REGULATING THE REGULATOR: ASSESSING THE EFFECTIVENESS OF THE ATO’S EXTERNAL SCRUTINY ARRANGEMENTS

By Sunita Jogarajan

In April 2016, the Standing Committee on Tax and Revenue (‘SCTR’) published its ‘Report on the External Scrutiny of the Australian Taxation Office’.1 The report was the result of concerns raised by the Australian Taxation Office (‘ATO’) that it faced excessive external scrutiny. The SCTR’s terms of reference focused on the issues of duplication and overlap of reviews, cost to government of the reviews, and differential regulation (whether the ATO had demonstrated good risk management and high standards of performance such that differential regulation permitted by the Public Governance, Performance and Accountability Act 2013 could be extended to reduce its external scrutiny). The SCTR found that the substantial external scrutiny placed on the ATO was warranted in light of the ATO’s considerable resources and power, and importance to the general system of government. However, the SCTR only touched on the effectiveness of existing external ATO scrutiny arrangements in its report, as this question was not within its terms of reference.

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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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