cpa advanced taxation 2016 (edition 2) notes - amazon s3 · cpa advanced taxation 2016 (edition 2)...

List of Abbreviations

1 Part A: Australia's tax law environment

CPA Advanced Taxation 2016 (Edition 2) Notes

Contents List of Abbreviations ............................................................................................................................... 6

Module 1 - Tax administration ................................................................................................................ 7

Part A: Australia's tax law environment ............................................................................................. 7

Australian parliamentary system .................................................................................................... 7

Separation of powers ...................................................................................................................... 8

Power to raise taxes ........................................................................................................................ 9

Taxation bills ................................................................................................................................. 10

The courts ..................................................................................................................................... 12

Administrative law involving taxation ........................................................................................... 14

Part B: Income tax returns, assessment and payment ..................................................................... 16

Income tax self-assessment .......................................................................................................... 16

Tax returns and assessment.......................................................................................................... 17

Payment of income tax ................................................................................................................. 22

BAS/ IAS/ RBA................................................................................................................................ 24

Part C: Rulings and penalties ............................................................................................................ 25

Part D: Tax agent services regime and the Code of Professional Conduct ....................................... 29

Part E: Anti-avoidance rules and Part IVA ......................................................................................... 32

Module 2 - Principles of assessable income ......................................................................................... 35

Part A: The tax equation ................................................................................................................... 35

Part B: Assessable income ................................................................................................................ 36

Income .......................................................................................................................................... 36

Residence ...................................................................................................................................... 38

Source of income .......................................................................................................................... 40

Derivation of income .................................................................................................................... 41

Part C: Income from business ........................................................................................................... 43

Part D: Compensation ....................................................................................................................... 45

Part E: Assessable income- statutory extensions ............................................................................. 46

Royalties ........................................................................................................................................ 46

Foreign exchange gains and losses ............................................................................................... 46



Foreign exchange gains and losses ............................................................................................... 47

Part F: Trading stock ......................................................................................................................... 48

Module 3 - Principles of general and specific deductions .................................................................... 51

Part A: General deductions (s. 8-1) ................................................................................................... 51

Part B: Specific statutory deductions ................................................................................................ 54

Part C: Limitations on deductibility ................................................................................................... 57

Entertainment Expense ................................................................................................................. 57

Occupational Clothing ................................................................................................................... 57

Payments to related entities ......................................................................................................... 58

Prepayments ................................................................................................................................. 58

Self-education expenses ............................................................................................................... 58

Losses from non-commercial business activities .......................................................................... 59

Substantiation of expenditure ...................................................................................................... 59

Thin capitalisation ......................................................................................................................... 61

Module 4 - Capital expenditure allowances ......................................................................................... 63

Part A: General depreciation rules.................................................................................................... 63

Part B: Balancing adjustments and rollover relief ............................................................................ 67

Part C: SBE capital allowance rules ................................................................................................... 69

Part D: Special capital allowance rules ............................................................................................. 71

Part E: Deduction for capital expenditure on capital works ............................................................. 73

Module 5 - Capital gains tax (CGT) ........................................................................................................ 74

Part A: Overview of capital gain tax (CGT) ........................................................................................ 74

Part B: The six-step approach to CGT ............................................................................................... 75

Part C: Step 1 - identifying a CGT event ............................................................................................ 76

Part D: Step 2 - identifying a CGT asset ............................................................................................ 85

Part E: Step 3 - calculating a capital gain or loss ............................................................................... 87

Part F: Step 4 - considering exceptions or exemptions..................................................................... 89

Part G: Step 5 - considering rollover provisions ................................................................................ 90

Part H: Step 6 - determining net capital gain/loss ............................................................................ 91

Part I: Special circumstances ............................................................................................................. 93

Part J: CGT concessions and special rules ......................................................................................... 95

Module 6 - Individuals........................................................................................................................... 98

Requirements to lodge an income tax return ................................................................................... 98

Determining taxable income and tax payable .................................................................................. 98



Tables of Tax Rates ........................................................................................................................... 98

