Week 1 Operating Framework of the Australian Taxation System
1. Nature of Tax
*FC of T → Federal Commissioner of Taxation / The commissioner
MacCormickv FC of T*(1984) - Significance of this case:
● Are compulsory payments → Mechanisms for enforcing pmts of tax (next wk lect)
● The moneys are raised for public purposes
● Do not constitute a payment for services rendered → Civil obligation for citizens
● Are not a penalty
● Are not arbitrary → Precise formula (Next wk Lect)
● Are not ‘incontestable’ → Objections + Appeals
Classification of Tax
F – Federal S- State FBT – Fringe Benefit Tax
,2. The Framework in which Law Operates
● 3 tiered system (three levels of government including Federal, State and Local)
● The framework in which tax laws operate is governed by the Constitution.
The Jurisdictional Issue:
● The primary power to impose income tax is vested in the Federal Parliament –(Constitution,
section 51(ii).
● Limits to this power:
○ It’s not an exclusive power - (1st & 2nd Uniform Tax Cases 1942) → State
govt can also impose income tax (but tax is already high, so state govt
nvr impose income tax)
○ Federal taxes cannot discriminate between the states or parts of a state
○ Laws imposing taxes can only deal with one subject of taxation
○ Rating Acts vs. Assessment Acts.
Taxation Powers and Federal / State relations
● The Commonwealth effectively forced a uniform tax scheme on the States through wartime
tax collection mechanisms during WW2.
● States no longer collect income tax, but do raise revenue through a variety of different taxes.
● The Federal Gov’t collects all income taxes and hands back some of the revenues raised to the
State and Territory governments.
● Federal tax may not be imposed on state property and state taxes cannot be imposed on
federal property –(Constitution, section 114).
Additional taxing powers in the Constitution:
● Exclusive powers –conferred by section 90
○ The power to impose duties of customs and excise is granted exclusively to the
Federal government.
, ○ Ha & anor v State of NSW97 ATC 4764 a State levy on tobacco sales was held to be an excise
duty (excise tax is imposed on the supplier or the producer, who then includes it in the product
price). The NSW law which imposed it was therefore held to be invalid –(unconstitutional).
3. Source of Income Tax Law
1. Legislation (primary source)
● Income Tax Assessment Act 1936 (ITAA 1936)
● Income Tax Assessment Act 1997 (ITAA 1997)
● ITAA 1997 :
○ Contains provisions of ITAA 1936 in written form.
○ Provides that if the 1936 Act expressed an idea in a particular form of words, and the 1997 Act
appears to have expressed the same idea in a different form of words in order to use a clearer or
simpler style, the ideas are not taken to be different just because different forms of words
have been used (section1-3ITAA1997)
The Tax consequences of any transaction
- Is an expenditure tax deductible?
- Is a receipt assessable?
Legal Principles
- They’ll apply when they seek to resolve taxation duties
- The commissioner
- Ultimately the courts
2. Case Law
● Interprets legislation and fills in the gaps
● Court hierarchy and precedent
● Variation over time in interpretive approaches
3. ATO Practice
Taxation Rulings
● An integral part of the self assessment system (post 1/7/92) → Means get tax return
form, fill it, states your income, and Expenses
● Administrative guidelines issued by the ATO explaining how tax laws will be applied
● Cannot override the law (legislation/cases)
● Pre-1 July 1992 tax ruling system will find a IT or MT reference
● Post-1 July 1992 tax rulings are binding on the Commissioner:
, ○ Public Rulings including various types (eg. Taxation Rulings, Taxation Determinations,
Product Rulings, Class Rulings)
○ Private Rulings - written expression of opinion by the Commissioner of Taxation (the
Commissioner) about the way in which tax laws and other specified laws administered by the
Commissioner would apply to, or be administered in relation to, an entity in relation to a
specified scheme.
○ QUERY: What is the binding effect of a ruling? –see, Woellner30-015.
ATO Discretionary Powers
● Machinery discretions: cover day to day administration issues
● Anti-avoidance discretions in the Commissioner
● Discretions to calculate elements of taxable income e.g. ‘reasonable amounts’, deeming
provisions etc.
Legislation (Primary Source) : Cases & Ruling Clarify legislation
→ Cases (Dispute) → Operate in retrospective spaces
→ Rulings (Guideline) → Provides flexibility in the system
4. Tax Administration
The management of information for my tax purposes:
1. Lodging Tax Returns
2. The Assessment Process
3. Tax Reviews: Objections and Appeals
4. Tax Audits: Enforcing Tax Obligations
1. Lodging Tax Returns
● Tax returns are the most important source of information for tax administration…sec 169A
ITAA 1936
● Almost all taxpayers must lodge returns
● Must be lodged in the “approved form” → 120 days of the financial year
● Lodgment is subject to time limits
● Inadequate or incomplete returns
● Amendment of Returns
● Penalties for non-lodgment
● General interest charge: penalty interest for not paying tax on time
1. Nature of Tax
*FC of T → Federal Commissioner of Taxation / The commissioner
MacCormickv FC of T*(1984) - Significance of this case:
● Are compulsory payments → Mechanisms for enforcing pmts of tax (next wk lect)
● The moneys are raised for public purposes
● Do not constitute a payment for services rendered → Civil obligation for citizens
● Are not a penalty
● Are not arbitrary → Precise formula (Next wk Lect)
● Are not ‘incontestable’ → Objections + Appeals
Classification of Tax
F – Federal S- State FBT – Fringe Benefit Tax
,2. The Framework in which Law Operates
● 3 tiered system (three levels of government including Federal, State and Local)
● The framework in which tax laws operate is governed by the Constitution.
