. Therefore, the Ralph review had been presented to mitig ate such differences and inequalities in the corporate tax system as well as to attract the corporate investments system. Considering the tax reforms proposed under the review, the federal government of Australia considered the removal of accelerated depreciation and including the factor of economic life in fixed assets. The federal government of Australia considered the implementation of r mendation provided under the review by including the â€Å"effective life† while calculating the depreciation charges[15]. Australian government implemented this r mendation to place the equality in tax regulations for large as well as small entities so that the excessive deduction amount can be discouraged. In addition, the government also considered the r mendation of reducing the corporate tax rate r mended by Ralph review. Tax reform on reducing the corporate tax rate had been implemented by the federal government of Australia to mitigate the affect of removal of accelerated depreciation as well as to provide certainty in determining the corporate tax liabilities. It has been noted that the decisions for c orporate investment is highly influenced by the corporate tax rate since the expected returns from investments are subjected to taxability at the prevailing corporate tax rates[16]. Further, corporate tax rates involve benefits in terms of tax shields and taxability at marginal rates in the form of tax incentives. R mendation provided under Ralph review considered the factor for corporations having low i e in order to provide them the benefits of tax shield other than the parative treatment on depreciation charges on fixed assets. For the purpose of improvement of country’s economy, panies are provided with the capital assistance in the efficient market if the performance of pany reflects opportunities for investment. Accordingly, tax rates and sources of tax liability should be incorporated on the panies so that the net cash flows of the corporate represent increased balance[17]. Additionally, it is essential to improve the pany’s capital structure to improve the financial leverage so that the scope of return on capital can be established. The panies are required to maintain the capital balance with respect to debts and equity that provides the op portunity for corporate investment. Therefore, the Australian government considered the r mendation of Ralph review on reducing the corporate tax rate so that it attracts the investment opportunities. As a consequence, the panies will generate more i e which will attract tax liabilities and eventually improve the tax revenue for the government of Australia. Similarly, tax reform on accelerated depreciation provision had been implemented to provide equality in the depreciation charges for large business entities as well as for small business organisations[18]. Henry Tax Review originally named as â€Å"Australia’s Future Tax System Review† which was missioned in the year 2008 by Rudd Government. The purpose of Henry Tax Review was to provide guidance to the reforms of taxation system over the future years. It was noted that the review had been established to consider the collection of tax revenue on the basis of efficiency related to the i e from business as well as i e from personal consumption. Considering the existing taxation system, it has been noted that the tax i e from the i es based on economic rents raised from natural resources or from the sources of land did not reflect appropriate revenue collection[19]. In addition, transactions related to the specific policy reflected inappropriate tax reforms in the existing taxation system hence the review had been missioned to consider such issues. Under the Henry Tax Review, certain issues were covered to examine the requirement of councils to set the appropriate and suffic ient tax rates on the taxable i e. Issues on integration of tax rates together with the tax on land had been monitored so that the distribution of financial assistance to the government of Australia would be uniform. Other issues that were examined under the tax review involved problems related to housing affordability by the Australian residents, long- term financial capacity as well as solicitation of economic rent[20]. Accordingly, the Henry Tax Review had been established with the objective to