Individual Tax rates ....................................................................................................................... 98

Minors ........................................................................................................................................... 99

Life benefit termination payments ............................................................................................... 99

Death benefit termination payments ......................................................................................... 100

Unused leave ............................................................................................................................... 100

Superannuation member benefit ............................................................................................... 100

Rebates ....................................................................................................................................... 101

Medicare Levy ............................................................................................................................. 102

Medicare Levy Surcharge ............................................................................................................ 102

Temporary Budget Repair Levy ................................................................................................... 103

Part A: Income................................................................................................................................. 104

Tax treatment of minors ............................................................................................................. 104

Assessable income ...................................................................................................................... 106

Superannuation benefits............................................................................................................. 108

Part B: Deductions .......................................................................................................................... 111

Part C: Tax offsets applicable to individual taxpayers .................................................................... 112

Dependent rebate ....................................................................................................................... 113

Medical expense ......................................................................................................................... 113

Zone rebate ................................................................................................................................. 114

Senior Australians and pensioners tax offset (SAPTO) ............................................................... 114

Part D: Levies and other charges .................................................................................................... 116

Part E: Specific issues ...................................................................................................................... 117

Personal services income ............................................................................................................ 117

Employee share schemes ............................................................................................................ 120

Module 7 - Partnerships...................................................................................................................... 121

Part A: Partnerships ........................................................................................................................ 121

Part B: Taxation of partnerships ..................................................................................................... 123

Module 8 - Trusts ................................................................................................................................ 126

Part A: Trusts ................................................................................................................................... 126

Part B: Provisions governing the taxation of trust income from a resident trust .......................... 128

Determining net income of the trust and tax implications on distribution ................................ 128

Family trusts ................................................................................................................................ 133

Trust losses .................................................................................................................................. 134



Distributions of non-assessable amounts- CGT event E4 ........................................................... 135

Expanded trust TFN withholding and reporting rules ................................................................. 136

Module 9 - Companies and dividends ................................................................................................ 137

Part A: Taxation of companies ........................................................................................................ 137

Part B: Taxation of dividends .......................................................................................................... 142

Definition of dividends ................................................................................................................ 142

Debt and equity .......................................................................................................................... 145

Dividend imputation system ....................................................................................................... 147

Module 10 - Consolidations ................................................................................................................ 153

Part A: Eligibility to consolidate ...................................................................................................... 153

Part B: Key consolidation rules ....................................................................................................... 155

Part C: Joining a consolidated group............................................................................................... 157

Part D: Transfer and utilisation of losses ........................................................................................ 159

Part E: Consolidated group's tax compliance ................................................................................. 160

Part F: Exiting a consolidated group ............................................................................................... 161

Module 11 - Transfer pricing............................................................................................................... 162

Part A: Transfer pricing legislative framework ............................................................................... 162

Part B: Applying the arm's length principle .................................................................................... 165

Part C: Accepted arm's length methodologies ............................................................................... 166

Part D: Key compliance issues ......................................................................................................... 168

Module 12 - Fringe benefit tax (FBT) .................................................................................................. 169

Part A: Fringe benefits tax - core concepts ..................................................................................... 169

Part B: Specific fringe benefits ........................................................................................................ 173

Car benefits ................................................................................................................................. 173

Car parking benefits .................................................................................................................... 174

Debt waiver ................................................................................................................................. 175

Loan fringe benefits .................................................................................................................... 176

Expense payment fringe benefits ............................................................................................... 177

Housing ....................................................................................................................................... 178

Living-away-from-home allowance (LAFHA) ............................................................................... 179

Board ........................................................................................................................................... 180

Property ...................................................................................................................................... 181

Residual benefits ......................................................................................................................... 182

Part C: Administration and reporting of FBT .................................................................................. 183



Module 13 - Goods and services tax (GST) ......................................................................................... 184

Part A: Overview of the GST ........................................................................................................... 184

Part B: Fundamental GST concepts ................................................................................................. 186

Taxable supply............................................................................................................................. 186

GST-free and input taxed supplies .............................................................................................. 189

