Notes cover content for entire semester
Topics covered:
* Residence and Source
* Concepts of Income - Income from personal services, including an overview of FBT
* Concepts of Income - Income from property and business
* Capital Gains Tax
* General Deductions
* Specific Deductions
* Tax A...
RESIDENCE AND SOURCE: CH 4 .....................................................................................................................6
INTRODUCTION.......................................................................................................................................................6
LEGISLATIVE FRAMEWORK ...................................................................................................................................6
INCOME TAX RATES FOR INDIVIDUALS ..................................................................................................................6
RESIDENCE .............................................................................................................................................................6
RESIDENCE OF AUSTRALIA – INDIVIDUALS ..................................................................................................................... 6
TEMPORARY RESIDENTS – INDIVIDUALS ......................................................................................................................... 8
RESIDENCE OF AUSTRALIA – COMPANIES........................................................................................................................ 9
SOURCE ................................................................................................................................................................ 10
WHAT IS THE SOURCE OF INCOME? ................................................................................................................................ 10
CONCEPTS OF INCOME: CH 5 ....................................................................................................................... 11
ASSESSABLE INCOME ............................................................................................................................................ 11
EXEMPT INCOME............................................................................................................................................................ 11
NON-ASSESSABLE NON-EXEMPT INCOME (NANEI) ..................................................................................................... 11
PREREQUISITES AND CHARACTERISTICS OF ORDINARY INCOME ................................................................................... 11
1985 TAX REFORM ........................................................................................................................................................ 12
INCOME FROM PERSONAL SERVICES AND EMPLOYMENT: CH 6 ........................................................ 14
ORDINARY INCOME AS A REWARD FOR SERVICES................................................................................................. 14
DOES THE RECEIPT SHOW A NEXUS WITH THE SERVICE? .............................................................................................. 14
PRIZES, VOLUNTARY PAYMENTS AND UNEXPECTED PAYMENTS .................................................................................. 14
NON-CASH BENEFITS ..................................................................................................................................................... 15
CAPITAL RECEIPT OR PERSONAL SERVICE...................................................................................................................... 15
STATUTORY INCOME FROM SERVICES AND EMPLOYMENT .................................................................................. 15
REQUIREMENTS ............................................................................................................................................................. 16
INCOME FROM BUSINESS: CH 8.................................................................................................................... 18
STEP 1: CARRYING ON A BUSINESS ....................................................................................................................... 18
INDICATORS OF A BUSINESS ACTIVITY........................................................................................................................... 18
ILLEGAL ACTIVITIES ...................................................................................................................................................... 18
DIVISION 35 ITAA 1997 ................................................................................................................................................ 19
STEP 2: NORMAL PROCEEDS OF A BUSINESS ........................................................................................................ 19
NATURE OF THE BUSINESS – BROAD OR NARROW APPROACH? ...................................................................................... 19
1
,NEXUS OF RECEIPT WITH BUSINESS ............................................................................................................................... 19
EXTRAORDINARY AND ISOLATED TRANSACTIONS ................................................................................................ 19
PRINCIPLE APPLIED TO ISOLATED TRANSACTIONS......................................................................................................... 20
TWO STRANDS OF MYER ................................................................................................................................................ 20
STATUTORY PROVISIONS THAT MAY APPLY TO EXTRAORDINARY AND ISOLATED TRANSACTIONS............................... 20
INCOME FROM PROPERTY: CH 9 ................................................................................................................. 21
INTEREST.............................................................................................................................................................. 21
LOAN DISCOUNTS AND PREMIUMS ................................................................................................................................ 21
DIVIDENDS ............................................................................................................................................................ 21
RENTAL AND LEASE INCOME ............................................................................................................................... 21
LEASE PREMIUMS .......................................................................................................................................................... 21
ROYALTIES ........................................................................................................................................................... 22
CAPITAL GAINS TAX: CH 11 .......................................................................................................................... 23
OVERVIEW ........................................................................................................................................................... 23
NET CAPITAL GAIN ............................................................................................................................................... 23
STEP 1 – HAVE YOU MADE A CAPITAL GAIN OR A CAPITAL LOSS? ....................................................................... 23
QUESTION 1: HAS A CGT EVENT HAPPENED TO THE TAXPAYER? ................................................................................. 24