serve significant role to the taxation system for providing quality public services in funding so that it creates benefit to the social members together with the economy. One of the primary objectives of Henry Tax Reviews incorporated greater impact on the growth rate of the economy as well as optimum allocation of resources. In addition, the tax review had been established with the objective of raising revenue for the government without affecting the efficiency of the economy as well as minimising the tax plexity for the members[21]. For an effective tax reforms it is essential for the taxation government to have tax collection principles based on equity and fair structure that deals with the challenges with respect to the social, economic and environmental factors. Accordingly, the objectives of review covered the examination of taxation system to create a fair and transparent tax structure so as to create suitable balance between the i e from business and profession, i e from investment and other savings and consumption of products[22]. As the existing tax system lacks efficiency in the manner of collecting tax, systems for payment transfer and other tax arrangements on transfer of assets or consumption, Henry Tax Review was missioned to monitor the problems. The objective of tax review associated with the improvement in tax systems to be collected from the transfer of investments or assets, taxation for pany’s i e and tax collection system from other forms and sources. In addition, the review was mission with the objective of providing simple regulations to the taxpayers in accordance with the suitable arrangements in the administrative system for the Federation of Australian Government[23]. The Henry Tax review was mission to analyse and monitor the policy of the government with respect to the existing tax rates as well as to preserve the payments for superannuation funds which was tax- free. It was r mended under the tax review that the policy of the Government for tax regulations should be consistent in accordance with the country’s mitments to maintain the gross domestic product (GDP). In order to maintain the adequacy and fair approach in the transfer system, the tax review r mended to incorporate the policies by improving the relevant incentives to the work culture together with the specific concessions[24]. It was further noticed that many taxpayers for payment of tax on personal i e possess little knowledge on the interpretation and application of tax regulations, hence the review r mended to amend the existing legislations in simple and transparent manner. It was contended in the review that imposition of taxation system in equitable and transparent manne r is essential to generate appropriate amount of tax revenues that eventually enhances the country’s economy together with the munity benefits. Other than the tax reforms on personal i e, the tax review r mended to provide efficient taxation system on land acquisition or transfer in association with taxation system on country’s resources[25]. Such tax reforms would assist the country to improve the financial economy and welfare of the munity. The Henry tax review also considered that the taxation system for Australian residents so that the acquisition of housing can be more affordable by considering the regulations on rent assistance, land tax and tax on transfers. In view of the several r mendations provided by the Henry Tax review to improve the transparency in taxation system, integration of tax rates and land tax had been implemented. R mendation on integration of tax had been implemented to provide uniform valuation method for the purpose of tax on land resulting in cost savings and improvement in governmental standards. Further, r mendation on distribution of grants for financial assistance had been implemented to cover the tax shortfall and improve the governmental access to collect adequate revenue. This implementation was based to maintain rational distribution and equalization of tax legislations and tax rates to collect revenue. In addition, r mendation given on the housing affordability for the Australian residents was considered significant since it created the benchmark for Australian economy[26]. It was contended that several factors related to housing affordability involved environmental regulations; provision on infrastructure policy