Taxable importations .................................................................................................................. 190

Input tax credits .......................................................................................................................... 191

Part C: GST compliance and reporting ............................................................................................ 193

Part D: Special GST issues and transactions .................................................................................... 195


Part A: Australia's tax law environment 6


Abbreviation Description

TTA Taxation Administration Act 1953 (Cwlth)

ADJR Administrative Decision (Judicial Review) Act 1977 (Cwlth)

AAT Administrative Appeals Tribunal

STCT Small Taxation Claims Tribunal

ADR Alternative Dispute Resolution

PAYG Pay as you go

GIC General Interest Charges

BAS Business Activity Statement

IAS Instalment Activity Statement

RBA Running balance account

WET Wine equalisation tax

LCT Luxury car tax

ABN Australian Business Number

TASA Tax Agent Services Act

TPB Tax Practitioners Board

Code Code of Professional Conduct

ADI Authorised deposit-taking institutions

ETP Employment termination payment

RSA Retirement savings account

DICTO Dependent (invalid and carer) tax offset

SAPTO Senior Australians and Pensioners Tax Offset

ATIO Adjustable taxable income for offsets

ATIR Adjustable income for rebates

PSI Personal service income

PSE Personal services entity

PSB Personal services business

Module 1 - Tax administration



Part A: Australia's tax law environment

Australian parliamentary system

What are the two primary levels of government in Australia? [p19]

1. Commonwealth

2. States and territories

What is the role of the Australian Constitution? [p19]

Influences the form of the federal government and its relations with the states.

The Australian Commonwealth Parliament operates under the Westminster system and uses

which two chambers (houses), where the members are elected by the people? [p19]

1. Lower House: House of Representatives

2. Upper House: Senate

Who is Australia's head of state? [p19]

Queen Elizabeth II, she is represented in Australia by the Governor-General who is the

official leader of parliament.

The Governor-General acts on the advice of the PM and Cabinet and giver royal assent to a

proposed law (a bill)

How is parliament formed? [p19]

Leader of political party with majority of seats in Lower House becomes Prime Minister

PM appoints ministers from their own party or coalition to form the Cabinet

Cabinet's main role is to determine government policy and initiate most of the

parliamentary business

Cabinet may also be asked questions in parliament about policy issues

Which state parliament does not have a similar two-house system and only has one house? [p19]

Queensland



Separation of powers

The Australian Constitution establishes which three types of powers and who is it exercised by?

[p20]

1. Legislation power (make laws): parliament has the power to create, amend and appeal

Commonwealth laws.

2. Executive power (put law into operation): The executive is the body that makes policy

decisions, administers the laws and carries out the business of government. Although the

Governor-General possesses sole executive power under the Constitution, he/she acts on

the advice of the current Cabinet ministers.

a. Government (Prime minister and Cabinet): policy formation

b. Public service under direction of minister: administration and bureaucracy

3. Judicial power (interpret laws): Interpretation, application of laws and determination of

punishments courts

What is the principle behind the separation of powers of legislation, executive and judicial? [p21]

Promote government stability and freedom of the people by providing independence

between the institution of parliament (lawmakers) and the courts (adjudicators).

Power does not concentrate within one body, thereby lessening the potential for abuse.

Why is there no distinct separation of powers between parliament and government? [p21]

The Prime Minister and Cabinet are members of the parliament that exercises legislative

power and they also exercise executive power as the government.

The only check is that the government is accountable to the people through parliamentary

scrutiny.

Why is there a strict separation of judicial power? [p21]

Judges are appointed by the Governor-General and cannot be removed unless by incapacity,

old age or proven misbehaviour.

Makes courts independent of political influence.

The court interprets and applies the law but does no given advisory opinions.

A court has limited scope to review an administrative decision and may declare it invalid or

refer it back to the decision-maker but it cannot remake the decision.



Power to raise taxes

Which law gives the parliament to raise taxes? [p21]

s51(ii) of the Constitution gives concurrent power.

Commonwealth exclusive power to raise important taxes such as income tax and GST,

customer and excise.

