Business Taxation Law Report: Analysis of Australian Tax Reforms

This report, prepared by Margi Patel, examines the complexities of Australian business taxation, addressing key aspects such as tax systems, reform approaches, and the proposal for companies to opt-in for fiscal transparency. The report begins with an introduction to the subject, followed by an overview of tax systems and reformation strategies. It then explores critical elements like the classification of taxable entities, the impact of company taxation on society, and the evolution of tax reform. The report further investigates the implications of mandatory disclosure regimes and the potential of radical simplification within the tax framework, including the cash flow corporate tax alternative and the 'new view of dividends'. It also discusses the tax base, rates, and the treatment of distributed profits, emphasizing international competitiveness and the importance of simplification. The report references relevant literature and legal cases to support its analysis and concludes with a comprehensive overview of the key findings and their implications for the Australian tax system.

Running head: BUSINESS TAXATION LAW
Business Taxation Law
Name: Margi Patel
Student ID- 217537706

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Table of Contents
Introduction:...............................................................................................................................2
Tax systems and approaches of reformation:.............................................................................2
Common reference to catalogue approach:................................................................................3
Obligatory or the optional system:.............................................................................................3
Business taxation- form, base and rates:....................................................................................4
Delivering radical simplification:..............................................................................................5
The cash flow corporate tax alternative:....................................................................................6
The “new view of dividends:.....................................................................................................7
Conclusion:................................................................................................................................8
References:...............................................................................................................................10

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Introduction:
Apart from the individuals, that most collective chargeable entities are companies in
Australia and the super funds that are self-managed. The most common type of business
firms that are not usually imposed tax is trust (Eccleston 2013). The definition of company
under the income tax law comprises of companies that are created under the Corporation Act
(Cth), other includinges the body corporates and unincorporated associations, such as
partnership and joint venturesA company can be defined as the separate lawful entity which
is different from the sole trader and partnership structure. This implies that the company has
the identical rights as the natural person and also has the right of incurring debt, sue and be
sued. (Chen and Mintz 2015). A company in Australia will be held as resident if any of the
following (a) the company is incorporated in Australia or (b) the company is conducting its
business in Australia and either has (i) the fundamental management as well as control within
Australia.A company will be treated as Australian resident if the company is established in
Australia, irrespective of whether the company is carrying its business activities in overseas,
administered in foreign or it controlled by the overseas shareholders. Identical An identical
test is also implemented on for the residence to of limited partnerships, unit trusts and public
trading trusts.
Classifying the type of company is considered important. In the case of “Resource
Capital Fund III LP v FCT, a” high amount of dependency was placed on the commentary of
article Article 1 of the OECD. The Australian government has boarded on the ambitious
agenda of tax reformation (i.e. towards rewarding those that are hardworking and boosting
the participations of professionals) In a prolonged and difficult judgement given in
“Resource Capital Fund IV LP v Commissioner of Taxation [2018]” the law court simply
overturned the assessment that was issued by the ATO to Resource Capital Fund in regard to
their sale of shares in Talison Lithium. The law court clarified the issue regarding the

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business profits article of Australia and US Double Tax Treaty. (James, Sawyer and
Wallschutzky 2015). CThe company tax is regarded as the main driver of a fair and
prosperous society (Broschek 2014). Hence, the reformation of the tax and transfer system is
regarded as vital in attaining the economic goals such as promoting efficiency, equity and
simplicity. The tax brackets provides a way to share equity. Tax reformations is aimed at
making the a stronger economy and a fairer the society, fairer while the tax system is
simpler. Ever since coming to the office, the government has made the tax reformation as the
priority (James, Sawyer and Wallschutzky 2015).
Margi, I am going to stop correcting your written English at this point. I strongly
suggest you get some help with proof reading or editing before you submit the final version.
Contact student services for any help they can give.
Tax systems and approaches of reformation:
The tax companies in Australia are either the domestic Australian companies or
foreign companies (Saad 2014). Incorporation in Australia is considered important for the
purpose of domestic laws. If the company is incorporated in Australia and it is treated as an
Australian company notwithstanding of whether the company is carrying its business on
somewhere else and its central management and control is located out of Australia with its
voting power is regulated by the shareholders living out of Australia. The taxation system is
regarded as the vital driver of fair and wealthy society. . Improving the domestic tax system is
considered as the powerful manner of pursuing wider goals of reformation. The approach of
government is to form the economy stronger.

