Where do you get the idea that Australia doesn't tax profits from short selling? I'd imagine most short sellers would be share traders and therefore their profits from short selling would be taxable as part of their business activities. In fact share traders may get burnt taxwise if caught short at the end of the tax year as the ATO considers that they cannot claim a deduction for the notional cost of acquiring the shares they have short sold as the cost has not been incurred at the end of the financial year.
For non-traders I am pretty sure that it shouldn't be too hard for the tax office to find a capital gains tax asset and a capital gains tax event that applies.