QUESTION 2: IS THE ASSET A CGT ASSET?.................................................................................................................... 27
QUESTION 3: DOES AN EXEMPTION APPLY? ................................................................................................................... 28
QUESTION 4: CAN THERE BE A ROLLOVER? ................................................................................................................... 32
STEP 2 – WORK OUT AMOUNT OF CAPITAL GAIN OR LOSS .................................................................................... 32
WHAT IS A CAPITAL GAIN OR LOSS? .............................................................................................................................. 32
WHAT FACTORS COME INTO CALCULATING A CAPITAL GAIN OR LOSS? ........................................................................ 32
STEP 3 – WORK OUT YOUR NET CAPITAL GAIN OR LOSS FOR THE INCOME YEAR ................................................. 34
CALCULATION 2............................................................................................................................................................. 34
CALCULATION 3............................................................................................................................................................. 34
CASE STUDY ......................................................................................................................................................... 35
CB/RCB......................................................................................................................................................................... 35
NET CAPITAL GAIN........................................................................................................................................................ 35
GENERAL DEDUCTIONS: CH 12 .................................................................................................................... 36
GENERAL DEDUCTION RULE ................................................................................................................................ 36
LOSS OR OUTGOING ............................................................................................................................................. 36
NEXUS TEST – POSITIVE LIMBS OF S. 8-1 .............................................................................................................. 36
JUDICIAL TESTS.............................................................................................................................................................. 36
NEXUS SUFFICIENTLY DIRECT OR TOO REMOTE TO SATISFY POSITIVE LIMBS? ........................................................... 37
SUFFICIENT TEMPORAL NEXUS/CONNECTION TO SATISFY POSITIVE LIMBS? ............................................................... 37
NON-DEDUCTIBLE EXPENSES – NEGATIVE LIMBS OF S. 8-1 ................................................................................... 38
CAPITAL OR CAPITAL IN NATURE .................................................................................................................................. 38
PRIVATE OR DOMESTIC.................................................................................................................................................. 39
INCURRED IN GAINING OR PRODUCING EXEMPT OR NON-ASSESSABLE NON-EXEMPT INCOME ...................................... 39
DENIED DEDUCTIONS .................................................................................................................................................... 39
APPORTIONMENT – DEDUCTIBILITY OF DUAL PURPOSE EXPENSES ....................................................................... 40
2
,AMOUNT OF DEDUCTION ...................................................................................................................................... 40
APPLICATION OF S. 8-1 TO COMMONLY INCURRED EXPENSES .............................................................................. 40
EXPENSES INCURRED IN GAINING EMPLOYMENT .................................................................................................. 40
RELOCATION EXPENSES ....................................................................................................................................... 40
CHILD CARE EXPENSES ......................................................................................................................................... 40
TRAVEL EXPENSES................................................................................................................................................ 41
TRAVEL BETWEEN HOME AND WORK ............................................................................................................................ 41
TRAVEL BETWEEN TWO WORKPLACES ......................................................................................................................... 41
SELF-EDUCATION EXPENSES ................................................................................................................................ 41
POSITIVE LIMBS ............................................................................................................................................................. 41
NEGATIVE LIMBS ........................................................................................................................................................... 42
APPORTIONMENT ........................................................................................................................................................... 42
HOME OFFICE EXPENSES ...................................................................................................................................... 43
GENUINE HOME OFFICE................................................................................................................................................. 43
HOME OFFICE FOR CONVENIENCE .................................................................................................................................. 43
APPORTIONMENT ........................................................................................................................................................... 43
CLOTHING AND DRY-CLEANING EXPENSE ............................................................................................................ 43
CONVENTIONAL CLOTHING AND RELATED ITEMS ........................................................................................................ 43
OCCUPATION-SPECIFIC CLOTHING, PROTECTIVE CLOTHING AND UNIFORMS ................................................................ 44
INTEREST EXPENSES ............................................................................................................................................. 44
LEGAL EXPENSES.................................................................................................................................................. 44
SPECIFIC DEDUCTIONS: CH 13 ..................................................................................................................... 45
TAX-RELATED EXPENSES ..................................................................................................................................... 45
REPAIRS ............................................................................................................................................................... 45
