BTC3150 - Tax Law S1 2017 Summary Notes
BTC3150 - Tax Law S1 2017 Summary Notes W1 - (INTRO) WHAT IS A TAX .......................................................................................................................................... 2
W2 - LIABILITY TO PAY INCOME TAX (TAXABLE ENTITIES + INTERNATIONAL ASPECTS) ................................................. 2
W3 - CONCEPTS OF ORDINARY INCOME (Legislation: Sec 6-5 and Sec 15-2 of ITAA97) . Error! Bookmark not defined.
W4 - (ORDINARY INCOME) INCOME FROM BUSINESS (Legislation: Sec 6-5 and Sec 15-2 of ITAA97). Error! Bookmark not defined.
W5 - EXTRAORDINARY & ISOLATED TRANSACTIONS (Legislation: Sec 6-5 and Sec 15-2 of ITAA97) . Error! Bookmark not defined.
W6 - CAPITAL GAINS TAX – Statutory (Legislation: Sec 102-5) ....................................... Error! Bookmark not defined.
W7+8 – GENERAL DEDUCTIONS and APPLICATION OF DEDUCTIONS (Legislation: Sec 8-1)........... Error! Bookmark not defined.
W9 – SPECIFIC DEDUCTIONS AND CAPITAL ALLOWANCES (Legislation: Sec 8-5) .......... Error! Bookmark not defined.
W10 – GOODS AND SERVICES TAX
(Legislation: GST Act (A New Tax System) 1999)... Error! Bookmark not defined.
W11 – FRINGE BENEFITS TAX (FBT) (Legislation: Fringe Benefits Tax Assessment Act 1986 (FBTAA)) Error! Bookmark not defined.
W1 - (INTRO) WHAT IS A TAX What is a tax? A compulsory exaction of money by a public authority (gov) for public purposes, enforceable by law, and is not a payment for services rendered (levies do this). Matthews v Chicory Marketing Board (1938) Tax receipts for 15/16 = 370.1b, 93% of government revenue. – Provides main source of government expenditure (Welfare, edu, def) Power to tax: S1 (ii) in the constitution allows the government to “make laws for the peace, order and good government of the commonwealth with respect to taxation” No discrimination between states FMG (2013) Commonwealth Taxes State Taxes Income Tax, GST (revenue is owned by states), Fringe benefits tax, customs Payroll tax, land tax, stamp duty duty (s90) Legislation:
-
Income Tax Assessment Act 1936 (Cth) (ITAA36) Income Tax Assessment Act 1997 (Cth) (ITAA97)
-
A new tax system (GST) Tax 1999 (Cth) Fringe Benefits Tax Assessment Act 1987 (Cth) Tax administration Act 1953 (Cth)
Income Tax Formula Exempt Income – Income that is specifically made exempt by ITL List S11-A (Entities – Charities, Income – Scholarships) Non Assessable Non Exempt Income – even though not exempt, just not assessed. List in S11-B Deductions = General Deductions + Specific Deductions Adjustable taxable income: looks at all sources of income to gain a true picture of a taxpayer’s financial situation . Taxable Income:
Tax on the Income 15/16
0 - 18,200 18,201 – 37,000 37,001 – 80,000 80,001 – 180,000 180,000+
Nil 19c for every $1 over 18200 $3572 + 32.5c for every $1 over 37000 $17547 + 37c for every $1 over 80000 $54,547 + 45c for every $1 over 180000**
** Temporary budget repair levy of 2% of TI over 180,000 (jul 1 2014 – jun 30 2017) Tax Offsets: Credits or rebates that reduce a taxpayer’s income tax liability Claimed against tax liability, but could also be refundable, transferrable or carried forward into future years o Franked dividend offset, low income offset Tapered offset: A concessional tax offset is reduced (“tapered”) as the taxpayer’s income increases -
Example: Low Income Tax Offsets
Maximum offset is $445
Offset reduced by 1.5 cents per dollar above $37 000
Cuts out at $67,667
Not refundable
Levies and Surcharges: Australian Tax system is a collection mechanism for the amounts payable by Australian Tax Residents Medicare Levy = Taxable Income x 2% -
