Sources And Rules Of Australian Taxation Laws

The main sources of taxation power

1. In compliance with the Constitution of Australia, the main source of Commonwealth Parliament’s power of taxation generally comes from the sections 51(ii), 53, 55, 90 and 96. As defined under Section 51(ii) of Australian Constitution, the power of creating laws in relation to tax is assigned with the Commonwealth Parliament (Pinto, 2011). It can be stated that there are some conditions that those laws does not create any form of differentiation between the states or parts of the states.

2. Acts are mainly designed to establish the laws relating to tax. Hence, this forms the primary source of Australian Taxation Laws that originates from the legislation with numerous Parliamentary Acts and Regulations that are delegated in the legislation (Braithwaite, 2017). The second source of Tax in Australia are the case laws that helps in interpreting the legislation such as the judgment of court, tribunals etc. The third source of taxation in Australia is the taxation rulings stated by the Commissioner of Taxation.

3. As per the Taxation Ruling TR 98/17 it is concerned with the residential status of an individual entering in Australia (Cao et al., 2015). The Taxation Ruling TR 98/17 of is applicable to most of the individuals that are entering Australia and comprises of the following;

1. Any Migrants
2. Any overseas student visited Australia for the purpose of study
3. Any visiting coming to Australia
4. Any form of workers arriving in Australia for the purpose of planned contracts of employment

4. Medicare Levy in Australia is designed to provide residents with the health care access. Medicare levy is required to be paid by the taxpayers at a rate of 2% to partly fund for the health care access (Saad, 2014). If an individual’s assessable income is below the certain limit then that person Medicare levy might be lowered or at times they might not be required to pay any form of levy. Conversely, an individual is required to pay Medicare Levy surcharge if an individuals have the health insurance of a private hospital.

5. As defined under the Schedule 2 of the Competition and Consumer Act 2010, any form of misconduct that is deceptive or false shall be barred under Section 18 of the Australian Consumer Law (Woellner et al., 2016). Section 12DA of the Australian Securities and Investment Commission Act 2001 defines the prohibition of deceptive and false conduct of financial service. The main purpose of this principle is to offer security and safety to the consumers from being misguided by deceptive business practices.

6. Section 25-45 of the Income Tax Assessment Act 1997 is concerned with the lost arising out of theft (Robin, 2017). The section clearly defines the loss in regard to the money that cannot be deducted by one if;

1. An individual determines the loss in the income year
2. The loss that is determined is resulting out of the activities in the form of theft, stealing, defalcation etc.
3. The amount should be involved in the assessable income of the individual or might be an earlier year of income.

7. The Case of W Thomas & Co Pty Ltd v FC of T (1965), is concerned with the deduction that a tax payer can claim for undertaking repair (Blakelock & King, 2017). As evident from the case, the taxpayer is considered as flour miller and grain merchant who purchased a building and some of the parts were in a broken state. An individual then took the extensive amount of repairs of work that comprised of roof, guttering, walls and floor of the building. Then the taxpayer in this case claimed deductions for the cost of repair. However, it can be stated that the amount cannot be claimed as allowable deductions since the expenditure was not for the purpose of the generating assessable income of the taxpayer.

Types of taxation rulings

8. A taxpayer can undertake one of the following method of valuing stock item at the end of income year which are as follows;

1. The taxpayer can adopt cost price method by bringing all the cost related stock at its current location and situation
2. Market selling value that uses stock current value if it is sold in the normal course of business
3. Method of replacement value where the cost to acquire is relatively same

9. An individual with a taxable income of $45,000 in the year 2016/17 shall be liable to pay tax of $3752 and additionally the taxpayer would be required to pay 32.5c for every $1 over $37,000.

10. The PAYG can be defined as Pay As You Go income tax instalment system which comprises of the payments that are made constantly by the employers and other taxpayers (Fry, 2017). An instalment method of collecting income tax is used to make regular payments towards the anticipated income tax liability of a person for the year. Individual paying PAYG instalments will be required to file a tax return for the year.