States and territories raise taxes such as stamp duty, land tax and payroll tax. Have power

except those powers reserved exclusively to the Commonwealth. Where conflict arises

between state and territory and Commonwealth, the Commonwealth will prevail.

Municipal authorities (city councils) impose rates and levies for local service provided

(garbage collection)

What is an example of the balance of power to raise revenue? [p21]

(Introduction of GST - COAG 1999) Commonwealth and state governments entered into an

arrangement whereby the Commonwealth repealed the sales tax and provided for the

transfer of GST revenue to the states in return for the states abolishing nine indirect taxes.

What is an example that laws imposing tax can only deal with the imposition of taxation? [p22]

Assessment Act deals with assessment and collection of tax

Ratings Act imposes that tax and determines the rate



Taxation bills

What is a taxation bill? [p22]

A bill is a proposed law in draft form.

A taxation bill is a bill that imposes a tax.

What does s. 53 of the Constitution say about the Senate's involvement in a taxation bills? [p22]

Taxation bills cannot originate or be amended by the Senate.

The Senate may ask the House of Representatives to amend the bills.

What is the process of initiating a tax bill? [p22]

1. Proposals are considered by the Prime Minister and Cabinet.

2. Treasurer responsible for arranging the preparation of bills relating to raising revenue.

3. The Office of Parliamentary Counsel drafts the bill in accordance with instructions from

Treasury.

4. Bill is introduced to the House with a first reading where the long title is read out. Copies of

the bill and any explanatory memoranda are given to members of parliament and made

publicly available.

5. The second reading speech explains the purpose and principles of the bill. The second

reading debate gives opportunity for the Opposition and other non-government members to

speak before voting on whether to agree to the bill in principle.

6. The bill is then examined in detail with opportunity for members to suggest amendments.

7. Third reading usually a formality, after which the bill has passed the House of

Representatives.

8. The bill is then presented to the Senate where it again has three readings. If agreement

cannot be reached, the bill is laid aside.

9. If the bill passes both Houses, it is presented to the Governor-General for assent, at which

time it becomes an Act of Parliament.

What evidence is used by the courts in determining the meaning of intention of the Act according

to s. 15AB of Acts Interpretation Act 1901 (Cwlth)? [p22, 26]

1. Second reading speech

2. Any explanatory memoranda

3. Record of any debate

4. Reports from royal commissions and committees of inquiry

5. reports of a parliamentary committee



What is the commencement date of an Act? [p22, 24]

An Act may specify the date of commencement, but if not, the default commencement is the

twenty-eighth day after receiving assent.

Legislation can be retrospective from the date of assent. An example is 'legislation by public

announcement' whereby Government publishes a statement of intention to change a tax

law with an effective date of that notice (eg. Federal Budget bill).



The courts

What is the court appeal process for questions of law concerning taxation? [p24]

1. Federal tribunal (such as AAT) and direct appeal of certain Commonwealth administrative

decisions. These are non-judicial administration.

2. Federal Court

3. Full Federal Court: requires full bench and majority decision

4. High Court of Australia: requires appeal by special leave where questions of law exist.

5. Full bench of the High Court if the case was heard before a single judge of the High Court.

The judgement is final and conclusive.

*There are time limits on when an appeal can be made. [p25]

What are the following terminologies? [p25-26]

Doctrine of precedent: A decision from a higher court is a binding precedent for inferior

courts in the same hierarchy.

Ratio Decidendi: Reasons for the decision

Obiter dictum: 'things said by the way' and does not form part of the persuasive precedent.

Persuasive Precedent: not binding but may be considered by the courts.

What are examples of persuasive precedents? [p26]

1. Obiter Dictum from a judgement of a higher court in the same hierarchy

2. Decisions of a court in the same or lower level in the same hierarchy

3. Decisions of a court in another hierarchy

What is statutory interpretation? [p26]

When the courts hears disputes about the meaning of a legislative provision.

The courts must give meaning to the words used in the statues where they may be written in

general terms and yet must be applied to a specific situation.

