Lecture 1 20120726

7/31/2019 Lecture 1 20120726

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Australian Taxation System

Lecture 1 Introduction

Eva Huang

7/31/2019 Lecture 1 20120726


~Benjamin Franklin, letter to Jean-Baptiste Leroy, 13 November 1789,

translated from French

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Administration

› UOS Outline

› Assessment

› Prescribed Books

› Reference Books

› Overview

3

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Text: Chapter 1

Fundamental Tax Legislation pages VII-XXIX andIncome Tax Assessment Act 1997 Parts 1-1 and 1-2

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What is a Tax?

› To the economist…

› To the lawyer…

› To the accountant?...

5

Theories and Disciplines

Policy

Implementation

Administration

Compliance

Law

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Why do we need tax?

› Public goods?

- Publicly provided private goods?

6

By the way…

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The Essential Elements of a Tax System

› Who taxes

› Who to tax

› What to tax

› When to tax

› How much to tax

› What to do with the tax

› Just what is ‘the system’?

7

This is also called the tax system structure

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The Australian taxation system

Reflect on ss 6-5 and 6-10 ITAA97 as to:› Who?

› What?

Then ss4-10 and 4-15 ITAA97 as to:

› How much?

Then s 3-5(1) as to:

› When?

› Difficulties when applied internationally

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The Australian taxation system

› Income according to ordinary concepts (ordinary income) (1) Your assessable income includes income according to ordinary concepts, which is calledordinary income .

› Note: Some of the provisions about assessable income listed in section 10-5 mayaffect the treatment of ordinary income.

› (2) If you are an Australian resident, your assessable income includes the *ordinary income you * derived directly or indirectly from all sources, whether in or out of

Australia, during the income year .

› (3) If you are a foreign resident, your assessable income includes:

› (a) the * ordinary income you * derived directly or indirectly from all *

Australian sources during the income year ; and› (b) other * ordinary income that a provision includes in your assessable

income for the income year on some basis other than having an * Australian source.

› (4) In working out whether you have derived an amount of * ordinary income,and (if so) when you derived it, you are taken to have received the amount as soon asit is applied or dealt with in any way on your behalf or as you direct.

9

Section 6-5

http://www.austlii.edu.au/au/legis/cth/consol_act/itaa1997240/s995.1.html




























































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The Australian Taxation System

› Other assessable income (statutory income) (1) Your assessable income also includes someamounts that are not * ordinary income.

› Note: These are included by provisions about assessable income.For a summary list of these provisions, see section 10-5.

› (2) Amounts that ar e not * ordinary income, but are included in your assessable income byprovisions about assessable income, are called statutory income .

› Note 1: Although an amount is statutory income because it has been included in assessable income under a provision of this Act, it may be made exempt income or non-assessable non-exempt income under another provision: see sections 6-20 and 6-23.

› Note 2: Many provisions in the summary list in section 10-5 contain rules about ordinary income. Theserules do not change its character as ordinary income.

› (3) If an amount would be * statutory income apart from the fact that you have not received it, itbecomes statutory income as soon as it is applied or dealt with in any way on your behalf or as you direct.

› (4) If you are an Australian r esident, your assessable income includes your * statutory income from all sources, whether in or out of Australia.

› (5) If you are a foreign resident, your assessable income includes:

› (a) your * statutory income from all * Australian sources; and

› (b) other * statutory income that a provision includes in your assessable income on somebasis other than having an * Australian source.

10

Section 6-10



















































































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› How to work out the amount of tax to pay

Section 4-15

› How to work out taxable income.

› Note subsection (2)

11

Section 4-10

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› Annual income tax (1) Income tax is payable for each year by

each individual and company, and by some other entities.