As defined under Division 8 of the Income Tax Assessment Act 1997 it provides the rules that is concerned with the deductibility of outgoing and losses (Tran-Nam & Walpole, 2016). The division helps in making distinction between the general deductions with reference to discussion made under section 8-1 of the Income Tax Assessment Act 1997 along with the specific deductions that is provided under section 8-5 of the Income tax Assessment Act 1997. As defined under section 8-1 of the Income Tax Assessment Act 1997 a taxpayer can be allowed for claiming allowable deductions for the loss or outgoing that has been occurred for;

1. Generating and producing the taxable income
2. The expenditure that is occurred is related with the business activities of the taxpayers

As defined under section 8-5 of the Income tax Assessment Act 1997 an individual is allowed to claim specific deductions from the taxable income (James, 2016). As evident from the present case Ram has incurred three forms of expenditure and the deductibility of the nature is defined under the stated section. Section 25-5 of the Income Tax Assessment Act 1997 defines that the expenditure have been occurred for administrating the tax affairs that can be allowed as deductions. Hence, the taxpayer can claim deductions for the cost of accounting and the fees incurred for tax agent. As evident Ram incurred the solicitor expense so that it can draft an objection against the assessment.

As defined under Para 11 of the Taxation Ruling 2011/5 it defines that a person on not being satisfied with the assessment the taxpayer can bring forward the objection in regard to the provision defined under section 175A(1) of the Income Tax Assessment Act 1936. The Interpretive Decision 2002/814 is concerned with the issue relating to the deductibility of the legal or accounting expenditure for dispute with the authorities of tax (Russell, 2016). Therefore, with reference to section 8-1 of the Income Tax Assessment Act 1997 the expenses incurred by Ram can be claimed as allowable deductions.

The sum that is occurred for the payment of income tax will not be considered in teh form of allowable deductions under the section 8-1 of the Income Tax Assessment Act 1997. Hence it can be stated that the calculations of the allowable deductions are provided below;  

Calculations of Allowable Deductions of Ram:

 Table 1: Allowable Deduction

Overview of Medicare levy

(Source: Created by Author)

The term “Resident” is stated under section 995-1 of the Income Tax Assessment Act 1997 which explains that an individual will be considered as Australian resident for the purpose of taxation (Dunne et al., 2016). Section 6-1 of the Income Tax Assessment Act 1936 lays down definition of resident and reflects the primary test for deciding the residential status of the individual. As defined under the Para 32 of the Taxation Ruling 98/17 it is defined that a person can be considered as resident in compliance with the section 6-1 of the Income tax Assessment Act 1936.

Section 6-1 of the Income tax Assessment Act 1936 defines four test of residency stated below

1. Residential status in terms of the ordinary concept
2. Domicile test or the permanent place of abode
3. 183 days test; and
4. Superannuation fund test;

The taxpayer was born and residing in Australia will be considered as an Australian resident for taxation purpose with ordinary concept. If an individual is not considered as resident in terms of the ordinary concept then the statutory test is implemented in determining the residential status and on satisfying the primary test the person shall be considered as resident. As per the domicile test an individual with permanent place of abode in Australia will be considered as the resident of Australia for the taxation purpose. The rule of 183 days defines an individual to be an Australian resident if the person has been present in Australia for a period of not less than six months either constantly or in breaks. The superannuation test is applied for the Australian government employees working on overseas employment. The law further defines that an individual shall be regarded as Australian resident if an individual enrols in a course having a duration of more than six. As evident in the present scenario of Tina, she arrived in Australia for the purpose of study and her stay lasted for more than 183 days. As a result of this she will be considered as the Australian resident for the purpose of taxation.

An individual is taxed for their income across derived from all parts of the world. As defined under section 4-15 of the Income Tax Assessment Act 1997 it lays down that the taxable income is computed by deducting the allowable deductions from the taxable income (Ato.gov.au, 2017). Section 6-5 of the Income tax Assessment Act 1997 categorizes assessable income in the form of ordinary income and the statutory income is defined under section 6-10 of the Income tax Assessment Act 1997. On the other hand, income that does not form the part of the ordinary income is considered as statutory income under section 6-10 of the ITAA 97. This represents that the income that is earned by Jimmy by working in restaurant in the form of taxpayer is considered as ordinary income under and it will be considered taxable under section 6-5 of the ITAA 97.

The tips that are received by the customers in the form of incentive which is directly related to the employment shall be considered in the form of taxable income. The receipt of sum by the individual will not be considered for taxation purpose. As evident from the present scenario of Jimmy it has been found that the receipt of $250 as a gift is considered as taxable (Ato.gov.au, 2017). There are some forms of incomes that are included in the assessable income since they are exempted from being considered as income under section 6-20 of the Income Tax Assessment Act 1997.

