Bryce JH Denison
National President
22 December 1998
Mr. John Ralph AO
Chairman
Review of Business Taxation
The Treasury
Parkes Place
Canberra ACT 2600
Dear Mr. Ralph
The Group of 100 supports the objectives of your Committee to reform the system of business taxation. We believe that a system based on sound principles is essential on economic efficiency grounds and to achieve equity and fairness between different groups of taxpayers.
The Group of 100 supports proposals to remove differences between reported profit as measured in accordance with Accounting Standards and the basis of determining taxable income. We encourage your Committee to work towards using accounting profit as the taxation base and to encourage debate on the implications of movement in this direction.
While supporting these proposals the Group of 100 has some concerns about the impact of some Accounting Standards on the taxation status of entities in these circumstances. For example, the requirements of AASB 1038 "Self-Generating and Regenerating Assets" requires the recognition of unrealised changes in market value of, say, forests to be recognised as revenue in the profit and loss account. Similar concerns arise in respect of the trend towards the use of fair/market values for certain types of financial instruments.
Balancing these concerns is our belief that reforms along these lines would lead to amortisation of goodwill and intangible assets being deductible for taxation purposes. Tax recognition for these expenses would remove a major competitive impediment to Australian entities in bidding against foreign entities as has occurred in respect of the privatisation of infrastructure assets. We understand that foreign entities in some jurisdictions can obtain tax relief for amortisation and are therefore better placed to pay higher prices for these assets than Australian entities. Consequently, this impediment places Australian companies at a competitive disadvantage. Similar concerns apply in the context of other acquisitions.
Yours sincerely,
Bryce JH Denison
National President
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