Dale Boccabella, an Associate Professor of Taxation Law at the Australian School of Business has made a submission to the federal government's Business Tax Working Group which is currently examining ways of improving the treatment of tax losses.
He says "the potential damage to the integrity of the system of income tax, and the damage to the public's confidence in the tax system are significant. The new proposal to allow "unlimited trafficking in tax losses", which is in effect permitting the tax-payer to move their tax loss where they like, is the equivalent of allowing people to purchase their way out of a tax liability. This is bad policy, and could give rise to considerable abuse of the system."
The Business Tax Working Group was established at the tax forum back in October 2011. The consultation paper issued by the Business Tax Working Group is currently considering a range of options to improve the tax treatment of business losses, including carry-back of losses to previous years so taxpayers obtain a refund of previous taxes, and indexing the amount of losses so that the real value is maintained under the present carry-forward model.
Associate Professor Boccabella says "various options are being considered: the most controversial one is to remove the current limitations on the ability to effectively transfer tax losses housed in trusts and companies to new purchasers of equity. In effect people would be able to move around the tax losses. The loss to public revenue would also be significant, and if implemented it is likely to be abused."
"At the moment, the circumstances where the tax law does tolerate trafficking in tax losses are very limited, for instance where a company continues to operate the same business after a change in ownership. The unlimited trafficking option canvassed by the Business Tax Working Group would go well beyond this, and while some companies may welcome it, taxpayers in general certainly would not."
He adds "of course, because of the downsides, the option may not be implemented, at least in the short-term. On the other hand, many "reforms" find their way into our tax law even though they look bad against a number of tax policy criteria."
For comment please contact Dale Boccabella on 02 9385 3365 or 02 9874 2539 or firstname.lastname@example.org.
02 9385 3365 or 9874 2539
Address Australian School of Business,
University of NSW