FNSACC502 Prepare Tax Documentation For Individuals: Overview Of Australian Taxation System

Assessable Income in Australian Taxation System

The Australian Taxation Office (ATO) is the main revenue collection agency of the government. The main role of ATO is to shape the tax and superannuation system in such a way that it acts as a pillar for fund services for the people out there but not limited to::

• collecting income tax revenue for government
• monitoring the goods and services tax (GST) on behalf of the Australian states and territories
• to govern the Programs which result in transfer and benefit to the community.
• To administer Australia’s superannuation system
• Person responsible for  the Australian Business Register

The ITAA1936 is an act of Australia. It is under this act Australian Income tax is calculated. This act is rewritten into the Income Tax Assessment Act 1997, and new things have been included in the Income Tax Assessment Act 1997.

Income according to ordinary concepts (ordinary income)

 (1)  According to ordinary concepts assessable income includes income, which is called ordinary income.

(2)   Assessable income means the income derived directly or indirectly from inside or outside the country during the year..

(3)  If you are a non resident,your assessable income includes:

1. the  ordinary incomeyou  derived directly or indirectly from all  sources during the year; and
2. other  ordinary incomethat a provision includes in your assessable income for the income year on some basis other than having an  Australian source.

    (4)  In working out whether you have derived an amount of ordinary income, and (if so) when you derived it, you are taken to have received the amount as soon as it is applied or dealt with in any way on your behalf or as you direct.

Amount that are not ordinary income but are included in ordinary income by provisions are called statutory income.

Although an amount is statutory income because it has been included in assessable income under a provision of this Act.

Any loss can be deducted from your assessable income to the extent::

1. to gain that assessable income it is incurred.
2. to carry out the business in order to gain that assessable income..

  However, one cannot deduct loss under this section to the extent:

1. Capital Nature Loss
2. Private or domestic nature.
3. It is incurred in relation to producing non exempt income
4. Prevention of Provision

1. Deduct an amount which the provision of this act allows you to deduct..
2. Some Provision Prohibits  to deduct an amount that one could otherwise deduct
3. An amount that can be deducted under this section is called Specific Deductio

If two or more Provisions of the act allow  to deduct the same amount than the amount will be deducted under the Provisions which is Proper.

The Provision sets out in the list allow you for the tax offset some of which are as follows:

• Social security and other benefit payments
• Leave payments
• Superannuation
• Dividends
• Nonresident beneficiary
• Life insurance
• Primary production
• Child
• Dividends
• Member serving overseas
• Venture capital limited partnership
• Employment termination payments
• Dependants
• National rental affordability
• Foreign Income tax paid
• Franking deficit tax
• Bonus receipt of life insurance
• Leave payments
• Nonresident  beneficiary
• Social security and other benefit payment

This Division is a simplified outline of the capital gains and capital losses provisions, commonly referred to as capital gains tax ( CGT ). It will help you to understand your current liabilities, and to factor CGT into your on-going financial affairs.

This Division frames out the rules for deduction of car expenses if you have a lease car or hire a car under Hire Purchase agreement.

This division applies to individual;  Partnership firm mustincludes at least one individual, as if the Partnership were an individual.

Two methods are there of computing car Expenses:

• The Cents Per Kilometer Method- Number of business kilometers travelled by car multiplied by the rate of cents kilometers determined for the car
• The Log method -To use the log method you need to multiply the amount of car expenses by the business use percentage.

This division sets out the requirements to meet in order to qualify for deduction of a gift .It tells who the recipient of gift and the type of gift or contribution made and how much deduction for gift and any special condition that are applicable.

Statutory Income in Australian Taxation System

A testamentary gift is not deductible under this section.

 (1)  A depreciating asset is an asset that has a minimum useful life and depreciates in value over a period of time, except:

1. land; or
2. Trading stock; or
3. An intangible asset, unless it is mentioned below.

 (2) Certain intangible assets which are depreciating assets and not trading stock: 

1. mining, quarrying or prospecting rights;
2. mining, quarrying or prospecting information;
3. Intellectual property;
4. In-house software;
5. IRUs;
6. spectrumlicenses;
7. data casting transmitter licenses;
8. Telecommunications site access rights.

(3)  This Division applies to an improvement to land, or a fixture on land, whether the improvement or fixture is removable or not, as if it were an asset separate from the land.

(4)  Whether a particular composite item is itself a depreciating asset or whether its components are separate depreciating assets is a question of fact and degree which can only be determined in the light of all the circumstances of the particular case.

(5)  This Division applies to a renewal or extension of a depreciating asset that is a right as if the renewal or extension were a continuation of the original right.