Exemptions: Foreign residents, people not entitled to Medicare benefits and qualifying individuals that are low income earners
Medicare Levy Surcharge: Applies to people that do not have private health over and their surcharge income exceeds a threshold HECS/HELP: Repayment based on repayment income. 4% to 8% depending on TI Functions of the Australian taxation system • Main source of funding for government expenditure, used: o To provide public / social goods • As a redistribution function o Socio-economic purposes through social engineering
Singles
Families
Rate
0 – 90k 90001 – 105k 105001 – 140k 140001+
0 – 180k 180001 – 210000 210001 – 280000 280001+
0% 1% 1.25% 1.5%
The tax system can be used for purposes other than revenue raising. Can be used to account for externalities - imposing a tax may potentially increase efficiency if markets fail to price factors such as pollution or congestion, or the health costs of particular types of behaviour such as cigarette smoking
The fundamental purpose of taxation is to finance government expenditure. Beyond this primary purpose, modern tax systems are also guided by principles of efficiency, equity and simplicity. Equity – involves distributing the tax burden fairly across the population. Two elements – horizontal and vertical: • Horizontal – taxpayers in the same position should pay the same tax • Vertical – taxpayers in different positions should pay different amounts of tax Efficiency – do not skew resource allocation decisions across the economy. Two elements: • Administrative – tax should provide the largest possible amount of money from the taxpayer that is not consumed by admin costs • Economic – tax is not discriminatory and ensures that the taxpayer will not alter his situation or be influenced by any taxation effect, unless it is an intended impact (eg carbon tax) Simplicity – involves minimising uncertainty and compliance costs for taxpayers. They should be able to understand their obligations GST+• It was introduced to broaden the tax base, which the government believed was heavily biased towards the provision of services. • Replaced a raft of inefficient State nuisance taxes that imposed high deadweight costs while raising little revenue • Replaced the out-dated Wholesale Sales Tax. • Gov was forced to compromise with Democrats re: o most basic food items being exempt from the GST, the GST on library purchases of books being refunded, a temporary 8% refund on school textbooks, increases to welfare payments, and greater powers to the ACCC to oversee the implementation of the new tax regime May harm low-income earners more -> yet proportional decrease of income tax is supposed to have cancelled it out
W2 - LIABILITY TO PAY INCOME TAX (TAXABLE ENTITIES + INTERNATIONAL ASPECTS) ................................................. 2
W3 - CONCEPTS OF ORDINARY INCOME (Legislation: Sec 6-5 and Sec 15-2 of ITAA97) . Error! Bookmark not defined.
W4 - (ORDINARY INCOME) INCOME FROM BUSINESS (Legislation: Sec 6-5 and Sec 15-2 of ITAA97). Error! Bookmark not defined.
W5 - EXTRAORDINARY & ISOLATED TRANSACTIONS (Legislation: Sec 6-5 and Sec 15-2 of ITAA97) . Error! Bookmark not defined.
W6 - CAPITAL GAINS TAX – Statutory (Legislation: Sec 102-5) ....................................... Error! Bookmark not defined.
W7+8 – GENERAL DEDUCTIONS and APPLICATION OF DEDUCTIONS (Legislation: Sec 8-1)........... Error! Bookmark not defined.
W9 – SPECIFIC DEDUCTIONS AND CAPITAL ALLOWANCES (Legislation: Sec 8-5) .......... Error! Bookmark not defined.
W10 – GOODS AND SERVICES TAX
(Legislation: GST Act (A New Tax System) 1999)... Error! Bookmark not defined.
W11 – FRINGE BENEFITS TAX (FBT) (Legislation: Fringe Benefits Tax Assessment Act 1986 (FBTAA)) Error! Bookmark not defined.
