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EDITORIAL

The 2023 issue of the Journal of Australian Taxation is contained in Volume 25(1) and a
special edition focusing on New Zealand in Volume 25(2). The editors are very grateful for
the hard work and dedicated effort of the guest editor of the special edition, Associate
Professor Jonathan Barrett in attracting the excellent papers for the second volume in 2023.
The editors recommend that readers take particular note of the introduction to the special
edition written by Jonathan. He makes a very apt statement as to the role of tax academics in
the following comment:

In short, as tax researchers, we can and should be taking our research to the public to promote
general debate about taxation, and tax justice in particular. If we fail to stake a claim in that
space, others may take it.

The first volume, 25(1) consists of four articles covering a wide range of taxation topics. The
Editors are grateful for the contribution made by the authors in this edition of the journal,
especially Professor Brett Freudenberg for his ongoing support of this journal.

The first article by Melissa Belle Isle, Brett Freudenberg and Tapan Sarker explores whether
the internal resource of understanding business tax, financial statements and/or computer
accounting software (CAS) by small business owners is related to their business success in
the service sector. The results demonstrate that small businesses with a higher understanding
of business tax and CAS achieve a higher value of gross annual revenue, as well as net annual
income. These results are important in demonstrating the need for small business owners to
improve their understanding of business tax and CAS can aid the overall success of their
business. The authors examined the outcome of the data collected from 116 small business
owners to understand in more depth what aids or hinders an increase in small business
owners (SBO) literacy. The article provides a broad summary of the importance of the three
literacies for small businesses, namely the importance of cash flow management concerning
the SBO’s literacy of financial statements, computer accounting software (CAS), and
business tax. The authors clearly demonstrate through their research that these literacies are
important in the management of the cash flow of the business. The surveys explored what
may aid or hinder the development of these literacies for SBOs through the interview of small
business experts. From these interviews a number of key inhibitors were identified including
time, lack of business acumen, low training, cost, and the focus on producing business
records for tax compliance rather than management practices. From these findings, the
authors were able to provide recommendations that could assist SBOs to improve their
understanding of these three important areas.

The second article is written by James McMillan and examines the links between Indonesia’s
tax collection performance and the design and operation of its tax compliance system through
a study of the tax audit practices and procedures of Indonesia’s tax authority, the Directorate
General of Taxation. The article considers the distortionary effect of some features of
Indonesia’s tax compliance approach under which audits tend to be focused largely on
taxpayers who are already compliant and the fact that audit activities are narrowly focused
and not risk based. The article also considers ways in which the Indonesian tax authorities
could expand tax audit coverage and modify audit procedures and thereby increase the effectiveness of their compliance activities in the future leading to improved revenue
collection outcomes.

The third article is written by Dominic Breznik and an earlier version of this article was
awarded the 2023 Forsyth Pose Scholarship by the Law Council of Australia. The article
critically examines the legislation which applies Australia’s capital gains tax regime to
partnership assets and contends that the design is peculiar. Dominic contends that it diverges
from the general law by treating partners as holding fractional interests in partnership assets
while relying on the same general law to quantify these interests. The article argues that the
design of the CGT regime was influenced by an assumption that the general law recognises
partners as holding direct interests in partnership assets. Dominic demonstrates that
inconsistent elements in the regime’s design have produced confusion concerning the
meaning and application of its provisions. Finally, he proposes reforms to the legislation
which governs the regime and the primary Australian Taxation Office ruling that is relevant
to these issues.

The fourth and final article in this volume is written Lisa Marriott and Max Rashbrooke and
examines the different approaches to tax concessions for political donations in Australia and
Aotearoa New Zealand (NZ). In Australia, a tax deduction may be claimed for a moderate
donation to a political party. Conversely, in NZ no tax concessions are available for
donations to political parties. The study concludes that while there are several benefits of
using the tax system to facilitate political donations, the two different policies align with the
two countries general approaches to using the tax system to influence behaviour. An analysis
of tax expenditures is used to support this argument.

John McLaren and John Minas
Editors 2023

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Volume 25, Issue 01

EDITORIAL

John McLaren

EDITORIAL

There is one issue of the Journal of Australian Taxation for 2021. Volume 23(1) is the standard edition for each calendar year and consists of six articles covering a wide range of taxation topics. The year 2021 was still a difficult year with the Coronavirus pandemic continuing to have an impact on all of us involved in researching taxation law. It is heartening to see that tax academics, tax students and tax practitioners were able to find the inspiration to write about taxation issues during this period. The Editor is grateful for the contribution made by the authors in this edition of the journal.

