BUSL320 Mid Semester Exam study

LECTURE 1 OPERATING FRAMEWORK OF THE AUSTRALIAN

TAXATION SYSTEM
TOPIC 1 THE NATURE OF TAX

S51(ii) A tax is a compulsory exaction of money by a public

authority for public purposes enforceable by law and the process of
raising money for the purposes of government by means of
contributions from individual persons.
MACCORMICK V FC OF T (1984) the high court identified the
following characteristics of a tax;
o It is a compulsory payment
o the moneys are raised for government purposes
o the moneys do not constitute fees for services rendered
o the payments are not penalties
o the exactions are not arbitrary or capricious &
o the exaction should not be incontestable

Direct Taxes

Indirect (consumption) Taxes

Income Taxes

Property Taxes

Sales Taxes

Factor Taxes

Personal Income
Tax

Death Duty

Value Added Tax,

e.g. GST

FBT
Pay-roll Tax

Capital Gains
Tax

Wealth Tax
Luxury Car Tax
Temporary Budget
Repair Levy

Stamp Duties

Land Tax

Customs and
Excise Duties

Carbon Tax

Company Tax

Classification of taxes
Impact the Federal Constitution has on the nature of tax
legislation Each level of government in Australia (Commonwealth,
State and Local) has only limited power to make laws, and cannot
make laws of unlimited scope on any topic it might wish.
o Commonwealth Government - a government of
enumerated powers and can only exercise those powers
which are specifically or impliedly granted to it by the terms of
the commonwealth constitution.
The commonwealth tax law must not discriminate
between states or parts of states. i.e. a law must not
impose a differential liability to tax upon persons merely
because they live or have property or operation different
starts or parts of states.
o The GST is distributed among the states in accordance with a
formula intended to achieve horizontal fiscal equalisation,

i.e. to equalise the capacity of states to provide services to

their citizens (Some states have greater capacity to generate
other income e.g. mining activities) and have different costs
(higher wages in some states).
TOPIC 2 THE SOURCES OF INCOME TAX LAW

STATUTE LAW (Legislation) Statue law is the law made by

parliament and contained in statues such as ITAA36, ITAA97, FBT &
GST legislation. Australia is a federation with two main levels of
government (federal and State), each of which has its own
parliament which passes appropriate legislation.
o Federal government responsible for governing the whole
of Australia and tax statutes passed by the federal parliament
incline the Income Tax Legislation.
o State Government responsible for governing their
particular state or territory. Tax legislation passed by the state
government traditionally includes stamp duties, land tax and
payroll tax Acts.
o E.g. ITAA97 contains provisions of ITAA36 in a rewritten
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
section 1-3 ITAA97.
o Examples of Legislation (1) A new tax system (Goods and
Services Tax) 1999 (2) Fringe Benefits Tax Assessment Act
1986 (3) Taxation Administration Act 1953 (4) Ratings Act
CASE LAW (Common Law) The law created by the decisions of
courts and tribunals. The courts have two main roles in relation to
the operation of the taxation system.
o Creation of law to fill a legislative vacuum The courts
create Common law in situations not covered by legislation.
An example in the tax contest is the issue of availability of
legal professional privilege as a defence in tax audits, where
the is as yet no definitive provision in the general tax
legislation.
o Statutory interpretation - In an ideal world there would be
no need to interpret legislation, because its intended meaning
would be so perfectly clear that it would be indisputable.
Under the common law system, that task of statutory
interpretation falls ultimately to the courts and who preside in
them.
ATO PRACTICE The practice of the ATO is applied through its
assessment and review procedures, its day to day decisions in
formal and informal dealings with practitioners and the publics, its
public and private rulings and its objection and review (litigation)

procedures. ATO interpretations or actions create informal law, in

that many practitioners and their clients accept ATO practices or
ruling without formal challenge, and structure their affaf555irs
accordingly.
o Under self assessment, taxpayers and their advisers bear the
responsibility for correctly preparing tax returns (with the risk
of penalties if they do not). To assist taxpayers in planning and
conducting their tax affairs the ATO issues various forms of
advice (Public and Private Rulings) which state the ATOs
opinion on the correct interpretation of the law in the case of
Private Rulings its application to the particular taxpayers
circumstance.
o Taxpayers and advisers often rely on ATO rulings in structuring
tax arrangements and preparing tax returns, sometimes to the
extent that ATO rulings become in effect the real source of
law for them.
o Rulings are a key element in the tax advice system they are
the most formal ATO advice and one on which taxpayers and
advisers tend to rely on rulings can bind the ATO legally in
cases post July 1992.
ATO notes in Practice Statements PS LA 2008/3, a
ruling does not bind the taxpayer in any circumstance.
The taxpayer is entitled to apply the law if it provides a
more favourable result rulings operate as a shield for
the taxpayer, not a sword for the commissioner.
TOPIC 3 ISSUES IN TAX ADMINISTRATION
1) THE SELF ASSESSMENT REGIME
LODGING TAX RETURNS (S16 ITAA36) Once a taxpayer and their
advisers have assembled all relevant information, the next step is to
prepare and lodge a tax return for the relevant period.
Lodgements must be lodged in the prescribed manner, time and
approved form.
S162 and S163 (ITAA36) give the commissioner additional
powers to require lodgement of further and special returns.
o S162 A person must furnish a fresh or further/fuller return or
any information, statement or document about their financial
affair within the time specified and in the approved form
required by the commissioner.
o The power is extremely wide; i.e. not limited to persons who
have derived income and are legally liable to pay tax. A s162
notice may validly require the lodgement of more than one
return.
The commissioner usually exercises the power to require
further returns under s162 where: (The commissioner
must allow a reasonable time for the recipient to comply
with s162 notice.

 The taxpayer has lodged a return which the

commissioner has misplaced
The commissioner is not satisfied with the return
originally lodged by the taxpayer, or
A person has not lodged a return (Whether or not
that person had derived any income).
o S163 Enables the commissioner to require any person
(whether or not a taxpayer) to furnish a return in the form,
manner and time specified.
ASSESMENTS