A Practical Introduction to Australian Taxation Law - Income and Deductions PDF

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A Practical Introduction to Australian Taxation Law

Annette Morgan, Colleen Mortimer and Professor Dale Pinto

TABLE OF CONTENTS INTRODUCTION

1

RESEARCH

4

HENRY’S GUIDE TO THE INSTITUTIONAL FRAMEWORK OF TAXATION IN AUSTRALIA

11

TOPIC ONE – INCOME

37

TOPIC ONE QUESTIONS - INCOME

79

TOPIC TWO – DEDUCTIONS

85

TOPIC TWO QUESTIONS – DEDUCTIONS

143

TOPIC THREE – UNIFORM CAPITAL ALLOWANCES

159

TOPIC THREE QUESTIONS – UNIFORM CAPITAL ALLOWANCES

184

TOPIC FOUR – CAPITAL GAINS TAX

193

TOPIC FOUR QUESTIONS – CAPITAL GAINS TAX

219

TOPIC FIVE – PARTNERSHIPS

229

TOPIC FIVE QUESTIONS – PARTNERSHIPS

246

TOPIC SIX – MINORS AND TRUSTS

256

TOPIC SIX QUESTIONS – MINORS AND TRUSTS

300

TOPIC SEVEN – COMPANIES

310

TOPIC SEVEN QUESTIONS – COMPANIES

325

TOPIC EIGHT – GOODS AND SERVICES TAX

333

TOPIC EIGHT QUESTIONS – GOODS AND SERVICES TAX

353

TOPIC NINE – TAX PRACTITIONERS

359

COMMON ERRORS

375

TAX RATES AND TABLES

378

INTRODUCTION This unit is designed to give you a basic understanding of the practical application of income tax law in Australia to a wide variety of business and financial activities. It is stressed that the learning process tends to be progressive, with each part of the Syllabus relating to, and building upon concepts and principles covered in each topic. Cramming is not for Taxation Units! Establish a study routine and prepare the set work. It is important that students actually work on questions rather than merely reviewing questions while looking at the answers.

How to Use This Guide and Study this Unit This guide is structured on a topic basis with brief notes and examples, followed by questions at the end of each topic. It should be read in conjunction with the Australian Taxation Law or The Australian Tax Handbook. References to relevant readings in the text appear in each topic. These books are set out in chapters with each chapter then divided into paragraphs. References in each topic of this book is to the Australian Taxation Law or The Australian Tax Handbook. As an example this icon alerts you to the reading in each book.

Readings AUSTRALIAN TAXATION LAW Paragraphs 2-110 PRINCIPLES OF TAXATION LAW Paragraphs 3.120 Australian Taxation Law 2-110 refers to paragraph 110 in Chapter 2 of the book. Principles of Taxation Law [3.120] refers to paragraph 120 in Chapter 3 of the book. Students should read the notes in this text first, then the legislation and the commentary. After this reading students should be able to work the questions at the end of each topic. Many students make the mistake of not actually working the questions but rather compare the questions and the answers. This means that the first questions actually worked are those in the exam and result in a high failure rate.

Unit Requirements and Conventions For the purposes of this unit, students will be provided with the Pay-As-You-Go (PAYG) amount. PAYG and Medicare Levy calculations are required in the calculation of tax payable Tax payable is to be shown in dollars and cents. Though the majority of questions will be practical, you will still be required to understand the theory and associated legislation in the areas studied in this unit in order to complete the practical questions. In examinations, questions will consist of theory and require calculations. All workings should be shown and brief reasons should be provided where items are excluded. A reference to a text paragraph number of the commentary is not acceptable. You do not need to give case references. All time apportionments are to be calculated in days. The total number of days in a year will always be 365. (i.e. Leap years are to be ignored.) References to “CY” in the Unit Guide mean “Current financial Year”, while references to “PY” mean “Previous financial Year”. FY is the future year, the year after the current year.

References to the current income year are to the year commencing on 1 July 2019 and ending on 30 June 2020.

All date references are to be read as inclusive. E.g. an asset sold on the 30th of the month - ownership will include that day. The unit only studies taxpayers who are residents of Australia deriving Australiansourced income.

