TOPIC 1 INTRODUCTION AND OVERVIEW OF AUSTRALIAN TAX ...
TOPIC 1 INTRODUCTION AND OVERVIEW OF AUSTRALIAN TAX SYSTEM 1. SOURCES OF TAX LAW 1. STATUTORY LAW – Enacted by Parliament Income Tax Assessment Acts (ITAA 1936 & ITAA 1997) – both Acts are used to determine taxable income. 2. COMMON LAW/STATUTORY LAW - Made by Judges Commonwealth Courts & State Courts 3. ADMINISTRATIVE STATEMENTS – Ruling by ATO 2. STRUCTURE OF LEGISLATION 1. INCOME a. Assessable Income: Income that can be taxed (i.e. Salary & wages, interest from bank account, dividends & other income from investments, bonuses, commission, pensions, etc.) b. Exempt Income: Income that cannot be taxed. c. Taxable Income: Income that has to be paid tax on. The amount left after deduction of all expenses that are allowed to claim from the assessable income. TB pg. 71 [3.120] Income Tax = (Taxable Income x Tax Rates) – Tax Offsets Taxable Income = Income – Deductions [3.130] 2. TAX PERSON – Entities 3. DEDUCTION 4. TAX OFFSETS – Rebates and Credits in ITAA 1936 5. TAX RATES – Flat & Progressive 3. TAX FORMULA 1. Assessable Income (S25 ITAA 36 & S6 ITAA 97) LESS 2. Deductions (S51 ITAA 36 &S8 ITAA 97) EQUALS 3. Taxable Income (S6 ITAA 36 & S4 ITAA 97) x Tax Rates EQUALS 4. Gross Tax Payable LESS 5. Rebates (Tax Offsets in ITAA 97) LESS 6. Credits (Tax Offsets in ITAA 97) LESS 7. Prepaid Tax LESS 8. Medicare levy ADD 9. Help Liability EQUALS 10. Refund or Net Tax Payable
TOPIC 2 INTRODUCTION TO RESIDENCE, SOURCE OF INCOME & DERIVATION I.
RESIDENCE OF AN INDIVIDUAL S6(1) ITAA 36 & S6-5, 6-10, 995-1 ITAA 97 The Issue: To determine the residency status for tax purpose of an individual in the period of living in a country – a taxpayer only needs to satisfy one test to be a resident for tax purpose. A resident of Australia for tax purpose is entitled to pay tax on all assessable income, regardless the source, while foreign resident is only entitled to pay tax on Australian based source of income. 1. COMMON LAW MEANING a. RESIDES TEST – A person who resides in Australia for a reasonable time (at least 6 months) Main Cases: 1. Levene v IRC (1928) AC 217 (pg. 86) Facts: five months of the year in UK, obtain medical advice, visit relatives and attend to religious and business duties. Decision: A resident. 2. IRC v Lysaght [1928] AC 234 (pg. 86) Facts: one week each month in the UK, established a place of abode in Ireland, had bank accounts in both UK & Ireland. Decision: A resident based on the regularity of visiting UK due to obligation. 3. FCT v Miller (1946) 73 CLR 93 (pg. 86) Facts: lived on boat off the coast of Papua & New Guinea, the taxpayer did not go ashore, and his only absence from PNG was for a short leave spent in QLD. Decision: a PNG resident during the period of living and working on his boat in Milne Bay. 4. Case 78 (1944) 11 CTBR 232 (Australian Tax Casebook, CCH) The following factors important in determining Common Law Residence: a) Physical presence in Australia which encompasses duration of presence, regularity and frequency of visits to the country at a reasonable time. b) Employment or business interests in country which reflect a connection between the taxpayer and the country. c) Establish a place of abode in the country. d) Bank accounts and personal assets located in the country. 2. STATUTORY LAW MEANING – Sec. 6 ITAA 1936 a. DOMICILE TEST (S6-5[2]) – a person whose domicile is Australia unless permanent place of abode is outside Australia. The taxpayer doesn’t have to be physically presence in Australia to be a resident. This test is generally applied to outgoing individuals where that person moves overseas, but does not change his/her domicile. 3 types of domicile: by origin, by choice, by operation of law. Main Cases: 1. FCT v Applegate 79 ATC 4307 (pg. 91)
TOPIC 2 INTRODUCTION TO RESIDENCE, SOURCE OF INCOME & DERIVATION I.
RESIDENCE OF AN INDIVIDUAL S6(1) ITAA 36 & S6-5, 6-10, 995-1 ITAA 97 The Issue: To determine the residency status for tax purpose of an individual in the period of living in a country – a taxpayer only needs to satisfy one test to be a resident for tax purpose. A resident of Australia for tax purpose is entitled to pay tax on all assessable income, regardless the source, while foreign resident is only entitled to pay tax on Australian based source of income. 1. COMMON LAW MEANING a. RESIDES TEST – A person who resides in Australia for a reasonable time (at least 6 months) Main Cases: 1. Levene v IRC (1928) AC 217 (pg. 86) Facts: five months of the year in UK, obtain medical advice, visit relatives and attend to religious and business duties. Decision: A resident. 2. IRC v Lysaght [1928] AC 234 (pg. 86) Facts: one week each month in the UK, established a place of abode in Ireland, had bank accounts in both UK & Ireland. Decision: A resident based on the regularity of visiting UK due to obligation. 3. FCT v Miller (1946) 73 CLR 93 (pg. 86) Facts: lived on boat off the coast of Papua & New Guinea, the taxpayer did not go ashore, and his only absence from PNG was for a short leave spent in QLD. Decision: a PNG resident during the period of living and working on his boat in Milne Bay. 4. Case 78 (1944) 11 CTBR 232 (Australian Tax Casebook, CCH) The following factors important in determining Common Law Residence: a) Physical presence in Australia which encompasses duration of presence, regularity and frequency of visits to the country at a reasonable time. b) Employment or business interests in country which reflect a connection between the taxpayer and the country. c) Establish a place of abode in the country. d) Bank accounts and personal assets located in the country. 2. STATUTORY LAW MEANING – Sec. 6 ITAA 1936 a. DOMICILE TEST (S6-5[2]) – a person whose domicile is Australia unless permanent place of abode is outside Australia. The taxpayer doesn’t have to be physically presence in Australia to be a resident. This test is generally applied to outgoing individuals where that person moves overseas, but does not change his/her domicile. 3 types of domicile: by origin, by choice, by operation of law. Main Cases: 1. FCT v Applegate 79 ATC 4307 (pg. 91)