(6)  This Division applies to a mining, quarrying or prospecting right (the new right) as if it were a continuation of another mining, quarrying or prospecting right you held if:

1. the other right ends; and
2. the new right and the other right relate to the same area, or any difference in area is not significant

Under this division certain pension, benefits and allowances are exempt from income tax either wholly or partly.

Subdivisions:

  52-A               Exempt Payments under the Social Security Act 1991

  52-B               Exempt Payments under the Veterans Entitlement Act 1986

  52-C               Exempt Payments made because of Veterans Entitlement Act 1986  

  52-CA           Exempt Payments under the Military Rehabilitation and Compensation                           Act 2004

  52-D     Exempt payments made by the Commonwealth to reimburse certain  expenditure

52-F     Exemption of Commonwealth education or training payments

52-G     Exempt payments under the A New Tax System (Family Assistance) (Administration) Act 1999

It explain how employment termination payments are treated under Income Tax Act..

This is about two issues relating to Personal services income which mean ordinary income or statutory income, or the ordinary income or statutory income of any other entity, is your personal services income if the income is mainly a reward for your personal efforts or skills (or would mainly be such a reward if it was your income).

Only Individuals can have Personal service income. This section applies whether the income is for doing work or is for producing a result. The fact that the income is payable under a contract does not stop the income being mainly a reward for your personal efforts or skills. This Part does not say that individual is an employee.

This section talks about Capital gain Tax and make you understand your current liabilities and to take into account capital gain tax into your on-going financial services..

Deductions in Australian Taxation System

 You must keep the record for at least five years and compulsorily for capital gain and losses you made  after the last relevant Capital Gain Tax event..

If the company would only avoid the tax consequences of Division 165 or 175 because of interests held by a foreign resident family trust, the Commissioner may require the company to give certain information about the family trust. If it is not given, the company does not avoid the tax consequences of that Division.

This division provides an overview of the imputation system.

Superannuation provisions Provides tax benefit when your investment is in superannuation .and income derived from superannuation.

This division explains the meaning of small business entity, annual turnover and aggregated turnover and related concepts.

• You can chose to put the asset into pool and treat the pool as single asset.
• You can choose not to account for annual changes in trading stock value that not more than $5000.

These changes will simplify the working of Taxable income and reduce your compliance costs.

This division sets out the substantiation rules that apply to certain types of losses or outgoings.

This division deals with the criminal code applies to all offences against this act.

Sl. No.	Quarterly Lodgment Obligation	Original Due Date	BAS Agent concession for lodgment and Payment by the BAS Agent Portal,PLS or ECI
1	Q 4, 2016–17	28-Jul-17	25-Aug-17
2	Q 1 , 2017-18	28-Oct-17	25-Nov-17
3	Q 2 , 2017-18	28-Feb-18	NA
4	Q 3 , 2017-18	28-Apr-18	26-May-18
5	Q 4 , 2017-18	28-Jul-18	25-Aug-18

The following are the components of BAS:
Goods and Services Tax – Monthly or Quarterly
Pay As You Go  – Monthly or Quarterly
Fringe Benefits Tax  – Quarterly
PAYG – Installments
Wine Equalization Tax, Luxury Car Tax, etc.

Anyone can prepare and submit Business Activity Statements. Those who charge a fee for this task must be registered with the Tax Practitioners Board as stipulated by the TASA 2009 legislation.

Computation of GST
Sl no	Particulars	Amount (inclusive of GST)	GST
1	Sales	274,333	24,939
2	Purchases	42,888	-3899
3	Wages	8777	–
4	Superannuation	834	–
5	Electricity	564	-51
6	Mortgage Payment	1200	–
7	Parking Fines	299	–
8	Repairs to equipment	329	-30
9	Purchase of Computer	1299	-118
	Net Payable		20,841

Steps involved in becoming and maintaining registration of a tax agent are as follows:

Step 1: You need to apply for registration

Requirements for Registration:

1. 18 years of age
2. Fit and proper person

3  Qualification and experience requirement

1. Professional Indemnity Insurance
2. Online application with all supporting documents

Step 2: Payment of Application Fees i.e. AUD 500 if you are carrying as a business tax agent otherwise AUD 250. The payment to be made in full and is not subject to GST.

Step 3: The tax authorities shall take the decision whether to grant or deny registration within 30 days.

1. Details shall appear on TPB Register
2. One must advise them that how he meets his professional indemnity insurance requirements within 14 days of being notified
3. TPB shall notify the Australian Taxation Office (ATO) that you are now registered. You can then contact the ATO to arrange access to their online services, such as the Tax Agent Portal.