on transport and labour power for construction should provide uniform pliance structure. The r mendation on the policy related to infrastructure was implemented to consider the related charges and housing supply to provide improved tax reforms. For the purpose of creating rational tax system in the Australian economy, r mendation on abolition of inefficient tax reforms like insurance tax, payroll tax, tax on transfer of property or luxury car have been implemented[27]. Such implementation was considered to empower the economy and to create accountable regulations to collect adequate revenue for the benefit of country as well as the munity. Arrow, K.J. and Lind, R.C. Uncertainty and the evaluation of public investment decisions.  Journal of Natural Resources Policy Research,  (2014) 6(1), pp.29-44. Bentley, R.J., Pevalin, D., Baker, E., Mason, K., Reeves, A. and Beer, A. Housing affordability, tenure and mental health in Australia and the United Kingdom: a parative panel analysis.  Housing Studies,  (2016) 31(2), pp.208-222. Braid, R.M., Symmetric tax petition with multiple jurisdictions in each metropolitan area.  The American economic review,  (1996) 86(5), pp.1279-1290. Bryant, L. and Eves, C. The link between infrastructure charges and housing affordability in Australia: where is the empirical evidence?.  Australian Planner,  (2014) 51(4), pp.307-317. Cao, R., Chapple, L.J. and Sadiq, K. Taxation determinations as de facto regulation: private equity exits in Australia.  Australian Tax Review,  (2014) 43(2), pp.118-141. Cheng, C.A., Huang, H.H., Li, Y. and Stanfield, J. The effect of hedge fund activism on corporate tax avoidance.  The Accounting Review,  (2012) 87(5), pp.1493-1526. Dixon, P.B. and Rimmer, M.T. eds.  Dynamic general equilibrium modelling for forecasting and policy: a practical guide and documentation of MONASH (2001). Emerald Group Publishing Limited. Eccleston, R. and Marsh, I., The Henry tax review, cartel parties and the reform capacity of the Australian state.  Australian journal of political science,  (2011) 46(3), pp.437-451. Engel, K., VAT falling on small business: value-added tax.  Tax Breaks Newsletter,  (2016) (360), pp.2-3. Evans, C., Hansford, A., Hasseldine, J., Lignier, P., Smulders, S. and Vaillancourt, F. Small business and tax pliance costs: A cross-country study of managerial benefits and tax concessions.  eJournal of Tax Research,  (2014) 12(2), p.453. Han, J., Park, K. and Pennacchi, G. Corporate taxes and securitization.  The Journal of Finance,  (2015) 70(3), pp.1287-1321. Kitchen, J. and Knittel, M. Business Use of Section 179 Expensing and Bonus Depreciation, (2016) 2002-2014. Ling, S.C., Osman, A., Muhammad, S., Yeng, S.K. and Jin, L.Y. Goods and Services Tax (GST) pliance among Malaysian Consumers: The Influence of Price, Government Subsidies and I e Inequality.  Procedia Economics and Finance, (2016)  35, pp.198-205. Long, B. A taxing issue: Reflections of Christian economists on tax reform in Australia.  St Mark's Review, (2016) (235), p.v. Mangioni, V. Land Tax in Australia: Fiscal Reform of Sub-national Government (2015). Routledge. Panteghini, P.M. and Vergalli, S. Accelerated depreciation, default risk and investment decisions.  Journal of Economics,  (2016) 119(2), pp.113-130. Park, J. The impact of depreciation savings on investment: Evidence from the corporate Alternative Minimum Tax.  Journal of Public Economics, (2016)  135, pp.87-104. Pomeranz, D., No taxation without information: Deterrence and self-enforcement in the value added tax.  The American Economic Review, (2015)  105(8), pp.2539-2569. Richardson, G. and Lanis, R. Determinants of the variability in corporate effective tax rates and tax reform: Evidence from Australia.  Journal of Accounting and Public Policy,  (2007) 26(6), pp.689-704. Schenk, A., Thuronyi, V. and Cui, W. Value Added Tax (2015). Cambridge University Press. Thomson, N.J. Taxation and the Asprey and Mathews reports.  The Australian Quarterly,  (1976) 48(4), pp.76-87. Tilt, C.A. and Symes, C.F. Environmental disclosure by Australian mining panies: environmental conscience or mercial reality?. In  Accounting Forum  (1999) June (Vol. 23, No. 2, pp. 137-154). von Weizsà ¤cker, E.U. and Jesinghaus, J. Ecological tax reform. In  Ernst Ulrich von Weizsà ¤cker  (2014) (pp. 99-118). Springer International Publishing. Williams, C.C. and Martinez-Perez, A. Why do consumers purchase goods and services in the informal economy?.  