Australian Taxation Office Research Articles

Regulation of the Not-for-Profit Sector

Over the last decade, the not-for-profit sector has been the subject of a number of reviews which resulted in the enactment of the Australian Charities and Not-for-profits Commission Act 2012 (Cth) ('the ACNC Act'). This legislation introduced a national regulatory system that promoted accountability, good governance and transparency. It also established a new regulator, the Australian Charities and Not-for-profits Commission ('ACNC'), which commenced operation on 3 December 2012.' Prior to this change, Australia did not have a regulatory regime that dealt uniformly with not-for-profit ('NFP') organisations. In fact, the Commonwealth, states, territories and local governments regulated different parts of the NFP sector and each had a different approach to regulating the NFP organisations. The role of the Australian Tax Office ('ATO') focused on determining tax concessions regarding charities.

Offshore Tax Evasion and Tax Reform – A Multilateral Perspective

This article seeks to examine the resources available to the Australian Tax Office in addressing the issue of offshore tax evasion through the use of tax havens. The discussion is made from a domestic law perspective such as audit powers, as well from an international perspective, via the use of tax treaties for exchange of information. The problems associated with bank secrecy rules are also covered.

Modernizing the Australian Taxation Office (ATO)

The ATO transformed itself into a pre-eminent tax administration over a period of 20 years. It changed from an unremarkable administration into a thought leader on tax administration globally. It did this through inspired and inspiring leadership and the engagement, commitment, innovation and integrity of the ATO’s people. This paper chronicle’s the ATO’s transformational journey and highlights key areas of focus, particularly the importance of alignment in values and engagement to achieve breakthrough improvements.

Testing the importance of forgiveness for reducing repeat offending

Braithwaite’s (1989) Reintegrative Shaming Theory has gained worldwide popularity in criminology. The main focus of the theory is on shaming as a tool for reducing repeat offending. However, recent criticisms levelled at the theory have questioned the effectiveness and reliability of shaming for reducing re-offending, particularly in Western jurisdictions. Some scholars have suggested that the reintegrative notion of forgiveness may prove a more effective strategy for reducing repeat offending. In response to these suggestions, this study will examine whether forgiveness might offer an effective approach for reducing recidivism among tax offenders. Using survey data collected from tax offenders who had been caught and punished by the Australian Tax Office, it will be shown that stigmatizing shaming had no direct impact on their subsequent compliance-related behaviours. Instead, stigmatizing shaming served to displace taxpayers’ sense of responsibility for their wrong-doing. Forgiveness, in contrast, was found to play an important independent role in reducing taxpayers’ repeat offending, and for increasing their cooperation with the tax authority. These results have important implications for both the theory of reintegrative shaming and for public policy, particularly in relation to identifying strategies that effectively and reliably reduce repeat offending.

Turning gambling silver into tax gold?

This paper is on the topic of gambling winnings and how silver (coin/money) can sometimes, if the correct set of circumstances exist, be turned into tax gold (tax payable to the Australian Tax Office). This is a topical issue due to some recent publicity in Australia about the so called Punters’ Club and their reported annual profit of $50 million gained from some $2 billion worth of bets placed annually and how the Australian Tax Office (ATO) is looking to tax the 19 identified members of this ‘club’ on their respective share of these winnings. These club members are of course choosing to ‘gamble’ against the ATO that they should not be taxed. The paper looks at the various approaches taken by Australian courts over the last century to the issue of whether gambling wins are assessable and highlights that of critical importance to the resolution of this issue is whether the gambling activities are carried on in the form of a business activity in a systematic and organised manner and whether the gambling activities involve a significant element of skill as opposed to mere random outcomes. The paper also considers the approaches to gambling cases taken in other similar tax law jurisdictions to Australia, such as the United Kingdom, Canada and New Zealand, in order to reveal common threads applicable to judgments across these different jurisdictions. Based on the principles of case law identified, the paper also considers the likely ‘chances’ of the Punters’ Club’s success in its arguments against the ATO.

Apportionment of Dual-Purpose Expenses

This article examines a particular type of dual-purpose expense – one which can be linked both to the derivation of assessable income and to the generation of a private benefit. On what basis should a taxpayer be able to claim a deduction for such an expense? Significant difficulty and uncertainty underlie the apportionment process that is applied to such an expense by the courts, the Administrative Appeals Tribunal and the Australian Taxation Office. The process provides little practical guidance to taxpayers on how to apportion dual-purpose expenses. In addition, a tension exists between the apportionment process and the threshold issue of characterisation or ‘relevance’ of dual-purpose expenses. This article examines these issues and suggests some clear principles that should be applied to the task of deducting dual-purpose expenses of this kind.

