1 Head, Taxation Issues of the 80s (1983, Australian Tax Research Foundation)Google Scholar.

2 Kay and King, The British Tax System (1978), 1Google Scholar

3 This is easy because capital is the present market value of a future income stream and, by definition, one can always be arbitraged into the other.

4 (1987) 163 CLR 199.

5 Fully analysed in Grbich, New Concepts Drive the Australian Income Tax (1989) 2 CBLJ 1.

6 Most particularly, the “temporary” asymmetry between top marginal rates and the company rate.

7 Treasury Economic Paper No 12 (1986), “Some Economic Aspects of Takeovers”, 8ff.

8 What they really mean, of course, is that we should not partially disallow deductions for high gearing.

9 The argument in this part of the paper is a shorter version of arguments advanced in a forthcoming paper from the Taxation of Corporate Debt intensive weekend workshop entitled Grbich, Interest on Debt Financing; With Particular Reference to Deductability, soon to be published by Longmans

10 This refers not so much to lower overseas interest rates as to the generous tax treatment of overseas debt (often limited to 10% or even zero “witholding tax”.

11 Bryan, “Leveraged Buyouts and Tax Policy” (1987) 65 North Carolina LR 1039.

12 Taxation of Corporate Debt intensive weekend workshop entitled Grbich, Interest on Debt Financing; With Particular Reference to Deductibility, soon to be published by Longmans.

13 At 9. While this argument was directed mainly at the inherent bias involved in the double level of taxation involved in the old, classical system of company taxation (an argument which is vigorously attacked by Andrews, “Tax Neutrality between Debt and Equity” (1984) 30 Wayne LR 1057), it is also based on wider assumptions.

14 at 10; See the way the argument is constructed simply glosses over the critical question in all its assumptions and the way in which the later analysis of imputation (correct in itself) simply glosses over the tax arbitrage potential of debt deductibility.

15 Dixon, CJ in Commissioner of Taxes (South Australia) v Executor Trustee Co (Carden) (1938) 63 CLR 108, 152Google Scholar.

16 LR 1039, 1041.

17 This is hardly an argument, since we would want to apply the same critical analysis to geared purchases of assets.

18 (1983) 14 ATR 629.

19 Historically the US gave an open-ended deduction for interest. This merely pushed the inevitable definitional problem to the issue of whether an expenditure was “interest” and the artificial problems involved were just as severe. After much criticism, this attempt was finally abandoned in, ironically, 1986 when the US moved largely into line with Australia.

20 At 17.

21 eg residence, source, all manner of deduction items (whether spending was for income earning property), attribution of income from labour.

22 For example, apply it to questions of whether money spent on books or education or travel or amounts spent on defending employees is deductible. Acceptance of this silly argument would make most of the case law on deductions and capital/income issues otiose.

23 See the detailed refutation of the argument by the eminent economist Richard Bird, “Comment on Tax Arbitrage” (1984) 30 Wayne LR 1016. He analyses the different objectives of income definitions used by various policy makes and notes “there is no reason at all why what is done for one purpose has anything to do with what is, or should be done for another”. More specifically, the fact that “interest flows are unrelated to the production of income” is no more relevant for interest than it is for rent, transfer or capital gains. In other words, this is the elementary error of the first year law student.

24 At 9.

25 At 22.

26 At 19.

27 See analysis in Bryan, “Leveraged Buyouts and Tax Policy” (1987) 65 North Carolina, LR 1039, 1041.

28 Bale, G., “The Interest Deduction to Acquire Shares in other Corporations: An Unfortunate Welfare Subsidy: [1983] Canadian Taxation 189Google Scholar.