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The company income tax continuous to remain an important enigma to the
government. This is because of the views shared by the coalition government states that
businesses can make a better use of corporate tax. The coalition government argues that a tax
cut would help in boosting investment, jobs and wages. (Burkhauser, Hahn and Wilkins
2015). Following the decade of scholarly debate as well as analysis, vital questions regarding
the incidence and effects of tax continue to remain unresolved. The business income tax lay
down the cornerstone of capital and business income tax system. This is because the
corporate profit is considered as the relevant economic income base for evaluating the impact
of effective corporate tax rate. Furthermore, it forms the conceptual base on which the
income tax is imposed.
Common reference to tax reformation catalogue approach:
Apart from the individual, taxes are commonly imposed on the companies. During the
year 2010-2011 companies constituted 5.3% of the overall tax returns that were lodged.
Another most common type of chargeable entity is the SMSF that lodged approximately
2.5% of the returns (Rimmer, Smith and Wende, 2014.). Majority of the companies and
SMSFs are considered as the micro-entities whose overall business income ranges between
$1 million to $2 million. One of the most common vehicles that hardly attracts any tax
liability is trust which only lodged 4.9% of the returns during 2011.
Obligatory or the optional system:
A business which fits inside the definition of the taxable company would be treated as
“company” for the Australian income tax purpose. As a rule, it is necessary to categorize the
particular forms of entity (Mintz et al., 2017). Subject to three types of exceptions, it becomes
impossible for the companies to be elected or classified as assessable or transparent. Firstly,
where any form of election is made to consolidate under the group of totally owned

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companies the subsidiarybestiary company under the group lose their status of separate entity
for the purpose income tax and can be essentially considered as transparent. Secondly, where
any limited partnership has been created prior to 19 August 1992 or alters its composition 19th
August 1992 between years of income and decides under section 94F, ITAA 1997 it will not
be considered as the corporate limited partnership. As discussed a corporate limited
partnership is generally considered taxable entity. The third election is associated to the
hybrid foreign limited partnerships.
Business taxation- form, base and rates:
Following the mixed results from the previous rounds of business tax reformations,
there are considerable amount of grounds that remains to be covered for business taxes under
the current review (Tran-Nam 2015). As explained above, the main driver for the capital tax
is related with the lower economic growth. An important strategic need is to sustain the
international economic competitiveness. At the wider levels there are three interrelated
issues. At first it is necessary understand the important tax base.
Particularly, the reformation is largely aimed at considering the relative merits of
income and expenses of tax base. Even if any form of income tax base is retained, then it
becomes clear that majority of the countries have substantial amount of concessions for
physical investment (Eccleston 2013). Additionally, there are huge portion of investments
expenditure particularly associated to intangibles which is already expensed and ultimately
raises objectivity questions. The second question is what should be the appropriate rate of tax.
The statutory rate certainly impacts the marginal decisions and issues, such as profit sharing.
Debate on this issues has from a very long time focussed on the international comparisons.
This is not generally considered helpful since a wide range of taxes are in place.