Journal of Business Research,  (2014) 67(5), pp.802-806. Thomson, N.J. Taxation and the Asprey and Mathews reports.  The Australian Quarterly,  (1976) 48(4), pp.76-87. Tilt, C.A. and Symes, C.F. Environmental disclosure by Australian mining panies: environmental conscience or mercial reality?. In  Accounting Forum  (1999) June (Vol. 23, No. 2, pp. 137-154). Dixon, P.B. and Rimmer, M.T. eds.  Dynamic general equilibrium modelling for forecasting and policy: a practical guide and documentation of MONASH (2001). Emerald Group Publishing Limited. Schenk, A., Thuronyi, V. and Cui, W. Value Added Tax (2015). Cambridge University Press. von Weizsà ¤cker, E.U. and Jesinghaus, J. Ecological tax reform. In  Ernst Ulrich von Weizsà ¤cker  (2014) (pp. 99-118). Springer International Publishing. Pomeranz, D., No taxation without information: Deterrence and self-enforcement in the value added tax.  The American Economic Review, (2015)  105(8), pp.2539-2569. Engel, K., VAT falling on small business: value-added tax.  Tax Breaks Newsletter,  (2016) (360), pp.2-3. Ling, S.C., Osman, A., Muhammad, S., Yeng, S.K. and Jin, L.Y. Goods and Services Tax (GST) pliance among Malaysian Consumers: The Influence of Price, Government Subsidies and I e Inequality.  Procedia Economics and Finance, (2016)  35, pp.198-205. Engel, K., VAT falling on small business: value-added tax.  Tax Breaks Newsletter,  (2016) (360), pp.2-3. Williams, C.C. and Martinez-Perez, A. Why do consumers purchase goods and services in the informal economy?.  Journal of Business Research,  (2014) 67(5), pp.802-806. Richardson, G. and Lanis, R. Determinants of the variability in corporate effective tax rates and tax reform: Evidence from Australia.  Journal of Accounting and Public Policy,  (2007) 26(6), pp.689-704. Braid, R.M., Symmetric tax petition with multiple jurisdictions in each metropolitan area.  The American economic review,  (1996) 86(5), pp.1279-1290. Evans, C., Hansford, A., Hasseldine, J., Lignier, P., Smulders, S. and Vaillancourt, F. Small business and tax pliance costs: A cross-country study of managerial benefits and tax concessions.  eJournal of Tax Research,  (2014) 12(2), p.453. Panteghini, P.M. and Vergalli, S. Accelerated depreciation, default risk and investment decisions.  Journal of Economics,  (2016) 119(2), pp.113-130. Kitchen, J. and Knittel, M. Business Use of Section 179 Expensing and Bonus Depreciation, (2016) 2002-2014. Park, J. The impact of depreciation savings on investment: Evidence from the corporate Alternative Minimum Tax.  Journal of Public Economics, (2016)  135, pp.87-104. Arrow, K.J. and Lind, R.C. Uncertainty and the evaluation of public investment decisions.  Journal of Natural Resources Policy Research,  (2014) 6(1), pp.29-44. Panteghini, P.M. and Vergalli, S. Accelerated depreciation, default risk and investment decisions.  Journal of Economics,  (2016) 119(2), pp.113-130. Eccleston, R. and Marsh, I., The Henry tax review, cartel parties and the reform capacity of the Australian state.  Australian journal of political science,  (2011) 46(3), pp.437-451. Cheng, C.A., Huang, H.H., Li, Y. and Stanfield, J. The effect of hedge fund activism on corporate tax avoidance.  The Accounting Review,  (2012) 87(5), pp.1493-1526. Han, J., Park, K. and Pennacchi, G. Corporate taxes and securitization.  The Journal of Finance,  (2015) 70(3), pp.1287-1321. Long, B. A taxing issue: Reflections of Christian economists on tax reform in Australia.  St Mark's Review, (2016) (235), p.v. Mangioni, V. Land Tax in Australia: Fiscal Reform of Sub-national Government (2015). Routledge. Bentley, R.J., Pevalin, D., Baker, E., Mason, K., Reeves, A. and Beer, A. Housing affordability, tenure and mental health in Australia and the United Kingdom: a parative panel analysis.  Housing Studies,  (2016) 31(2), pp.208-222. Bryant, L. and Eves, C. The link between infrastructure charges and housing affordability in Australia: where is the empirical evidence?.  Australian Planner,  (2014) 51(4), pp.307-317. Cao, R., Chapple, L.J. and Sadiq, K. Taxation determinations as de facto regulation: private equity exits in Australia.  Australian Tax Review,  (2014) 43(2), pp.118-141. Mangioni, V. Land Tax in Australia: Fiscal Reform of Sub-national Government (2015). Routledge.