12

Section 3-5









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Commonwealth taxation

› The Constitution – Section 51(ii)› The parliament

› The government

› The Treasury

› The Commissioner of Taxation

› The Australian Taxation Office

› http://www.ato.gov.au/corporate/content.aspx?doc=/content/00258543.htm&pc=001/001/009/001&mnu=49

806&mfp=001&st

› The States and Territories

http://www.ato.gov.au/corporate/content.aspx?doc=/content/00258543.htm&pc=001/001/009/001&mnu=49806&mfp=001&st




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OECD: Tax Revenue Statistics 2006(% of total tax revenue)

Taxes Aus NZ Jap Ger Fra UK USOECD

average

Personal

income tax

37 41 19 25 18 29 37 25

Corporateincome tax

22 16 17 6 7 11 12 11

Social security - - 37 38 37 19 24 25

Consumptiontax

27 33 19 28 25 29 17 31

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Australian Taxation Numbers

› Australian Bureau of Statistics Tax stats 09/10

http://www.abs.gov.au/ausstats/[email protected]/mf/5506.0

› ATO Tax rates 09/10

http://www.ato.gov.au/individuals/content.aspx?doc=/content/12333.htm&mn

u=42590&mfp=001

› ATO: Tax Tables 09/10

› http://www.ato.gov.au/businesses/content.aspx?doc=/content/33283.htm&

alias=taxtables


http://www.ato.gov.au/individuals/content.aspx?doc=/content/12333.htm&mnu=42590&mfp=001


http://www.ato.gov.au/businesses/content.aspx?doc=/content/33283.htm&alias=taxtables







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What makes a ‘good’ tax system?

› Equity› Efficiency

› Simplicity

› These may conflict

› There may be others for example:

- prevention of tax avoidance

- international competitiveness

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Basics of income tax law

› No statutory overarching definition of income› Judges adopted trust definition of income, though this was probably the

definition of income according to the general law

› Central part – the flow concept

› Capital / Income distinction [fruit / tree]

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Australian tax statutes

› What is a tax? Elements of tax: - Compulsory, no goods or services in return, liability imposed according to

general criteria, does not have to go into consolidated revenue

› Problem of unjust appropriation 51(xxxi) Constitution

› Current statutes Income Tax Assessment Act 1997[ITAA1997] and supplemented by Income Tax Assessment Act 1936 [ITAA 1936]

› Constitutional basis of taxation law s 51(ii) of the AustralianConstitution and procedural rule in s 55.

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Sources of law and where to findthem

› ITAA 1936, 1997 why two statutes?

› Section 1 –3 of ITAA 1997

› Cases and materials available through the library

electronic database catalogue, ‘T’ for Tax and Accounting Online, Tax Notes and TAXABS. Seealso: AustLII, ATO website, ATO Legal Database,Treasury website

› COMLAW most important for statute› Rulings available on Tax and Accounting Onlinethrough the library and the ATO Legal Database

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Rulings

› IT: Tax rulings up until 30 June 1992› TR: Tax Rulings 1 July 1992 onwards

› TD: Tax Determinations

› Constitutes a Statutory Estoppel

› See 357 –70 schedule 1 Taxation Administration Act 1953› If the Act is more favourable to the taxpayer, subject to time limits,

Commissioner may apply the Act

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Conclusion: 3 sources of law

› Statutes: ITAA 1936, 1997.› Cases: mainly in the Federal Court in the High Court of Australia, Family

Court Has Jurisdiction.

› After 1 July 1992 Rulings where they are more favourable to the taxpayer than the general law. If in doubt get a ruling

› For ruling to be binding it must be strictly followed: Bellinz

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Other tax acts

› Fringe Benefits Tax Assessment Act 1986› A New Tax System (Goods and Services Tax) Act 1999

› Income Tax Rates Act 1986

› Taxation Administration Act 1953

› International Tax Agreements Act 1953

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Statutory tax formula

› Yearly impost: s3-5(1) ITAA 97 › Tax payable = (taxable income x rate) – offsets [s4-10]

› Taxable income = assessable income – deductions [s4-15]:

› Use these formulas to see how to minimise your tax.

› Rates set in Income Tax Rates Act 1986 › Tax rates are progressive and differ between:

- Companies and other entities

- Residents and non-residents

- There may be penalty rates [eg trusts]- Note withholding tax

- Capital Gains Tax discount

- This leads to a lot of tax planning

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Withholding tax

› Withholding tax does not depend on source but theresidences of the payer and payee

› Only applies to dividends, interest and royalties.

› Withholding tax rates affected by DTA’s [double taxtreaties]

› A tax sharing regime involving credits

› A tax on gross income› A final tax section: 128D ITAA 1936

- Exemptions

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Next Week

› Residence and Source› Tutorials start!

Please do your homework. We may collect!

Have fun studying!

Lecture 1 20120726

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