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Thirdly, what taxes must be applied on the distributed profits. Majority of the
company’s tax systems has shifted from imputation arrangements. An important factor to
stress is the treatment of growing international operations of companies that lowers the
franking capacity (Tran-Nam 2016). These issues is closely associated with each other. In
addition to this, it is also related to the design of personal tax system. The most common
pattern that is followed internationally is to set the company tax rate below the highest
personal tax rate and provide partial relief but no individual imputations. The base of income
is generally retained in majority of the countries, nevertheless with considerable amount of
diversity under the detailed base specification.
I like the points that I am reading here but I haven’t yet seen the connection between
them and the proposal. Yopu must try to make the connection explicit so that I know why you
are writing about these things in the context of the assignment question.
Delivering radical simplificationIntroducing Mandatory Disclosure Regime (MDR):
As per the action 12 of OECD’s BEPS action plan it recommends a framework for the
countries that are wishingdesiring to impose a mandatory disclosure regime for tax schemes.
As the part of federal budget in 2017-18 the Australian government announced that it would
adopt the mandatory disclosure regime. The proposedsuggested Australian MDR would
require the tax advisers and taxpayers to provide early disclosure of aggressive tax planning
arrangement by offering ATO with the timelyappropriate information regarding arrangement
which has the ability of undermining the integrity of Australian tax system. The government
in a bid to improve fiscal transparency has also announced the adoption of Extractive
Industry Transparency Initiative in Australia. In 2016 the government announced that it
would join EITI, as the initiative of improving the transparency aroundabout revenues
produced from natural resources. Radical simplification of tax system can be considered as

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the important under the context of very wide ranging reformation procedure of business tax.
Simplification of the tax transfer system can help in serving three main purpose of lowering
the cost of resources relating to administration, compliance and business and financial
planning (Broschek 2014). This will help in improving the transparency and political
understanding of the taxation system. Business operating domestically will have reduced risk
and uncertainty for both the taxpayers and transfer recipients.
There are large drivers of complexity. The Australian taxation system is considered
very much complex in the world. The main reason for the complexity is vast, comprehensive,
multiplicative and specific roles in Australia is given to assessment of income (Gurran and
Phibbs 2015). Arguably, this reflects the exceptional amount of political emphasis in
Australia on the vertical equity question, even to the point where several horizontal equity
measures have vertical rules of equity imposed on them. It further reflects the compound
objective and ad hoc development of numerous individual elements of system.
Reflecting on the root and branch ambition of the reformation, the main question that
is faced by government is whether radical simplification can be considered possible. Any
kind of approach to this can result in very strong regard to three purpose of simplification. It
is not feasible to go for the simplification options that simply attains single purpose at other
expense (Braithwaite 2017). For example, new technologies might point toward those taxes
that are complex which can be assessed and collected through the tax collecting agencies
without any kind of direct work or participation from taxpayers.
The cash flow corporate tax alternative:
If objectivity is regarded as the touchstone for reformation of the business tax, it is
also necessary to consider much simpler and highly effective cash flow tax alternatives. The

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cash regarding the cash flow tax as the most preferred alternative tax reformation procedure
was strongly argued by the leading advocates of the new view (Murray 2014). In the current
tax reformation option the corporate tax alternative has been seriously considered by
government.
Under the cash flow tax, the changing effect in favour of corporate retention over the
distribution would remain. The distortion in favour of debt over the equity can be reversed by
adopting the cash flow tax alternative for the corporates (Halligan 2017). In case of debt
financed investment, non-corporate companies may be favoured while for the equity
financing investment, corporate companies would enjoy a tax preference on the retained
earnings. There is a very little sign regarding the objectivity advantage that the business may
expect from the cash flow tax alternatives.
From the perspective of equity, adopting this hybrid approach, act as the vital
backstopping role for business profits tax since imposing tax on those capital gains coming
from retained earnings is usually abandoned (Miller and Orchard 2014). For a country like
Australia which is mainly involved in capital importing, an additional important function of
classical system is to act as the source of country on the foreign direct investment flow of
income. The cash flow tax on the contrary cannot be considered creditable under the long
international treaty conventions. For the companies that have the foreign ownership and
control and also being the resident in foreign tax credit nations, the full amount of double tax
would be applied on the repatriated dividends. As the part of much wider business tax
reformation package concerning the complete replacement of the income tax with
expenditure tax, the cash flow business can be recognized well.
The “new view of dividends:

