Taxation Law

ACC 304 Taxation Law

Workshop 1 Taxation

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Academic misconduct

Academic misconduct refers to any form of dishonesty by a student relevant to the student’s learning experience at Kaplan. It includes but is not limited to:

– any attempt by a student to submit work for an assessment that is not their own (e.g. plagiarism, paraphrasing, non-referencing, ghost writing)

– the reuse of significant portions of one's own work, previously submitted for assessment in another subject or course, or for a different question in the same course without acknowledging that one is doing it (self-plagiarism)

– any form of collusion between students or other individuals other than authorised collaboration

– any act that may impair or hinder the learning or assessment performance of others – any action contrary to the study, assessment and examination instructions given by

Kaplan – assisting or attempting to assist any other student to act dishonestly in relation to

an assessment or part of an assessment.

Plagiarism

Plagiarism refers to: – any use or attempt to use the work, words or ideas of

others without attribution of the author, or – any attempt to pass off the work, words or ideas of others

as the writer’s own.

Plagiarism also extends to reusing significant portions of one's own work, previously submitted for a different assessment without acknowledging that one is doing it. This is known as self-plagiarism.

Collusion

Collusion occurs when a student works with others, contrary to Kaplan’s instructions, in an attempt to gain an unfair advantage in an assessment task.

Collusion includes: – joint effort in an assessment (unless it is authorised collaboration) – copying of material prepared by another person for use in an

assessment – undue assistance from any other person in an assessment – making assessment answers or material available to other students for

viewing or copying, either knowingly or unknowingly. It is the responsibility of students to ensure their assessment material is secure and not easily accessible to other students.

Contract Cheating

Contract cheating, otherwise known as ghost writing, occurs when a student engages (or attempts to engage) the services of another individual to author an assignment on the student’s behalf. A student can be guilty of contract cheating irrespective of whether payment is made or the services are received.

A student may be investigated for contract cheating where: • the student posts an advertisement seeking a ghost writer. • a ghost writer forwards correspondence to Kaplan regarding a student’s

enquiry. • a student submits work that is significantly different in style to the student’s

prior work.

Questions before workshop

Students to present their answers to questions 1, 2 & 3.

Learning Objective 1

Discuss the key political and social features to be considered in the development of a successful taxation system.

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What is taxation?

Taxation is the social process by which the Government uses its power to enforce its right to collect tax from taxpayers and use it to pay for governments services and policy agendas.

Sources of revenue 2016-17

Where the revenue is spent

1. What do you think are the key aspects of successful taxation system?

2. Develop your own definition of taxation

Class activity 1

Australian tax history

• Between the world wars there were two income tax systems State and Federal

• In 1942 it was agreed only the Federal government would have income taxing rights. This simplified the system.

• The states retained taxes like stamp duties and payroll taxes.

• Municipal governments also levy taxes called rates.

Learning Objective 2

Recognise the existence of different tax bases and discuss their relative merits

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Types of taxes The Australian tax system is a mix of direct and indirect taxes levied by all tiers of government governments.

• Direct taxes are taxes levied directly on the entity and include income tax and personal property taxes. Income taxes cover personal income tax, company tax and capital gains tax (CGT). Examples of personal property taxes are land tax (a State Government tax) and municipal rates on owner-occupied premises.

• Indirect taxes are taxes levied on transactions. They include GST (a Federal consumption tax based on Value added), Luxury Car Tax, Stamp Duty, Customs and Excise duties.

Refer to the 4th reading in the Preparation Guide for this topic https://www.abc.net.au/news/2015-04-06/steketee-our- missed-opportunity-to-tackle-wealth-inequality/6372210 Consider the following questions:

1. Do you think an income tax is the best way to collect revenue in a world of rising wealth inequality?

2. Develop 2 points in favour of income tax and 2 points in favour of a wealth tax

Class activity 2

The class nature of income tax “Modern taxation in its most characteristic aspect is a group struggle in which powerful interests vigorously endeavor to rid themselves of present or proposed tax burdens. It is first of all a hard game in which he who trusts wholly to economics, reason and justice, will in the end retire beaten and disillusioned. Class politics is of the essence of taxation” – Thomas Sewell Adams

Class activity 3

1. Do you believe there is a social class element in taxation?

2. Can you think of any examples of a powerful group looking to lower their tax burden?

3. If you were in a position where you had great wealth and paid no tax would you be willing to pay tax?

Learning Objective 3

Identify the key aspects of good taxation design and analyse a tax using the design principles

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Characteristics of a good tax There is tension between the theoretical design features of good tax policy and the political reality of tax

Theoretically a good tax is: • Efficient • Equitable (Vertical and horizontal) • Easy to administer • Simple, and • Able to raise revenue

What do these terms mean? Efficient Should not create distortions in the market. Can you think

of some distortions currently being created? Equitable Progressive in nature (that is the vertical aspect that has

resulted in most countries. The opposite is regressive). Also taxpayers on the same income have the same tax

burden (that is the horizontal aspect) Easy to administer The cost to collect the tax should be only a very small

proportion of the tax revenue itself.

