Chapter 1

Sources of taxation law

2015 Thomson Reuters (Professional) Australia Ltd. All Rights Reserved.Jonathan Teoh, Monash University

Understanding tax law:Accounting standards vs tax legislation

• Interpretation of financial accounting standards is different to tax legislation:

PoTL 2015 paragraphs [1.30] – [1.40]

Understanding tax law:Accounting vs taxation law advice

• The level of certainty providing financial accounting advice is different to taxation law advice:

PoTL 2015 paragraphs [1.50] – [1.60]

Technical differences between tax law and accounting

1. Not all receipts are recognised for tax purposes

PoTL 2015 paragraphs [1.80] – [1.100]

Technical differences between tax law and accounting

2. Income tax law distinguishes between capital and revenue expenses

PoTL 2015 paragraph [1.110]

Technical differences between tax law and accounting

3. Income tax law excludes some income and expenses for policy reasons

• Used by politicians to achieve a variety of social and economic objectives.

PoTL 2015 paragraph [1.120]

Technical differences between tax law and accounting

• Accounting income can be categorised into three boxes for income tax purposes:

PoTL 2015 paragraphs [1.150] – [1.160]

Technical differences between tax law and accounting

• Judicial tests to characterise a gain as ordinary income:

PoTL 2015 paragraph [1.170]

Technical differences between tax law and accounting

4. Income tax law ignores some transactions on the basis of anti-avoidance provisions

• Accounting measures net profits on an entity-by-entity basis.

• Taxation law has tax avoidance provisions that can negate the tax benefit derived from some transactions.

PoTL 2015 paragraph [1.130]

Technical differences between tax law and accounting

5. Timing rules differ in income tax law and accounting principles

PoTL 2015 paragraph [1.140]

Sources of tax law

• The main sources of tax law are:

PoTL 2015 paragraph [1.180]

Sources of tax law:Legislation

• Income tax

• Two concurrent assessment statutes:

– Income Tax Assessment Act 1936 (Cth) (“ITAA36”)

– Income Tax Assessment Act 1997 (Cth) (“ITAA97”)

• Employment fringe benefits

• Broadly, a tax imposed on an employer providing fringe benefits to an employee.

– Fringe Benefits Tax Assessment Act 1986 (Cth) (“FBTAA”)

• Goods and services tax

• Consumption tax:

– A New Tax System (Goods and Services Tax) Act 1999 (Cth)

PoTL 2015 paragraphs [1.190] – [1.260]

Sources of tax law:Case law

• Meaning of words in tax law is derived from judicial precedent or decisions of courts interpreting past cases.

• How binding the precedent depends on the level of the court:

– Ranges from the Australian High Court to decisions of the Administrative Appeals Tribunal (administrative body with less authority than a court).

PoTL 2015 paragraph [1.270]

Sources of tax law:Rulings

• The statutory officer administering the tax laws, being the Commissioner of Taxation, issues “Rulings”.

• Various types of rulings include:

PoTL 2015 paragraphs [1.280] – [1.300]