Consumer protection laws in Australia

Gifts are usually not considered for taxation however if it received as in the form of part of business activity or received in the form of income generating activity then it is regarded as assessable income. Gifts that are received from the parents are not considered for the purpose of taxation since they are not associated with income or business related activity. The Taxation Ruling TR 97/17 defines that the food and drink offered by the employer to the employee shall be considered as meal entertainment and are subjected to fringe benefit taxation (Ato.gov.au, 2017).

The represents that the benefit provided will be regarded as fringe benefit and the employer will be allowed for claiming taxable deductions for the expenditure which is associated with employees. The income from employment of the employee shall be considered in the fringe benefit offered by the employer. Hence, it can be stated that the dinner benefit that is received from the employer must be included in the assessable income. The computation of assessable income is stated below;  

 Table 3: Assessable Income

(Source: created by Author)

As defined under the Taxation Ruling TR 93/30 it lays down the detail relating to the expenses that are allowed in the form of deductions for home office expenditure (Ato.gov.au, 2017). An individual working from home will be able to claim certain amount of expenditure concerning the area that is used. The deduction that can be claimed are classified are as follows;

1. If an individual having a distinct area of work at their home
2. If an individual does not have the separate area of work at their home

An individual can claim for the allowable deductions if there is a separate area of work. They are as follows;

1. Room utilities in the form of gas and electricity
2. Cost that are associated to phone
3. Depreciation on the plant and equipment
4. Depreciation in the amount of carpet, curtain and fittings of the light

Hence, if a person does not have a separate area of work then a taxpayer can claim all the deductions barring the expenses related to the depreciation of carpets, curtains and fitting of lights.

Calculations of Allowable Deductions

 Table 4: Allowable deduction

(Source: created by Author)

Reference List:

Blakelock, S., & King, P. (2017). Taxation law: The advance of ATO data matching. Proctor, The, 37(6), 18.

Braithwaite, V. (Ed.). (2017). Taxing democracy: Understanding tax avoidance and evasion. Routledge.

Cao, L., Hosking, A., Kouparitsas, M., Mullaly, D., Rimmer, X., Shi, Q., … & Wende, S. (2015). Understanding the economy-wide efficiency and incidence of major Australian taxes. Treasury WP, 1.

Dunne, J., Taylor, H., Batten, N., & Krapivensky, N. (2016). 2015 case review: High ATO success rate continues. Taxation in Australia, 50(10), 609.

Fry, M. (2017). Australian taxation of offshore hubs: an examination of the law on the ability of Australia to tax economic activity in offshore hubs and the position of the Australian Taxation Office. The APPEA Journal, 57(1), 49-63.

James, K. (2016). The Australian Taxation Office perspective on work-related travel expense deductions for academics. International Journal of Critical Accounting, 8(5-6), 345-362.

Legal Database. (2017). Ato.gov.au. Retrieved 6 September 2017, from

https://www.ato.gov.au/law/view/document?Docid=TXR/TR9330/NAT/ATO/00001

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https://www.ato.gov.au/law/view/document?docid=TXR/TR9717/NAT/ATO/00001

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https://www.ato.gov.au/law/view/document?locid=%27TXR/TR20115/NAT/ATO%27&PiT=99991231235958

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https://www.ato.gov.au/law/view/document?DocID=PAC/19970038/6-5

Pinto, D. (2011). State taxes. In Australian Taxation Law (pp. 1763-1762). CCH Australia Limited.

ROBIN, H. (2017). AUSTRALIAN TAXATION LAW 2017. OXFORD University Press.

Russell, T. (2016). Trust beneficiaries and exemptions from CGT: Reflections on the Oswal litigation. Taxation in Australia, 51(6), 296.

Saad, N. (2014). Tax knowledge, tax complexity and tax compliance: Taxpayers’ view. Procedia-Social and Behavioral Sciences, 109, 1069-1075.

Tran-Nam, B., & Walpole, M. (2016). Tax disputes, litigation costs and access to tax justice. eJournal of Tax Research, 14(2), 319.

Woellner, R. H., Barkoczy, S., Murphy, S., Evans, C., & Pinto, D. (2016). Australian Taxation Law Select: Legislation and Commentary 2016. Oxford University Press.

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