Taxation Law Notes - A Comprehensive Guide.

Taxation Law Notes BLAW30002 200 Pages Pages Content 2-4 Introduction and Administration of the Australian Tax System 5-10 Jurisdiction to Tax 11-13 Tax Payable and Introduction to Income 14-18 Income From Serviced 19-24 Fringe Benefit Tax (FBT) 25-31 Income From Businesses 32-33 Income From Property 34-42 Taxation of Capital Gains 43-50 Deduction I - General Deductions 51-53 Deduction II - Specific Deductions 54-63 Taxation of Partnership, Trusts and Companies 64-83 Examples and Exam Answering Guide Topic 1 – Introduction to and Administration of the Australian Tax System [Chapter 1; Chapter 3 (3.1003.90); Chapter 24] Why Tax? 1. Tax  ‘best way’ for government to raise $ to spend. Taxation revenue = 94%. Government’s main source of funding for expenditure such as provisions of public goods and services (cannot exclude and private sector do not provide due to free rider problem and no profit). 2. Provide social goods such as education, health and defence services. 3. Redistribution through welfare and social security system. Transfer funds from those who have benefited from the market and enjoy a great ability to pay those who are less fortunate. 4. Socio0economic purposes/achieving policy objectives e.g. ‘Sin Taxes’ on alcohol, tobacco and gambling; R&D deduction (encourage) 5. Alternatives to tax on government funding have costs Tax System Mechanism for achieving policy objectives: 1. Influences behaviours (e.g. impose taxes on gambling, smoking; deduction for donations to charities– incentive to donate; tax offsets for expenditures on R&D ) 2. Collection and Redistribution mechanism Power to Tax Focus: Commonwealth/ Federal Taxes 1. Commonwealth 2. The States Section 52(ii) – Commonwealth has the power to make laws with respect to taxation BUT not so as to discriminate between states or parts of states Section 55 – Separate acts for imposing income tax and for setting out the rates of income tax Section 114 – Prevents Commonwealth government from imposing tax on property of any kind belonging to a state Sources of Tax Law 1. Tax Legislation 0 Income Tax Assessment Act 1993 [e.g. s6(1)] 0 Income Tax Assessment Act 1997 [e.g. s605] 0 Fringe Benefits Tax Assessment Act G A new tax system (Goods and Services Tax Act 1999 2. Secondary Sources – Case Law 0 ‘Judge made law’ 0 Interpret tax provisions where there is a dispute between TP and govt 0 Doctrine of precedent – requires judges to interpret words in laws, in a manner consistent with interpretation of those words in earlier judgment 0 Hierarchy of courts : Administrative Appeals Tribunal 0 Federal Court of AU (1 judge) 0 Full federal court of AU (3 judges) 0 High Court of AU (last say) Tax Administration Australia Taxation Office (ATO) administers Tax Law. Tax Law empowers the officer to administer those laws. 0 Assessment of Tax: Determine how much tax the TP have to pay 0 Collection of Tax: Make sure TP pays Assessment of Tax 1. TP lodges income tax return • Paper; electronic; through tax agent 2. ATO issues ‘Notice of Assessment’ (Liability; how much and by when) • If correct – lodge ad refund if necessary • If incorrect – N.O.A 3. Amending Assessments [TP/ATO] • Both parties have deadlines • Simple taxpayers – 2 years; Everyone else/Companies – 4 years • Tax avoidance 0 ATO has 6 years 4. Objections and Appeals (TP) (need prove e.g. show that its lower than it is) • Object to to ATO, reviewed by someone else in ATO • If still unresolved, go to courts Self0assessment system: Taxpayers have to work out what amount they have to pay on tax and any deductions from expenses (onus on taxpayer) ‘Carrot & Stick Approach’: 0 Carrot (incentives to comply)  Speedy refunds; e0tax; volunteers; rulings 0 Stick (penalties)  [Review/Audits]: Data matching; Targeted by issue; Real0time monitoring; Risk assessment framework; Random.  [Penalties]: depends on TP’s behavior – intentional (75%), reckless (50%), lack of reasonable care (25%) Tax Rulings T/R [ATO’s view, Binding on ATO] [1.280 – 1.300] Important source of guidance in tax but NOT LAW. (Public, Private, Class, Product) ATO is the agency that carries out the actual administration but in theory it is doing so on behalf of Commissioner of Taxation. Refer actions of ATO as act of Commissioner and advice also from Commissioner. Collection of Tax [24.160; 24.200] Throughout the year 0 PAYG (Pay0as0you0go)  Employee salary  Installments: TP who have business/investment income, report to the commissioner and pay their own tax 0 Withholding (Investment income; no TFN)  TP deducts amounts from payments to others and remits them to ATO End of Year 0 End of year payment/refund (NOA) Penalties & High Interest (how to get people to pay tax) 0 Taxation offence, prescribed offence, prescribed taxation offence 0 TP is not liable if TP/agent took reasonable care 0 TP is not liable if all info is given to agent 5 differences between tax law and accounting [1.70 – 1.140] Taxable income = assessable income – deductions Assessable income = gross income Deductions = expenses other than capital expenses Fringe benefit = cash or non cash benefit that can be converted to cash Collect from employers providing the benefit, rather than employees receiving them GST = intended to be tax on final consumption only, levied by every level of supply chain and then reimbursed by way of credits or refunds to registered businesses in the chain, leaving full burden to be borne by the final consumer Topic 2 – Jurisdiction to Tax [Chapter 3 (3.100 / 3.160) Right to Tax Financial Year: 1 July – 30 June [s4610(1), s9956 1 of ITAA97] 1. S375 (ITAA97): Income Tax is payable for each year by each individual/company 2. Can use “substituted accounting period’ as income year if allowed by commissioner [s18 ITAA36] 3. Determining Tax Payable: Source & Residence (for tax purposes) [Chapter 4] Test of Residency: Individuals [s6(1) ITAA36] Companies [s6(1) ITAA36] “Ordinary Residence Test” Incorporation Test Domicile Test Central Management & Control Test 183 Day Test Control of Voting Power Test Superannuation Test