RDP 9012: Some Calculations on Inflation and Corporate Taxation in Australia 6. Conclusions

The calculations presented in this paper indicate that the interaction of inflation and the tax system produces significant distortions in the assessment of corporate income and corporate tax liabilities. In aggregate, these distortions result in a somewhat higher tax burden from inflation. The burden falls primarily on investment in depreciating assets (plant and equipment) and on stocks. On the other hand, investment in appreciating assets (such as buildings and land), particularly if acquired with debt, may be favoured by lower taxation than if their real profitability were accurately measured.