A QUESTION OF THE INTEGRITY OF THE DIVIDEND IMPUTATION SYSTEM WHEN CORPORATE TAX RATE CHANGES:AN AUSTRALIAN STUDY
By H. Khiem (Jonathan) Nguyen

This study examines the dividend imputation system adopted in Australia, one of a few OECD countries that still operate a full imputation tax system. The Australian government recently announced corporate tax rate cuts, providing an opportunity to study the potential effects that corporate tax rate changes may bring to an imputation tax system. This paper analyses the proposed changes to the imputation system put forward in the Treasury Laws Amendment (Enterprise Tax Plan) Bill 2016 and suggests that such changes could potentially cause distortions to the existing imputation system in Australia. The potential distortions include the discrepancy between the tax rate used in computing company’s tax liability and the tax rate employed as a basis for imputation, the additional tax payment required at domestic shareholder’s level upon receiving franked dividends, and the wastage of franking credits arisen from previous corporate tax payments. Furthermore, this paper suggests consideration of an extension period of four or five years, during which companies in Australia can still apply the imputation (franking) rate based on the 30% company tax rate in respect of the dividends paid out of the underlying profits that were previously taxed at the same rate of 30%.

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WHEN IS THE COMMISSIONER EMPOWERED OR REQUIRED TO NEGATE A GST BENEFIT?

By Cyrus Thistleton

Competently structured tax legislation tends to minimise tax avoidance by putting in place provisions, which may include specific anti‐avoidance provisions, to stop the abuse of the intent of each provision in the tax legislation, even when a scheme is devised to enable avoidance. Even though the policy intent of the legislation may be reflected in the wording of the legislation to a greater or lesser degree, it can be open to different interpretations or can be manipulated to suit the taxpayer’s preferred outcome. It is impossible for the legislature to foresee all possible tax avoidance arrangements and to enact a tax provision which has no loopholes for an indefinite period. Despite the existence of some specific anti‐ avoidance provisions1 to address particular schemes, general anti‐avoidance provisions are put in place to prevent artificial schemes which are designed, solely or principally, for the purpose of obtaining tax benefits by using these loopholes in a manner which is inconsistent with the intent of the legislature.

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OPTIONAL DISTRIBUTIONS UNDER NEW ZEALAND’S IMPUTATION AND RESIDENT WITHHOLDING TAX SYSTEMS

By James Murray

This paper reviews the taxation of optional distributions in New Zealand. Three types of optional dividend plan have been used: bonus election plans, dividend reinvestment plans and profit distribution plans. This paper also looks at share repurchases which are similar to optional dividends as they also give shareholders a choice between cash and shares. Originally each type of optional dividend was taxed according to its component transactions, but their taxation was subsequently aligned due to their economic similarity and to minimise opportunities for dividend streaming. However, although share repurchases are similar they are taxed differently, potentially allowing dividend streaming. Dividend reinvestment plans are the most common form of optional dividend used in New Zealand, despite profit distribution plans providing much higher levels of reinvestment. This paper identifies issues with calculating resident withholding tax (RWT) on taxable bonus issues and the misalignment of company, RWT and personal tax rates as possible reasons why companies are not using profit distribution plans.

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