As well as feedback that you will receive in class and via the Blackboard site for this unit, you will obtain your own feedback in this unit by working on the questions and then comparing your answer to the answers available on Blackboard. If you are getting most of the answers correct then the feedback you are receiving is that you are studying well and understanding the material being covered. If you are not getting the answers correct then you may not have understood the material covered and you will need to go back and read the legislation and the commentary again. Students who do not actually complete the questions themselves will receive no feedback as they will not have done any work which has examined their knowledge of the material covered

Research ___________________________________________________________________ The increasing sophistication of accounting software is reducing the need to employ staff in accounting firms and tax practices to complete basic compliance work such as the preparation of accounts and tax returns. To be successful in the tax area you must be able to solve problems and think critically. An important part of this is being able to research the vast resources available to the tax practitioner. This topic will provide some basic notes which you can use to help you research a problem. The research tools you will use will change over the years. Ensure that you keep up-to-date. The Australian Taxation Office (ATO) The ATO has a vast array of resources available. The Legal Database can provide you with a lot of the information you need. Go to http://www.ato.gov.au At the top of the page click on “Legal Database”. On the left-hand side of this page you will see “Quick Access”. Quick Access Quick Access gives you quick access to:      

Public rulings and determinations ATO Guidelines ATO Interpretative Decisions Law Administration Practice Statements Taxpayer alerts Legislation

View legislation This is helpful when you want to view a specific section. You need to know the number of the section you want to see. Once you click on “legislation” you need to select the particular Act and then put in the section number.

Some of the Acts available are: Income Tax Assessment Act 1936 Income Tax Assessment Act 1997 Fringe Benefits Tax Assessment Act 1986 A New Tax System (Goods and Services Tax Act) 1999 Corporations Act 2001 There are many others available. Once you have selected the Act you want you then put in the section number and you will be taken directly to that section. Example: Find s.9 of the Fringe Benefits Tax Assessment Act 1986. View other items Rulings, etc. are available in addition to legislation under Quick Access. The full list is set out above. Once you have selected the type of document you want to see; put in the document number and search. Hint: You must use all four digit year references for all 1999 and subsequent rulings, determinations and bulletins, and for 1998 and subsequent product rulings. An example of this would be TR 2010/3. If you are want to find a ruling for an earlier year you should only use the last two digits of the year – e.g. TR 97/11. If you know the year of a ruling but you cannot remember the actual number, use “?” after the year. For example, TR2010/?. If you know the number but not the type of ruling then enter the number – e.g. 2010/3. A list of all ruling types with that reference number will be presented.

Example: Find all rulings with 2013/7.

Browse The Browse section provides links to the following:       

ATO rulings and determinations ATO Guidelines Decision Impact Statements Law Administration Practice Statements Taxpayer Alerts Legislation Cases

There is access to many additional materials once you click on particular links. For example, there is a section “Extrinsic Materials” and here you can find Explanatory Memoranda and Explanatory Statements. If you click on Cases you will be able to access AAT, Family Court, Federal Court, and High Court decisions. Example: Find the following:   

all taxation rulings issued in 2014 a taxpayer alert relating to cross-border leasing arrangement involving mobile assets (hint, it’s a 2016 TA) the second reading speech for the Fringe Benefits Assessment Act 1986

Search Function This function is helpful if you don’t have full details of the name of a case, or the number of a ruling. There are two options – quick and advanced searches. The Advanced Search option allows you to use two search terms with words such as “and, or, not, or near”. Your research skills you have gained in earlier units will be used in the Advanced Search. Precedential ATO View Search Under Browse you can find “other Precedential ATO View Documents. You can use this function to restrict your search to the collection of documents which comprise the ATO precedential view. Remember that this is the ATO’s view – it is not law but it will give you an indication of how the ATO considers a particular area of law. Point in Time Search This is particularly important when you are researching a section or a document which has changed since the year or time you are researching. For example, as the result

of an audit your client’s assessment from three years ago has been amended. You need to go back and read the particular section but it has been amended. You will find this under Advanced Search – at the bottom of the page you will find the “specific point in time” date. Example: Find the ATO ruling at 30 June 2002 on the supply of tertiary education courses that are GST-free.

Search Results When you get a number of search results they will be grouped by category – i.e. document type. The small sign before the larger category will allow you to expand the category into sub-categories. Navigating your search results When you have opened the document click on “Go to first hit” at the top of the document. This will take you to the first occurrence of your search term. >> will move you to the next occurrence....