Corporate social responsibility and tax aggressiveness: a test of legitimacy theory

Purpose – The purpose of this paper is to empirically test legitimacy theory by comparing the corporate social responsibility (CSR) disclosures of tax aggressive corporations with those of non‐tax aggressive corporations in Australia.Design/methodology/approach – A unique sample of 20 Australian corporations accused by the Australian Taxation Office of engaging in tax aggressive activities during the 2001‐2006 period was hand‐collected. These 20 tax aggressive corporations were then matched with 20 non‐tax aggressive corporations (based on industry classification, corporation size and time period). This process generated a choice‐based sample of 40 corporations for empirical analysis. Using content analysis techniques, financial accounting data were gathered from the Aspect‐Huntley database and CSR disclosures were individually measured for each corporation in the sample. Various statistical techniques were then used (e.g. paired sample statistics, Pearson correlation analysis and ordinary least squares r...

Using the Income Tax System as Your Hedge Counterparty

A strain of the academic literature on taxation and risk taking emphasizes the income effect and consequent transfer of risk to government through the income tax system in the presence of scaling of risky positions. The policy implications of this literature have been explored in considerable detail, although the practical significance for tax policymakers is ambiguous given the tax and non-tax constraints on scaling under the personal income tax. In contrast, fragmentary transactional evidence suggests that scaling of risky positions may have its most practical application in the context of corporate hedging transactions where many of the same tax and non-tax constraints do not apply. In fact, risk-transfer transactions in this very different context have been the subject of some recent attention by tax policymakers and tax administrators. This paper explores the case for, and design of, a targeted loss limitation intended to address the transfer of risk to government that otherwise is the result of hedged positions that are scaled to provide imperfectly offsetting pre-tax cash flows but perfectly (or near perfectly) offsetting after-tax cash flows. Although the case for such a limitation extends broadly to the entire range of such transactions, perceptions of costliness associated with the identification exercise, as well as perceptions of a negative impact on the decision to hedge, may lead to a more narrowly focused loss limitation patterned on legislation recently adopted by UK Inland Revenue. For the much more limited subset of risk-transfer transactions that are entered into for the purpose of providing a tax benefit, narrowly construed, general anti-tax-avoidance rules and/or doctrines can provide an effective response. An example of this type of transaction is the asymmetric swap that is the subject of a taxation determination recently released by the Australian Taxation Office ('ATO').

The Effective Use of Analytics in Public Administration: The Australian Taxation Office Experience

ATO's Risk Management approach is to actively manage all risks and issues that may compromise business outcomes or community confidence in the fair and effective administration of Australia's tax and superannuation systems. Analytics is used to predict and analyse areas of risk and emerging patterns in behaviour, allowing the ATO to better allocate resources to engage, support, protect and champion the vast majority of taxpayers who exhibit good citizenship. The power of analytics is fast becoming central to supporting and protecting taxpayers, tailoring service delivery and operating an efficient tax and superannuation administration.

Best Practice in Public Administration

In times of uncertainty an important stabiliser in Australia is sound, balanced and capable public administration. This paper is centred in the context of the administration of the tax and aspects of superannuation laws in Australia. However, the theme that frames my comments is one of design. At the Australian Taxation Office (ATO) we take the view that a critical element of best practice public administration is to genuinely include the community in the design and operation of administrative systems. In this way we try to put the citizen at the heart of our administration.

Child Support System of Australia

Child Support System of Australia

Small Business Redefined: A Quasi-Linear Fuzzy Classification of Firm Size

The quasi-linear fuzzy modeling of Filev (1991) is used to estimate the relationship between the number of managers and employees in a firm. The results form the basis for the classification of firms into small and large businesses. Application to a data of Australian firms shows an evolution episode during which firms are driven by various transitional forces. The composition of the transition region suggests that the 2011 small business tax-break cap set by Australian Taxation Office falls short of fully supporting growth as intended. The implications pave the way for improvement to the business tax code aiming at growth and job creation.

Advance Pricing Arrangement Reform in Australia: Was It Worth the Wait?

In June 2007, the Australian Taxation Office (ATO) announced that it had tendered for an independent review to evaluate the role and performance of its Advance Pricing Arrangement (APA) Program. Following the submission of the Review Report in 2008, the ATO took steps to co-design, together with industry representatives, a more efficient and effective system that would satisfy the needs of both internal and external stakeholders and be sustainable in the long term. The revitalized APA Program was finally introduced in March 2011. This article will discuss and analyse the efficacy of the changes brought about by the new Program.