The first article by Lidia Xynas and Alexander Xynas content that an expansion of the ‘purpose’ of taxation is to be supported where it is made to incorporate objectives of socially engineering human behaviours in those circumstances where government intervention is warranted. That is: to protect individuals and broader society from certain harms. The authors demonstrate that support for this extended purpose of taxation is based on three Pillars: Ethics, Law and Economics. This Article demonstrates how taxation can be a supported policy approach available to policymakers, and one which can still foster taxpayer confidence and acceptance.

The second article is written by Sashi Mohan and examines the concept of fairness in the taxation administrative system in India. This article discusses the views of around 30 interviewees, including retired ITD officials, former ITAT adjudicators, retired High Court judges, and tax practitioners, on fairness in tax assessments made by the ITD and adjudication at the levels of the CIT(A) and the ITAT. The article also references High Court caselaw supporting some of the discussed views. Hence, there is an immediate need to remedy the unfairness within the tax assessment process and at the level of the CIT(A).

The third article is written by Elizabeth Ng and provides a very comprehensive evaluation of the proposed changes to the individual tax residency rules as well as the current legal problems facing individuals in this area of taxation law. In the 2021-22 Federal Budget, the Australian Government announced that the current individual tax residency rules would be replaced with a new framework, which will be based on recommendations made by the Board of Taxation. The Proposed Reforms are based on a two-step model; a simple bright-line test as the primary test of residency, followed by more complex secondary tests if the primary test does not apply. A key focus of the Proposed Reforms is simplicity. The Proposed Reforms introduces a more targeted approach through the use of day-count tests, and four objective Australia-only factors. The author contends that the Proposed Reforms will meet the key policy objectives of equity, efficiency and simplicity to a large extent. The Proposed Reforms makes it easier for expatriates to determine their residency status and are a step in the right direction.

The fourth article written by Melissa Belle Isle and Brett Freudenberg provides a very comprehensive reports on their survey of small businesses in the service sector in terms of their literacy for financial statements, computer accounting software and business tax, and if there is any relationship between them. The results demonstrated that there was a linear relationship between them and that certain demographics were likely to have lower overall literacy. Their testing demonstrated that there was a lineal relationship between literacy scores. When overall LSs were compared with the demographics, it was found that those service SBOs with the highest overall literacy were migrants who had been living in Australia for between 10 and 15 years, had a postgraduate degree and had been operating their business for more than 10 years. The authors found that low overall literacy was common for non- employing service SBOs who had immigrated to Australia between 15 and 20 years ago, and who had been operating a business for less than 10 years. The authors provide recommendations to try to assist those demographics which appeared to have lower overall literacy in these areas.

The fifth article is written by Amna Tariq Shah and Ken Devos and critically investigates the tax implications arising from mergers and acquisitions of Australian firms. The article investigates the presence of potential tax advantages obtained by Australian-based firms through M&A transactions. The authors made ninety-seven observations, comprising M&A deals completed between 2005 and 2015. These transactions were investigated to statistically support and explain the potential link between M&A decisions and certain corporate tax advantages gained. The authors contend that the findings of their research suggests that when firms make profit-maximising decisions as part of an M&A deal, a potential reduction in tax can transpire from such transactions.

The sixth and last article in this edition is written by Lex Fullarton and Dale Pinto and is an updated report on the taxation and economic implications of using a Hybrid Plug-In Electric vehicle in a remote part of Australia. The article presents further findings from a case study that was conducted on a Mitsubishi Outlander Plug-in Electric Hybrid Vehicle (PHEV) in remote Western Australia from 2016–17. The original article is found at ‘The Impact of the Changing Technology of Motor Vehicles on Road Tax Revenue’ (2018) 20(1) Journal of Australian Taxation 26. That study is updated and extended in this article to October 2021.

This Article builds on a previously published paper and uses the same research approach. It continues the aim of encouraging the transition in Australia’s transport sector from internal combustion engines to electrically powered vehicles, in order to reduce the nation’s GHG emissions. It also aims to encourage road users, governments and tax administrators to become aware of the impact of changing road tax revenue structures to fund the development and maintenance of road networks. To fulfil those aims it reviews the impact electric powered vehicles might have on the tax revenue currently raised through the fuel excises levied on the owners of motor vehicles powered by fossil fuels.

John McLaren

Editor

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Volume 23, Issue 01