W1 - (INTRO) WHAT IS A TAX What is a tax? A compulsory exaction of money by a public authority (gov) for public purposes, enforceable by law, and is not a payment for services rendered (levies do this). Matthews v Chicory Marketing Board (1938) Tax receipts for 15/16 = 370.1b, 93% of government revenue. – Provides main source of government expenditure (Welfare, edu, def) Power to tax: S1 (ii) in the constitution allows the government to “make laws for the peace, order and good government of the commonwealth with respect to taxation” No discrimination between states FMG (2013) Commonwealth Taxes State Taxes Income Tax, GST (revenue is owned by states), Fringe benefits tax, customs Payroll tax, land tax, stamp duty duty (s90) Legislation:
-
Income Tax Assessment Act 1936 (Cth) (ITAA36) Income Tax Assessment Act 1997 (Cth) (ITAA97)
-
A new tax system (GST) Tax 1999 (Cth) Fringe Benefits Tax Assessment Act 1987 (Cth) Tax administration Act 1953 (Cth)
Income Tax Formula Exempt Income – Income that is specifically made exempt by ITL List S11-A (Entities – Charities, Income – Scholarships) Non Assessable Non Exempt Income – even though not exempt, just not assessed. List in S11-B Deductions = General Deductions + Specific Deductions Adjustable taxable income: looks at all sources of income to gain a true picture of a taxpayer’s financial situation . Taxable Income:
Tax on the Income 15/16
0 - 18,200 18,201 – 37,000 37,001 – 80,000 80,001 – 180,000 180,000+
Nil 19c for every $1 over 18200 $3572 + 32.5c for every $1 over 37000 $17547 + 37c for every $1 over 80000 $54,547 + 45c for every $1 over 180000**
** Temporary budget repair levy of 2% of TI over 180,000 (jul 1 2014 – jun 30 2017) Tax Offsets: Credits or rebates that reduce a taxpayer’s income tax liability Claimed against tax liability, but could also be refundable, transferrable or carried forward into future years o Franked dividend offset, low income offset Tapered offset: A concessional tax offset is reduced (“tapered”) as the taxpayer’s income increases -
Example: Low Income Tax Offsets
Maximum offset is $445
Offset reduced by 1.5 cents per dollar above $37 000
Cuts out at $67,667
Not refundable
Levies and Surcharges: Australian Tax system is a collection mechanism for the amounts payable by Australian Tax Residents Medicare Levy = Taxable Income x 2% -
Exemptions: Foreign residents, people not entitled to Medicare benefits and qualifying individuals that are low income earners
Medicare Levy Surcharge: Applies to people that do not have private health over and their surcharge income exceeds a threshold HECS/HELP: Repayment based on repayment income. 4% to 8% depending on TI Functions of the Australian taxation system • Main source of funding for government expenditure, used: o To provide public / social goods • As a redistribution function o Socio-economic purposes through social engineering
Singles
Families
Rate
0 – 90k 90001 – 105k 105001 – 140k 140001+
0 – 180k 180001 – 210000 210001 – 280000 280001+
0% 1% 1.25% 1.5%
The tax system can be used for purposes other than revenue raising. Can be used to account for externalities - imposing a tax may potentially increase efficiency if markets fail to price factors such as pollution or congestion, or the health costs of particular types of behaviour such as cigarette smoking
The fundamental purpose of taxation is to finance government expenditure. Beyond this primary purpose, modern tax systems are also guided by principles of efficiency, equity and simplicity. Equity – involves distributing the tax burden fairly across the population. Two elements – horizontal and vertical: • Horizontal – taxpayers in the same position should pay the same tax • Vertical – taxpayers in different positions should pay different amounts of tax Efficiency – do not skew resource allocation decisions across the economy. Two elements: • Administrative – tax should provide the largest possible amount of money from the taxpayer that is not consumed by admin costs • Economic – tax is not discriminatory and ensures that the taxpayer will not alter his situation or be influenced by any taxation effect, unless it is an intended impact (eg carbon tax) Simplicity – involves minimising uncertainty and compliance costs for taxpayers. They should be able to understand their obligations GST+• It was introduced to broaden the tax base, which the government believed was heavily biased towards the provision of services. • Replaced a raft of inefficient State nuisance taxes that imposed high deadweight costs while raising little revenue • Replaced the out-dated Wholesale Sales Tax. • Gov was forced to compromise with Democrats re: o most basic food items being exempt from the GST, the GST on library purchases of books being refunded, a temporary 8% refund on school textbooks, increases to welfare payments, and greater powers to the ACCC to oversee the implementation of the new tax regime May harm low-income earners more -> yet proportional decrease of income tax is supposed to have cancelled it out