The impact of tax professionals upon the compliance behavior of Australian individual taxpayers

The tax compliance literature indicates that limited research attention has been given to gauging the influence of tax professionals upon individual taxpayer compliance behaviour. This potential gap in the literature needs to be addressed given that tax professionals not only act as intermediaries between the Australian Taxation Office (ATO) and the majority of individual taxpayers but they can directly influence taxpayers’ ethical behaviour and the level of compliance.This empirical study explored whether or not a relationship exists between the advices provided by tax professionals and the compliance behaviour of Australian individual taxpayers (both evaders and non-evaders) taken from the taxpayers’ perspective. The findings revealed that there was a statistically significant relationship between the need for engaging tax professionals and compliance behaviour generally. There was also evidence of a statistically significant relationship between tax professionals’ aggressive advice and the compliance behaviour of non-evaders. It is envisaged that this study’s results will provide useful information for the Australian Taxation Office and have implications for tax policy development.

Judicial review of the Accountants’ Concession: a case for improving tax administration and accountability

Judicial review of the decision of the Australian Taxation Office (‘ATO’) to lift the Accountant’s Concession has proved a fruitless and expensive exercise for taxpayers. The Accountant’s Concession lays down administrative arrangements restricting access to papers prepared by professional accounting advisers. While it has been suggested reliance on ‘exceptional circumstances’ to lift the concession best serves capital and tax markets, elsewhere it has been argued that the concession must be rethought if the policy of enabling full and frank disclosure is to be achieved. This article examines initiatives aimed at shielding tax advice of accountants from the Tax Commissioner’s coercive access powers under the Income Tax Assessment Act 1936 (the ‘Act’) and elevating the current administrative arrangement into the statute. This would make the limited procedural legitimate expectation a substantive procedural right. This would remove the different treatment of lawyers and accountants offering tax advice and eradicate the delays and uncertainty associated with the separate tax advice privilege recommended by the Australian Law Reform Commission.

Aid/Watch and the Public Benefit of Advocacy for the Extra-territorial Relief of Poverty

The disqualification of Aid/Watch as a charity and the High Court of Australia's subsequent decision shines a spotlight on the common law definition of charitable activity. The Aid/Watch decision enables charitable organisations to legitimately advocate for more efficient implementation of government policies on the relief of poverty and for the advancement of education and religion, without fear of reprisal. 
 
 Initially we comment on the inherent tension the Australian Taxation Office experiences as a result of its status as a government department, its responsibilities to administer revenue collection and its role interpreting charity law. We then discuss the common law definition of charity and the Constitutional basis for the High Court’s decision in Aid/Watch. To conclude we outline areas of uncertainties but also potential benefits to charitable organisations which are relevant for any proposal to define ‘charitable organisation’.

Bank-Originated Securitizations: Australian Taxation Office Publishes Technical Discussion Paper

The author considers the technical discussion paper published by the Australian Taxation Office on securitizations and the Taxation Laws Amendment (Taxation of Financial Arrangements) Act 2009.

Ruling on Transfer Pricing and Business Restructuring

The author considers Taxation Ruling TR 2011/1, which deals with the application of transfer pricing provisions to business restructurings of multinational enterprises where cross-jurisdictional transfers of functions, assets and risks of businesses occur. In this Ruling, the Australian Taxation Office reiterates its long-held position that Div. 13 of the Income Tax Assessment Act 1936 and Art. 9 (associated enterprises) of Australian income tax treaties are both based on the arm’s length principle, so there should be no fundamental inconsistency in the outcomes under the two sets of provisions.

Taxes, tenders and the design of Australian off‐market share repurchases

AbstractIn designing off‐market (self‐tender offer) share repurchases, Australian companies must consider the resulting potential tax benefits for different investor groups with consequent effects upon the supply of stock tendered by holders and the ultimate tender outcome. We develop and estimate a model of the stock supply curve that demonstrates less than perfect elasticity and incomplete tax arbitrage arising from ‘participation risk’ for potential arbitrageurs. We are able to estimate the extent of disequilibrium in prices involved in fixed‐price repurchases and show that it is substantial. We show that Australian Tax Office restrictions on the tender price range for Dutch auctions have meant that non‐participating shareholders have foregone some potential benefits through the transfer of tax benefits to (primarily institutional, low tax rate) successful tender participants. The results provide support for legislative changes proposed in 2009 (but not implemented as of mid 2011), which removed constraints on the allowable range of repurchase prices.

Company Births, Deaths and Marriages: Flaws in Age Fields in Business Microdata

In identifying gazelles (generally defined in the literature as young, fast growing businesses) researchers traditionally rely on commercially available databases not designed for scholarly work, to identify a pool of suitable study participants. This paper discusses systemic biases in the most commonly-deployed databased used in gazelle studies, the Dun and Bradstreet database, with a focus on the Australian market.