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19 Austl. Tax F. 3 (2004)

handle is hein.journals/austraxrum19 and id is 1 raw text is: Evidence of Taxable Income Management in Corporate Australia David A. Davenport and Alfred V. Tran* Abstract This study provides evidence of an instance of tax planning in corporate Australia. Tax rules allow firms to shift taxable income to an earlier year by using the inventory valuation options. In the year 1996, the corporate tax rate rose from 33 percent to 36 percent. Firms were predicted to elect the inventory valuation options so as to accelerate the recognition of taxable income in 1995. Further predicted was the acceleration of inventory purchases in 1995 to increase the magnitude of tax savings. The evidence from listed firms in the Connect4 Annual Report Database confirmed that firms with inventory holding responded to the rise in the corporate tax rate by shifting taxable income from 1996 to I 995. These firms also displayed a significant increase in inventory levels from I 994 to 1995. Liquidity, interest cost and tax losses were not found to inhibit the taxable income shifting behaviour. Key words: Taxable income management, inventory valuation options, future income tax benefit * Dr Alfred Tran, CPA, is a Senior Lecturer at the School of Business and Information Management, The Australian National University. David Davenport completed a Bachelor of Commerce degree with Honours from The Australian National University. The authors wish to thank Catherine Ikin and the participants of the 2003 Conference of the Accounting and Finance Association of Australia and New Zealand for their helpful comments. The financial assistance of the Faculties Research Grants Scheme of the Australian National University is gratefully acknowledged. This article was accepted for publication 27 October 2003.

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