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This supportive proposal appeared, but was fully overturned during the emergence of
later half as the “new view” of dividends which posed a direct challenge on the traditional
view. Under the traditional view of dividends, it is regarded as a second round of tax at the
private level which creates economic misrepresentations and inequities recognized in the
standard critique (Stiglitz 2014). As a result, there is an important assumption that the taxes
levied on dividends can be avoided based on certain private or social costs with the help of
market adjustment of numerous types. Under the “new view” there is an important
assumption that dividends will be trapped and second round tax becomes difficult to avoid.
Under the “new view” examination it was demonstrated that on certain forms of
simplifying assumptions the “second round” tax on personal income and on dividends can be
easily capitalized under the lowest price of current equity shares (Barkoczy and Wilkinson
2019). As a result for the domestic companies, the rate of return for the marginal investment
financed from retained earnings would completely remain unaffected by the corporate tax.
Under the new view, based on this assumption, the classical system of company tax is very
highly non-distorting. Particularly, it would combine the feature of the tax based on the
normal rate of return to the equity capital, taxes on economic rents, one-off taxes on the
corporate equity capital and if needed a source country on foreign direct investment.
If the new view is applied then there is a little call for integration while the tax credits
on dividends would eventually lead to windfall gains on the current shareholders. A limited
amount of deduction may however be permitted for the new issue of shares so that they can
avoid the likely discrimination against the start-up domestic companies (Miller and Oats
2016). It can be regarded as a small step from the non-view towards an ideally non-distorting
tax on the economic rents that can be attained by permitting deduction for the imputed cost of
equity capital. With the help of this approach, company tax can be limited to only pure profits

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or economical rental elements, whereas the normal returns to capital will not be any more
taxed.
On a general note, it appears very clear that the assumption needed for the new view
does not hold. As a matter of fact, the double taxation on dividends can be easily avoided in
wide variety of ways including the repurchase of shares, leveraged buyouts, mergers and
surplus stripping. Wide ranging and difficult reformation of business taxes would be needed
if the government wants neutrality.
Conclusion:
On a concluding note, comprehensive policy review by the government can be
considered as worthy in opening the possibilities of constructive change which the
incremental procedure will fail to deliver. The government can do this in several ways such
as improving the understanding regarding the challenges that are faced by the economy and
society. The government can also renew the system wide vision so that objective of the
program is clarified and aligned in a better way. Expanding the time horizon of the policy
emphasising on the investment under critical structural requirements.
While the current view of government in reforming the business taxation is still in the
early stage, it is presently the goal of the government to contribute towards effective policy
formulation. Circumstances have changed significantly following the proposal of the
reformation as financial, economic and social conditions have now become much more
challenging.

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References:
Barkoczy, S. and Wilkinson, T., 2019. Suggestions for Reforming Australia’s Early Stage
Investor Program. In Incentivising Angels (pp. 99-107). Springer, Singapore.
Braithwaite, V., 2017. Taxing democracy: Understanding tax avoidance and evasion.
Routledge.
Broschek, J., 2014. Pathways of federal reform: Australia, canada, germany, and
switzerland. Publius: The Journal of Federalism, 45(1), pp.51-76.
Burkhauser, R.V., Hahn, M.H. and Wilkins, R., 2015. Measuring top incomes using tax
record data: A cautionary tale from Australia. The Journal of Economic Inequality, 13(2),
pp.181-205.
Chen, D. and Mintz, J., 2015. The 2014 Global Tax Competitiveness Report: A Proposed
Business Tax Reform Agenda. University of Calgary, The School of Public Policy–
University of Calgary Publications Series, 8(4).
Eccleston, R., 2013. The tax reform agenda in Australia. Australian Journal of Public
Administration, 72(2), pp.103-113.
Gurran, N. and Phibbs, P., 2015. Are governments really interested in fixing the housing
problem? Policy capture and busy work in Australia. Housing studies, 30(5), pp.711-729.
Halligan, J., 2017. Reform design and performance in Australia and New Zealand.
In Transcending New Public Management (pp. 55-76). Routledge.
James, S., Sawyer, A. and Wallschutzky, I., 2015. Tax simplification: A review of initiatives
in Australia, New Zealand and the United Kingdom. eJTR, 13, p.280.
Miller, A. and Oats, L., 2016. Principles of international taxation. Bloomsbury Publishing.