What are the reasons for the court to be called on for statutory interpretation? [p26]

1. Meaning of words - ambiguous, undefined in the legislation or used inconsistently

2. Intention of the legislation - not clearly defined

3. Changed circumstances - situations may not have been foreseen at the time of drafting

4. Gaps in legislation: an Act cannot cover all types of situation



What principles have the courts developed for legislative interpretation? [p26]

1. Literal meaning: used dictionaries or other sections of the Act to determine the definition of

a word.

2. Purpose of the Act is used where the literal meaning seems inappropriate or ambiguous.



Administrative law involving taxation

What is the responsibility of the ATO? [p27]

ATO is responsible for collecting revenue for the federal government and is part of the

treasurer's portfolio

The ATO administers legislation for taxes, superannuation and excise under supervision of

the Commissioner.

Who appoints the Commissioner and what powers do they have? [p27]

The Governor-General appoints.

The Commissioner is granted general powers of administration and may delegate authority

to tax officers

What is administrative law? [p27]

Methods to challenge an administrative decision of a government officer.

What recourse does a person affected by tax administration actions have? [p28]

1. Reconsideration by the Commissioner using the objection process (Part IVC of TAA)

2. Review of the decision based on its merits by the AAT, or by direct appeal to the Federal

Court (Part IVC of TAA)

3. Judicial review by a court (Under ADJR)

4. Complaint to the Commonwealth Ombudsman

What is the Commonwealth Ombudsman? [p28]

Appointed by the Governor-General, the Ombudsman is an independent person with wide

powers to investigate complaints about certain government departments and agencies.

A report may be made concerning the relevant agency if an informal view or

recommendation has not be acted on.

The Ombudsman is a last resort because they cannot overturn or remake the original

decision.

Who has quasi-judicial powers? [p28]

1. Commissioner: ability to impose administrative penalties, tax ruling may be regarded as de

facto law making



2. AAT: hearing disputes that become binding on those parties.

Why is considerable onus placed on taxpayers where an assessment is raised? [p28]

An assessment is deemed correct and is protected from challenge except through the

statutory review or appeals process of Part IVC of TACC.

When Part IVC of TACC applies, the taxpayer must not only show that the assessment is

excessive but also demonstrate the correct amount.


Part B: Income tax returns, assessment and payment 16

Part B: Income tax returns, assessment and payment

Income tax self-assessment

What is an assessment as defined in s. 6(1) of ITAA36? [p29]

The ascertainment of the amount of taxable income and of the tax payable on that taxable

income.

What is self-assessment, partial self-assessment and full self-assessment? [p29]

Self-assessment is when taxpayers are required to lodge returns disclosing sufficient

information for the Commissioner to determine the income tax payable on their taxable

income. The Commissioner then issues a notice of assessment.

Partial/ordinary self-assessment, individuals and trustees, is when the ATO generally accepts

the statement made in a tax return at face value and issues an assessment based on the

taxpayer's return. The result is not generally subject to close technical scrutiny prior to the

assessment being issued.

Full self-assessment, applies to companies and superannuation funds, whereby lodging a

return creates an automatic deemed assessment based on the information in the return.

Under self-assessment who is the onus on? [p29]

Under self-assessment, the onus is on the taxpayer to understand the tax law and apply it

correctly in preparing and lodging their tax returns and other documents.



Tax returns and assessment

What is the tax return and assessment process?

1. Taxpayer sees whether they need to lodge a return and lodges a return.

2. Taxpayer receives a notice of assessment.

3. Taxpayer objects to the assessment and drafts an objection to the ATO.

4. Taxpayer appeals to the ATO's rejection to AAT or Federal Court.

5. AAT and Federal Court use alternative dispute resolution process

6. Where a dispute cannot be settled, proceed to the AAT or Federal Court for hearing

7. Appeal from AAT to the Federal Court 'on a question of law' rather than a 'question of fact'

and does not rehear the entire case

8. The next appeal is to the Full Federal Court before special leave is required to appeal to the

High Court.

