BTC3150 Lecture Notes - Lecture 1: Chicory, Tax Treaty, Constitution Of Australia
Week$1a:$Sources$of$Taxation$Law$
Accounting)standards)v)tax)legislation)
Fin$acc$stds$
Tax$law$legislation$
•Interpreted$with$the$aim$to$ensure$the$
firm’s$economic$position$is$recognised$on$a$
prudent$and$conservative$basis$
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•Interpreted$based$on$the$“doctrine$of$
precedent$
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•Advice$is$provided$with$confidence$that$an$
outcome$does$or$does$not$comply$with$
accounting$standards$
•By$definition,$always$a$correct$answer$
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•Answer$is$based$on$how$the$law$is$likely!
to$apply$based$on$interpretation$of$
precedents$and$extrinsic$materials$
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Technical$differences$between$tax$law$and$accounting$
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Financial$accounting$
Tax$Law$
1)Not$all$receipts$are$
recognised$for$tax$purposes$
•Measures$net$gains$and$
losses$over$a$period$
•Recognition$of$all$gains,$
including$gifts$and$windfall$
gains$
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•Some$receipts$not$
recognised$for$tax$law$
purposes,$eg,$gifts,$one-off$
or$unusual$receipts$
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2)Income$tax$law$
distinguishes$between$
capital$and)revenue)
expenses$
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•Distinguishes$between$
assets$or$expenses$based$on$
the$Statement$of$
Accounting$Concepts$
•Assets$are$capitalised$on$
the$balance$sheet$while$
expenses$impact$the$profit$
and$loss$account$
$
•Distinguishes$between$
revenue$expenses$and$
capital$outgoings$based$on$
judicial$doctrines$derived$
from$case$law$
•Expenses$are$immediately$
deductible$while$capital$
outgoings$are$deductible$
over$time$using$the$capital$
allowances$or$capital$works$
system$
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3)Income$tax$law$excludes$
some$income$and$expenses$
for$policy$reasons$
$
•Objective$to$measure$net$
gains$in$the$accounting$
period$
•All$receipts$recorded$as$
‘revenue’,$eg,$donations$
received$by$a$hospital$
•All$expenses$recorded$
$
•Not$all$receipts$subject$to$
income$tax,$eg,$donations$
received$by$a$hospital$that$is$
endorsed$as$a$“deductible$
gift$recipient”$
•Some$receipts$not$
deductible,$eg,$fines$
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Accounting$income:$
$$$$$$$$$$$ $
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Tax$Law:$judicial$tests$to$characterise$a$gain$as$ordinary$income:$
$$$$$$$$$$$$ $
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Fin$Acc$
Tax$Law$
4)Income$tax$law$ignores$
some$transactions$on$the$
basis$of$anti-avoidance$
provisions$(stopping$ppl$
from$$avoiding$tax)$
$
$
•Measures$net$profits$on$an$
entity-by-entity$basis.$
$
•Tax$avoidance$provisions$
that$can$negate$the$tax$
benefit$derived$from$some$
transactions.$
- Spcf$anti-avoidance$
provisions$
- General$anti-
avoidance$provisions$
5)Timing$rules$differ$in$
income$tax$law$and$
accounting$principles$
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•Roughly$align$with$a$
business’$economic$position$
•Cash$and$accrual$basis$for$
receipts$and$expenses$
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•Receipts$are$subject$to$
income$tax$when$they$are$
“derived”$
•Outgoings$are$deductible$
when$they$are$“incurred”$
•“Derived”$and$“incurred”$
have$unique$judicial$
meanings$
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Sources)of)Tax)Law)
Main$sources:$
1 Legislation$
Income)tax$
o Two$concurrent$statutes$that$measures$taxable$income:$
–Income!Tax!Assessment!Act!1936!(Cth)$(“ITAA36”)$
–Income!Tax!Assessment!Act!1997!(Cth)$(“ITAA97”)$
o Statute$that$sets$the$rate$of$tax$to$be$applied$to$taxable$income$to$determine$
quantum$of$income$tax$liability:$
–Income!Tax!Rates!Act!1986!(Cth)$
o Imposition$statute$that$imposes$income$tax$liability:$
–Income!Tax!Act!1986!(Cth)$
o Statute$containing$administration$rules$for$tax$collection$and$penalties$to$ensure$
compliance:$
–Tax!Administration!Act!1953!(Cth)$
o Statute$giving$effect$to$double$tax$treaties:$
o –International!Tax!Agreements!Act!1953!(Cth)$
$
Employment)fringe)benefits)–)tax)employers)pay)on)certain)benefits)they)provide)their)
employees$
o Broadly,$a$tax$imposed$on$an$employer$providing$fringe$benefits$to$an$employee.$
$$$$$$$$–Fringe!Benefits!Tax!Assessment!Act!1986!(Cth)$(“FBTAA”)$
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Goods)and)services)tax$
o Consumption$tax:$
–A!New!Tax!System!(Goods!and!Services!Tax)!Act!1999!(Cth)$
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2 Case$Law$
o Meaning$of$words$in$tax$law$is$derived$from$judicial$precedent$or$decisions$of$courts$
interpreting$past$cases.$
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3 Practice$by$tax$law$by$rulings$issued$by$FCT$–$FCT’s$opinion$
Types$of$rulings$by$FCT:$
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Document Summary
1)not all receipts are recognised for tax purposes. 2)income tax law distinguishes between capital and revenue expenses. 3)income tax law excludes some income and expenses for policy reasons. Financial accounting: measures net gains and losses over a period, recognition of all gains, including gifts and windfall gains, distinguishes between assets or expenses based on the statement of. Accounting concepts: assets are capitalised on the balance sheet while expenses impact the profit and loss account, objective to measure net gains in the accounting period, all receipts recorded as. Revenue", eg, donations received by a hospital: all expenses recorded. Tax law: judicial tests to characterise a gain as ordinary income: 4)income tax law ignores some transactions on the basis of anti-avoidance provisions (stopping ppl from avoiding tax) General anti- avoidance provisions: receipts are subject to income tax when they are. Derived : outgoings are deductible when they are incurred , derived and incurred have unique judicial meanings.