MEANING OF REPAIR ..................................................................................................................................................... 45
INCOME-PRODUCING PURPOSE ...................................................................................................................................... 45
CAPITAL EXPENSES ....................................................................................................................................................... 45
BAD DEBTS ........................................................................................................................................................... 46
DETERMINING THAT A DEBT IS BAD.............................................................................................................................. 47
MONEY-LENDING BUSINESS .......................................................................................................................................... 47
CORPORATE TAXPAYERS ............................................................................................................................................... 47
PAYMENTS TO ASSOCIATIONS ............................................................................................................................... 47
TRAVEL BETWEEN WORKPLACES ......................................................................................................................... 47
GIFTS.................................................................................................................................................................... 47
LIMITATIONS ON DEDUCTIONS FOR GIFTS OR DONATIONS............................................................................................. 48
DEDUCTIBILITY OF GIFTS OR DONATIONS UNDER S. 8-1 ................................................................................................ 48
PRIOR YEAR LOSSES ............................................................................................................................................. 48
CORPORATE TAXPAYERS ............................................................................................................................................... 48
LIMITATIONS ON LOSSES ............................................................................................................................................... 48
OTHER SPECIFIC DEDUCTION PROVISIONS ........................................................................................................... 48
CAPITAL ALLOWANCES: CH 14 .................................................................................................................... 49
DERIVATION OF INCOME ...................................................................................................................................... 57
MEANING OF DERIVE ..................................................................................................................................................... 57
TIMING OF DERIVATION ................................................................................................................................................. 57
CASH V ACCRUALS ACCOUNTING .................................................................................................................................. 57
PAYMENT BEFORE EARNING ACTIVITY HAS COMMENCED ............................................................................................. 58
SALES UNDER A LAY-BY METHOD ................................................................................................................................. 58
DIVIDEND INCOME – WHEN DERIVED............................................................................................................................. 58
DERIVATION OF INCOME – DELAY BECAUSE OF DISPUTE............................................................................................... 58
TIMING – DEDUCTIONS AND DEDUCTIBILITY ........................................................................................................ 58
EXPENSES ...................................................................................................................................................................... 58
PROVISIONS ................................................................................................................................................................... 60
MEANING OF TRADING STOCK .............................................................................................................................. 61
COMMON ITEMS OF TRADING STOCK ............................................................................................................................. 61
ACCOUNTING FOR TRADING STOCK...................................................................................................................... 62
ACQUISITIONS................................................................................................................................................................ 62
DISPOSALS ..................................................................................................................................................................... 62
YEAR-END ADJUSTMENTS.............................................................................................................................................. 63
TRADING STOCK ON HAND .................................................................................................................................... 64
SPECIAL RULES ..................................................................................................................................................... 64
ASSET OF TAXPAYER BECOMES TRADING STOCK .......................................................................................................... 65
ITEM CEASES TO BE TRADING STOCK BUT CONTINUES TO BE OWNED BY TAXPAYER .................................................... 65
LOST OR DESTROYED STOCK ......................................................................................................................................... 65
SMALL BUSINESS ENTITIES ................................................................................................................................... 65
INTERACTION WITH OTHER INCOME TAX RULES .................................................................................................. 65
INTRODUCTION..................................................................................................................................................... 66
SPECIFIC VS GENERAL ANTI-AVOIDANCE PROVISIONS ........................................................................................ 66
COMMON TAX AVOIDANCE TECHNIQUES ............................................................................................................ 66
AVOIDING AUSTRALIAN SOURCES INCOME BY NON-RESIDENTS ................................................................................... 66
DEFERRING INCOME DERIVATION OR ACCELERATING DEDUCTIONS ............................................................................. 66
INCOME SPLITTING BETWEEN FAMILIES......................................................................................................................... 66
CONVERTING INCOME TO CAPITAL ................................................................................................................................ 66
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