What do these terms mean?

Simple Rules and legislation should be clear and

accessible

Raises revenue Should be accepted as part of the social

contract and not be able to be avoided

Learning Objective 4

Identify the tax paying entities in the Australian taxation system, calculate taxable income, tax assessed and the balance of a tax assessment

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Who pays tax?(s4-1 ITAA97)

The first question is: Who pays tax under the Australian system?

Examples of entities that pay tax: • Individuals • Companies • Superannuation funds

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Who does not pay tax? Examples of entities that do not pay tax: • Sole trader business • Partnership business • Exempt bodies

Why don’t these entities pay tax?

Exempt bodies pay no income tax. Sole tradership and partnership businesses do not however get away with no income tax burden. The onus for paying income tax is transferred to the taxpaying individuals who share the profits and losses of those entities

The tax process - Assessment

Apply the basic tax equation to calculate taxable Income: s4-15 ITAA97

Taxable Income = Assessable Income less Allowable Deductions

The tax process - Assessment Income Tax liability = Basic income tax liability + Medicare and other levies/liabilities - PAYG credits - Tax offsets Basic tax liability = Taxable income x Tax rate, s4-10(3) ITAA 97 The tax rate is determined by the Income Tax Rates Act 1986 (ITRA) and is a

progressive system with imposition rate increasing tax bracket by tax bracket (see following slide)

Medicare levy = Currently 2% of taxable income

Pay as you go (PAYG) credits. These amounts reduce income tax payable: • PAYG withholding (e.g. tax deducted by one’s employer or bank) • PAYG instalments (amounts paid by taxpayer to ATO in advance). This used to be

called provisional tax and exists because the taxpayer gains all or part of their assessable income from business activities e.g. a consultant who works for himself but is not incorporated)

Tax offsets – These amounts also reduce income tax payable. Examples • Low income tax offset • Low-and-middle income tax offset • Superannuation contributions made on behalf of one’s spouse (see Appendix 1 for

conditions) • Franking credits on dividends received (franking credits are first however included in Assessable Income)

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Resident Tax Rates in Financial Year 2019-2020

Taxable income Tax on this income

0 – $18,200 Nil

$18,201 – $37,000 19c for each $1 over $18,200

$37,001 – $90,000 $3,572 plus 32.5c for each $1 over $37,000

$90,001 – $180,000 $20,797 plus 37c for each $1 over $90,000

$180,001 and over $54,097 plus 45c for each $1 over $180,000

Class activity 4 • Rodney is an Australian resident adult employed by the Australian Red

Cross. His gross salary for the income year ended 30 June 2020 is $85,000, from which The Red Cross withheld tax instalments totaling $20,872.

• Rodney has a share portfolio which has generated franked dividends of $10,000 and franking credits of $4,286 in 2019-2020. Rodney did not have all the money to invest in his share portfolio and borrowed some of the funds. He incurred interest expenses of $9500 on the loan taken out to purchase the shares as well as bank charges of $250 on the loan account in 2019-2020. The loan was only used for share investing.

• Rodney had no tax deductions other than the ones above

• Rodney’s spouse earns about $25,000 a year as a part-time school-teacher. Rodney made superannuation contributions of $5,000 on behalf of his spouse into a complying superannuation fund and will receive a tax offset in 2019-2020. The rules are set out in Appendix 1. The full tax offset will be applied as all conditions were met

Class activity 4 Required (1) Is Rodney a taxpayer entity? What section of the ITAA97 determines whether she is a taxpayer entity? (2) Which section of the ITAA97 defines the basic tax equation? (3) Under which section of which Act is income tax imposed on Rodney? (4) Calculate Rodney’s taxable income. (5) Which section of which Act determines the rate of income tax to be paid by Rodney? (6) Calculate is the amount of Rodney’s “basic” income tax liability (7) How will Rodney’s entitlement to a deduction for superannuation contributions to his spouse’s complying superannuation fund work? (8) How will franking affect Rodney’s tax liability? (9) How will PAYG income tax instalments withheld from Rodney’s salary be taken into account? (10) Calculate Rodney’s final income tax liability. Exclude any Low Income and Low and Middle Income Tax Offsets he may be entitled to

Appendix 1 - Superannuation contributions on behalf of your spouse (from ATO website) You are entitled to a tax offset of up to $540 for 2019–20 if: • the sum of your spouse's assessable income (excluding any assessable

First home super saver released amount), total reportable fringe benefits amounts, and reportable employer superannuation contributions was less than $40,000

• the contributions you made on behalf of your spouse were not deductible to you

• the person was your spouse when you made the contribution • both you and your spouse were Australian residents when you made the

contributions • you and your spouse were not living separately and apart on a permanent

basis when making the contributions, and • your spouse did not have:

– non-concessional contributions totaling more than their non-concessional contributions cap for 2019–20, or

– at 30 June 2019, a total superannuation balance of $1.6 million or more

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