Tax experts welcome judge’s comments on retrospective laws

Tax experts have welcomed comments made by Federal Court judge Michelle Gordon who said yesterday that retrospective tax law is not only hurting taxpayers but may be making foreign investment less attractive.

Retrospective tax has been a hot issue among experts, who suggest applying backdating rules is unfair for small business.

Gordon said at the University of Melbourne law school this week that these retrospective laws are hurting investment.

“If the Commonwealth’s position is that taxpayers should order their affairs subject to the Commonwealth’s overriding right to subsequently enact retrospective legislation at a time and of a kind of its choosing,” she said, then “the consequences (legal, economic and otherwise) .?.?. are simply too important to the future of this country”.

According to The Australian Financial Review, Gordon said these laws could exaggerate the consequences of certain laws, although refrained to specify individual rules as that would be “inappropriate”.

However, small businesses are already familiar with retrospective tax law changes.

The biggest case has been the transfer pricing rules, changes to which were passed by Parliament last week.

But there have also been changes proposed to anti-avoidance laws. CPA Australia policy head Paul Drum told SmartCompany this morning these types of laws could very well be hurting Australian investment.

“We simply don’t know, but it could be,” he says.

“These two examples could have ramifications for business decisions. Business is all about risk and risk mitigation. Fully informed decisions are necessary – and some rule changes could shake the foundation of certain business choices.”

Paul Stacey, tax counsel at the Institute of Chartered Accountants, says the concern is that foreign investors will see Australia as a less attractive option.

“This is an argument we have sympathy for,” he says.

“Australia is a capital importing country, in particular for needs such as infrastructure development. Foreign investors are looking to invest for extended periods of time and they look for certainty.”

“They want a predictable tax environment. When that doesn’t exist, it becomes harder to attract capital.”