Returns

Who needs to lodge a tax return? [p30]

Categories of taxpayers published in the annual Government Notices Gazette (eg. individuals

deriving over a certain amount of taxable income, most companies, trusts, partnerships and

superannuation funds)

Companies generally need to provide more detail such as a 'Reportable tax position

schedule'.

What are the responsibilities of the taxpayer? [p30]

1. Be aware of the publication of the gazette notice

2. Return must be in the prescribed format

3. Return must be signed by the taxpayer and tax agent to be true and correct.

What powers do the ATO have regarding the return process? [p30]

1. Commissioner has the power to exempt certain classes of taxpayers from the requirement

to lodge a return

2. ATO has power to extend the time for lodgement of return. Eg Commissioner uses this

power to create lodgement programs whereby taxpayer's return are prepared and lodged by

a tax agent.

3. Commissioner can require 'further' return or 'special' return

Why is the service of a notice of assessment an important step in the taxing process? [p30]



There is generally no liability to pay tax until a notice of assessment is served on them

Assessment

What are the ATO's power regarding the six different assessments? [p31-32]

1. Ordinary assessment: Commissioner can substitute ATO's figures in the taxpayer's return

when making an assessment

2. Full self assessment: Commissioner is deemed to have made an assessment of tax payable

(or refundable) on the day the return is lodged with the ATO

3. Default assessment: Make a default assessment if a taxpayer has not lodged a return,

Commissioner is dissatisfied with lodged return and when no return is lodged but there is

reason to believe taxable income has been derived.

4. Special assessment: Commissioner to make an assessment for any part of a tax year,

especially where a taxpayer intends to leave Australia part-way through a year

5. Other assessments: Commissioner to assess in situations where the tax legislation imposes

liability on amounts that may not fall within the usual definition of 'taxable income'.

6. Consolidated assessments: Commissioner to issue a single consolidated assessment where

two or more people receive income on behalf of a person not in Australia.

What are the four time limits imposed on ATO amendments? [p33]

Less complex the taxpayer's affairs, the shorter the period within which amendments can be made.

1. Two years from the day on which Commissioner served notice of assessment for most

individuals and 'small business entities' (aggregate annual turnover below $2m)

2. Four year from the day on which Commissioner served notice of assessment for larger

entities and individuals with complex affairs and certain 'higher risk' taxpayers

3. Unlimited time for avoidance of tax, amendment to give effect to a re4view or appeal or

amendment relates to provisions which expressly provide for an unlimited period for

amendment

4. Commissioner to re-amend an assessment for a second or subsequent time in prescribed

circumstances within two or four years of the later assessment.

What are the circumstances the Commissioner can amend an assessment after the expiry of the

normal time limit? [p33]

1. Before the expiry of the time limit, the taxpayer required an amendment

2. Before the expiry of the time limit, the taxpayer had applied for a Private Ruling



What are the circumstances the Commissioner can obtain an extension to amend where the ATO

has begun but not completed an examination of the taxpayer's affairs before expiry of the time

limit? [p33]

1. Obtained permission from the Federal Court

2. Taxpayer consents in writing.

Tax audits

What approach does the ATO use in tax audits? [p34]

1. Use a 'risk management' approach of identifying and focussing efforts on 'higher risk'

2. Backed up by a 'scaled' approach to reflect the ATO's Compliance Model to move taxpayers

from the higher to lower risk

a. make it easy

b. help to comply

c. deter by detection

d. use the full force of the law

What is a risk review? [p35]

Before proceeding to an audit, if the ATO is suspicious, it allows for voluntary disclosures for

taxpayers which can reduce significant penalties later.

What are the ATO's information gathering power? [p35-36]

1. All taxpayers to create and retain hard-copy or electronic records in English

2. ATO officer is entitled at all times have full and free access to all buildings, places, books,

documents and other papers for any proper purpose and can make copies of or extracts.

3. Occupier of premises to provide all reasonable facilities and assistance for the effective

exercise of their powers'

4. Require person to provide specified information, give evidence on relevant matters, provide

specified books, documents and papers.