The Jurisdictional Issue:
● The primary power to impose income tax is vested in the Federal Parliament –(Constitution,
section 51(ii).
● Limits to this power:
○ It’s not an exclusive power - (1st & 2nd Uniform Tax Cases 1942) → State
govt can also impose income tax (but tax is already high, so state govt
nvr impose income tax)
○ Federal taxes cannot discriminate between the states or parts of a state
○ Laws imposing taxes can only deal with one subject of taxation
○ Rating Acts vs. Assessment Acts.
Taxation Powers and Federal / State relations
● The Commonwealth effectively forced a uniform tax scheme on the States through wartime
tax collection mechanisms during WW2.
● States no longer collect income tax, but do raise revenue through a variety of different taxes.
● The Federal Gov’t collects all income taxes and hands back some of the revenues raised to the
State and Territory governments.
● Federal tax may not be imposed on state property and state taxes cannot be imposed on
federal property –(Constitution, section 114).
Additional taxing powers in the Constitution:
● Exclusive powers –conferred by section 90
○ The power to impose duties of customs and excise is granted exclusively to the
Federal government.
, ○ Ha & anor v State of NSW97 ATC 4764 a State levy on tobacco sales was held to be an excise
duty (excise tax is imposed on the supplier or the producer, who then includes it in the product
price). The NSW law which imposed it was therefore held to be invalid –(unconstitutional).
3. Source of Income Tax Law
1. Legislation (primary source)
● Income Tax Assessment Act 1936 (ITAA 1936)
● Income Tax Assessment Act 1997 (ITAA 1997)
● ITAA 1997 :
○ Contains provisions of ITAA 1936 in written form.
○ Provides that if the 1936 Act expressed an idea in a particular form of words, and the 1997 Act
appears to have expressed the same idea in a different form of words in order to use a clearer or
simpler style, the ideas are not taken to be different just because different forms of words
have been used (section1-3ITAA1997)
The Tax consequences of any transaction
- Is an expenditure tax deductible?
- Is a receipt assessable?
Legal Principles
- They’ll apply when they seek to resolve taxation duties
- The commissioner
- Ultimately the courts
2. Case Law
● Interprets legislation and fills in the gaps
● Court hierarchy and precedent
● Variation over time in interpretive approaches
3. ATO Practice
Taxation Rulings
● An integral part of the self assessment system (post 1/7/92) → Means get tax return
form, fill it, states your income, and Expenses
● Administrative guidelines issued by the ATO explaining how tax laws will be applied
● Cannot override the law (legislation/cases)
● Pre-1 July 1992 tax ruling system will find a IT or MT reference
● Post-1 July 1992 tax rulings are binding on the Commissioner:
, ○ Public Rulings including various types (eg. Taxation Rulings, Taxation Determinations,
Product Rulings, Class Rulings)
○ Private Rulings - written expression of opinion by the Commissioner of Taxation (the
Commissioner) about the way in which tax laws and other specified laws administered by the
Commissioner would apply to, or be administered in relation to, an entity in relation to a
specified scheme.
○ QUERY: What is the binding effect of a ruling? –see, Woellner30-015.
ATO Discretionary Powers
● Machinery discretions: cover day to day administration issues
● Anti-avoidance discretions in the Commissioner
● Discretions to calculate elements of taxable income e.g. ‘reasonable amounts’, deeming
provisions etc.
Legislation (Primary Source) : Cases & Ruling Clarify legislation
→ Cases (Dispute) → Operate in retrospective spaces
→ Rulings (Guideline) → Provides flexibility in the system
4. Tax Administration
The management of information for my tax purposes:
1. Lodging Tax Returns
2. The Assessment Process
3. Tax Reviews: Objections and Appeals
4. Tax Audits: Enforcing Tax Obligations
1. Lodging Tax Returns
● Tax returns are the most important source of information for tax administration…sec 169A
ITAA 1936
● Almost all taxpayers must lodge returns
● Must be lodged in the “approved form” → 120 days of the financial year
● Lodgment is subject to time limits
● Inadequate or incomplete returns
● Amendment of Returns
● Penalties for non-lodgment
● General interest charge: penalty interest for not paying tax on time