1. TPB advise you of the reasons for our decision and of your appeal rights
2. TPB will notify the ATO of our decision to reject your application.

The registration can be kept alive by fulfilling the above condition along with regular payment of fees.

1. Officer have  free access to all buildings, places, books,  and other papers for any purpose of the act and for that purpose may make  copies.
2. The Income tax assessment Act, 1997 also empowers the Taxation Officer to require any person to furnish him with such ‘information’ as he may require, attend and give evidence concerning his or any other person’s income or assessment and produce all books, documents and other papers whatever in his custody or control that relate to the income or assessment of any person by giving notice in writing.

Australia’s revenue system relies on taxpayers providing correct information to establish their tax liability and paying the correct amount of tax on time.

1. Interest are levied on the taxes which are not paid from the date it is due for payment till the payment date.

1. Change in an assessment can lead to payment of additional tax and additional interest.

1. Claiming False deduction which you are not entitled can lead to penalties.

1. Make a false  statement that results in a shortfall amount.

      B  Make a false statement that does not result in a shortfall amount.

1. Take a position on Income Tax or Petroleum resource rent tax that is not reasonable arguable.
2. Fail to lodge a tax return  about the tax liability.

My Gov is the fastest way to use Government services online.It can be easily available through entering the username and the password.

Through my Gov website, the services, which Government Programs offer online, are as follows:

• Medicare
• Centre link
• Australian Taxation Office
• National Disability Insurance Scheme
• Child Support
• My Health Record
• My Aged Care
• Veterans’ Affairs
• Australian Job Search.

You can close your myGov account through ‘Account Settings’.

If you close your account, you can no longer use online government services through myGov and will not be able to access inbox messages.

Tax Offsets in Australian Taxation System

Creating new myGov Account will not help in accessing old account messages.

Through Secret questions and answers, one can keep their account safe. One can frame their own questions or can use the suggested questions showing in myGov. When one sign in to myGov Portal and give answer to secret question wrong five times, myGov will temporarily lock your account for two hours.

If one keep cannot remember, answer to the secret question after two hours and keep getting the answer wrong than your account will be locked permanently. If this condition arises, you have to create a new myGov Account.

If you get the password wrong, myGov will lock your account temporarily for two hours.

References

Australian Government, About us (23 Apr 2018) <https://www.ato.gov.au/About-ATO/About-us/>

Australian Government, INCOME TAX ASSESSMENT ACT 1997 – SECT 6.5 Income according to ordinary concepts (ordinary income), <https://www8.austlii.edu.au/cgi-bin/viewdoc/au/legis/cth/consol_act/itaa1997240/s6.5.html>

Australian Government, INCOME TAX ASSESSMENT ACT 1997 – SECT 6.10 Other assessable income (statutory income), < https://www8.austlii.edu.au/cgi-bin/viewdoc/au/legis/cth/consol_act/itaa1997240/s6.10.html>

Australian Government, INCOME TAX ASSESSMENT ACT 1997 – SECT 8.1 General deductions, < https://www8.austlii.edu.au/cgi-bin/viewdoc/au/legis/cth/consol_act/itaa1997240/s8.1.html>

Australian Government, INCOME TAX ASSESSMENT ACT 1997 – SECT 8.5 Specific deductions, < https://www8.austlii.edu.au/cgi-bin/viewdoc/au/legis/cth/consol_act/itaa1997240/s8.5.html>

Australian Government, INCOME TAX ASSESSMENT ACT 1997 – SECT 8.10 No double deductions, < https://www8.austlii.edu.au/cgi-bin/viewdoc/au/legis/cth/consol_act/itaa1997240/s8.10.html>

Australian Government, INCOME TAX ASSESSMENT ACT 1997 – SECT 13.1 List of tax offsets, < https://www8.austlii.edu.au/cgi-bin/viewdoc/au/legis/cth/consol_act/itaa1997240/s13.1.html>

Australian Government, INCOME TAX ASSESSMENT ACT 1997 – SECT 100.1 What this Division is about, < https://www8.austlii.edu.au/cgi-bin/viewdoc/au/legis/cth/consol_act/itaa1997240/s100.1.html>

Australian Government, INCOME TAX ASSESSMENT ACT 1997 – SECT 100.1 What this Division is about, < https://www8.austlii.edu.au/cgi-bin/viewdoc/au/legis/cth/consol_act/itaa1997240/s100.1.html>