5. Ask the Australian Federal Police to obtain a search warrant.

What are the limitations of the ATO's gathering power? [p37]

1. Does not give ATO officers power to remove original items.

2. Usually cannot obtain access to documents or communications protected by legal

professional privilege.

3. Provide an accountants' concession to 'restricted source' and 'non-source' documents



Objections

If a taxpayer disagrees with the ATO ruling or interpretation, how can he/she avoid the risk of

imposition of penalties? [p39]

They first prepare according to the ATO ruling or interpretation then object against the

assessment.

Where a taxpayer wishes to object against an amended assessment, what time frame do they

need to lodged the objection by? [p39]

The later of

1. the normal two or four year limit applying to the original assessment

2. 60 days after the notice of amended assessment has been served.

If they fail to lodge an objection within the specified time, they can apply to the Commissioner for an

extension. [p39]

How can the taxpayer extend their grounds for objection as any review by the AAT or appeal to

the Federal Court after the Commissioner disallows it is limited to the grounds stated in the

objection? [p39]

The taxpayer can apply to the AAT or Federal Court hearing their case for leave to amend

their grounds of objection.

Reviews and Appeals

What is the difference between AAT or Federal Court? [p41]

1. AAT can re-exercise the powers and discretions of the Commissioner whereas the Federal

Court can only override an exercise of the Commissioner's discretion

2. AAT hearings may be less formal than a court hearing

3. Proceedings in the AAT (except STCT for small claims) are private at the request of the

taxpayer; Federal Court are public

4. AAT is cheaper than Federal Court

Who bears the onus of proving their case on the balance of probabilities? [p41]

Taxpayer

The Commissioner does not have to prove the assessment is correct or not excessive.

If the arguments of the Commissioner and taxpayer are evenly balanced, the taxpayer will

lose.



What is the difference between a 'question of law' and a 'question of fact'? [p42]

A question of fact is determining the chain of events of what actually happened.

Misunderstanding the legal effect of a prior case is a question of law



Payment of income tax

What are time limits on the payment of income tax? [p43]

Individuals or trustees.

o 21 days after the notice of assessment is given if the tax return is lodged before on

the lodgement date.

o 21 days after the due date for lodgement if a tax return is late or not lodged.

Companies and superannuation funds (self-assessment entities / full self-assessment

taxpayers)

o Due on the first day of the sixth month after the end of the tax year (as a standard

tax year ending on 30 June, the payment date is generally 1 December)

What is a PAYG withholding system? [p43]

A process of deducting tax determined from a withholding schedule from payments made to

others (such as employees) and remitting the tax to the Commissioner.

What is the date at which the funds must be remitted to the ATO determined by? [p44]

Determine according to the value of their withholding in the previous financial year.

What is a PAYG instalment system? [p45]

Concerns the paying of instalments on expected tax liabilities for business and/or

investment income for companies, superannuation funds and individuals.

Aims to spread large tax obligations over time through the progressive collection of income

tax in a financial year.

Taxpayer is only liable to make PAYG instalments if they have been issued an instalment rate

by the Commissioner.

What are the two methods of calculating the PAYG instalments? [p46-47]

1. The 'GDP-adjusted notional tax' method

2. The 'instalment rate' method

Using either methods of PAYG instalments allows for adjustments to reduce the PAYG instalments.

What are the consequences of underestimating your taxes? [p47]

If the taxpayer pays less than 85% of their actual tax liability, then GIC might be levied.



Other references

PAYG withholding rates [p42]

Table of PAYG remission dates [p43]



BAS/ IAS/ RBA

What is a BAS? [p48]

A summary of credits and payments obligations of GST registered entity relating to

1. GST

2. PAYG withholding

3. PAYG instalments

4. FBT instalments

5. WET

6. LCT

What is a IAS? [p49]

Entities with ABN but not GST registered are issued IAS rather than BA. Individuals and trustees with

investment income (other than capital gain) will be issued an IAS relating to

1. PAYG withholding

2. PAYG instalments

3. FBT

What is a RBA? [p49]

Statement of account that itemises various tax liabilities and payments.

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