2012-3-5

Australian Taxation System Lecture 1

Introduction [text: Chapter 1, Fundamental Tax Legislation pages VII-XXIX and Income Tax Assessment Act 1997 Parts 1-1 and 1-2]

What is this lecture about?

Administration Assessment: mainly problem solving Skills to solve tax problems
Reading and applying cases Reading and applying statute laws Reading and applying rulings Finding relevant materials

Administration
UOS Outline Assessment Prescribed Books Reference Books Overview Context

Context
Just what is a tax?
Maybe not as easy as it seemed. Tax can shape society: literally

Where does tax law come from?

Australia is blessed with 2 primary tax acts and heaps of supporting acts The Income Tax Assessment Act 1936 The Income Tax Assessment Act 1997

Why learn about tax?

What the???

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The essential elements of any 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?

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

Commonwealth taxation
The Constitution The States and Territories The Commonwealth parliament The government The Treasury The Commissioner of Taxation The Australian Taxation Office [annual report
summary at p9]
http://www.ato.gov.au/corporate/content.aspx?doc=/content/53636.htm&mnu=49806&mfp=001/00 1

OECD: Tax Revenue Statistics 2006

(% of total tax revenue)
OECD average Taxes Aus NZ Jap Ger Fra UK US

Personal income tax

37

41

19

25

18

29

37

25

Corporate income tax

22

16

17

11

12

11

Social security

37

38

37

19

24

25

Consumption tax

27

33

19

28

25

29

17

31

Australian Taxation Numbers

Australian Bureau of Statistics Tax stats 09/10
http://www.abs.gov.au/ausstats/abs@.nsf/mf/5506.0

What makes a good tax system?

Equity Efficiency Simplicity

ATO Tax rates 11/12

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

ATO Tax rates post 1 July 2012 carbon price: http://www.ato.gov.au/content/00309813.htm ATO: Tax Tables 11/12
http://www.ato.gov.au/businesses/content.aspx?doc=/content/33283.ht m&alias=taxtables

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]

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 Australian Constitution and procedural rule in s 55.

Sources of law and where to find them

ITAA 1936, 1997 why two statutes? Section 13 of ITAA 1997 Cases and materials available through the library electronic database catalogue, T for Tax and Accounting Online, Tax Notes and TAXABS. See also: AustLII, ATO website, ATO Legal Database, Treasury website COMLAW most important for statute Rulings available on Tax and Accounting Online through the library and the ATO Legal Database

Rulings
IT: Tax rulings up until 30 June 1992 TR: Tax Rulings 1 July 1992 onwards TD: Tax Determinations Constitutes a Statutory Estoppel See 35770 schedule 1 Taxation Administration Act 1953 If the Act is more favourable to the taxpayer, subject to time limits, Commissioner may apply the Act

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

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 [s415]: 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

Capital/income distinction
Capital gains for individuals, trusts and superannuation funds still treated favourably under the tax regime: Division 115 of ITAA97 and concessions in Division 152 Companies get no concession for Capital Gains and may have trouble using losses

Withholding tax
Withholding tax does not depend on source but the residences of the payer and payee Only applies to dividends, interest and royalties. Withholding tax rates affected by DTAs [double tax treaties] A tax sharing regime involving credits A tax on gross income A final tax section: 128D ITAA 1936