Australian Government, INCOME TAX ASSESSMENT ACT 1997 – SECT 28.10 Application of Division 28, < https://www8.austlii.edu.au/cgi-bin/viewdoc/au/legis/cth/consol_act/itaa1997240/s28.10.html>

Australian Government, INCOME TAX ASSESSMENT ACT 1997 – SECT 28.25 How to calculate your deduction, < https://www8.austlii.edu.au/cgi-bin/viewdoc/au/legis/cth/consol_act/itaa1997240/s28.25.html>

Australian Government, INCOME TAX ASSESSMENT ACT 1997 – SECT 28.90 How to calculate your deduction, < https://www8.austlii.edu.au/cgi-bin/viewdoc/au/legis/cth/consol_act/itaa1997240/s28.90.html>

Australian Government, INCOME TAX ASSESSMENT ACT 1997 – SECT 30.1 What this Division is about, < https://www8.austlii.edu.au/cgi-bin/viewdoc/au/legis/cth/consol_act/itaa1997240/s30.1.html>

Australian Government, INCOME TAX ASSESSMENT ACT 1997 – SECT 40.1 What this Division is about, < https://www8.austlii.edu.au/cgi-bin/viewdoc/au/legis/cth/consol_act/itaa1997240/s40.1.html>

Australian Government, INCOME TAX ASSESSMENT ACT 1997 – SECT 40.30 What a depreciating asset is, < https://www8.austlii.edu.au/cgi-bin/viewdoc/au/legis/cth/consol_act/itaa1997240/s40.30.html>

Australian Government, INCOME TAX ASSESSMENT ACT 1997 – SECT 52.1 What this Division is about, < https://www8.austlii.edu.au/cgi-bin/viewdoc/au/legis/cth/consol_act/itaa1997240/s52.1.html>

Australian Government, INCOME TAX ASSESSMENT ACT 1997 – SECT 82.1 What this Division is about, < https://www8.austlii.edu.au/cgi-bin/viewdoc/au/legis/cth/consol_act/itaa1997240/s82.1.html>

Australian Government, INCOME TAX ASSESSMENT ACT 1997 – SECT 84.5 Meaning of personal services income, < https://www8.austlii.edu.au/cgi-bin/viewdoc/au/legis/cth/consol_act/itaa1997240/s84.5.html>

Australian Government, INCOME TAX ASSESSMENT ACT 1997 – SECT 100.1 What this Division is about, < https://www8.austlii.edu.au/cgi-bin/viewdoc/au/legis/cth/consol_act/itaa1997240/s100.1.html>

Australian Government, INCOME TAX ASSESSMENT ACT 1997 – SECT 121.10 What this Division is about, < https://www8.austlii.edu.au/cgi-bin/viewdoc/au/legis/cth/consol_act/itaa1997240/s121.10.html>

Australian Government, INCOME TAX ASSESSMENT ACT 1997 – SECT 180.1 What this Division is about, < https://www5.austlii.edu.au/au//legis/cth/consol_act/itaa1997240/s180.1.html>

Australian Government, INCOME TAX ASSESSMENT ACT 1997 – SECT SECT 328.5 What this Division is about, < https://www8.austlii.edu.au/cgi-bin/viewdoc/au/legis/cth/consol_act/itaa1997240/s328.5.html>

Australian Government, INCOME TAX ASSESSMENT ACT 1997 – SECT SECT 900.1 What this Division is about, < https://www8.austlii.edu.au/cgi-bin/viewdoc/au/legis/cth/consol_act/itaa1997240/s900.1.html>

Australian Government, Failure to meet other tax obligations (10 Feb 2016) < https://www.ato.gov.au/General/Interest-and-penalties/Penalties/Failure-to-meet-other-tax-obligations/>

Australian Government, Penalties (11 Oct 2016) < https://www.ato.gov.au/general/interest-and-penalties/penalties/>

Service NSW, myGov < https://www.service.nsw.gov.au/transaction/mygov>

Service NSW, myGov < https://www.service.nsw.gov.au/transaction/mygov>

Service NSW, myGov < https://my.gov.au/mygov/content/html/help.html#myGovUserName>

Service NSW, myGov < https://my.gov.au/mygov/content/html/help.html#myGovUserName>

Service NSW, myGov < https://my.gov.au/mygov/content/html/help.html#myGovUserName>

Tax practioners board, Registering as an individual tax agent (8 May 2018) <https://www.tpb.gov.au/register-individual-tax-agent>

Wikipedia, Income Tax Assessment Act 1936 (27 May 2018) <https://en.wikipedia.org/wiki/Income_Tax_Assessment_Act_1936>