Tax Law Exam Notes

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A. Origins of Taxation

- Taxation is not a modern concept, and dates back to the Roman Empire: ▪ Emperor Caligula set a disturbing trend as a tax collector by imposing taxes on food, court proceedings, wages of porters, prostitutes and even marriage. - 1770’s ( Pitt and Lord North believed that newspapers were luxury items and constituted appropriate fiscal targets. A stamp duty was placed on newspapers, which was later increased to put newspapers beyond the purchasing power of the average person. - UK ( many early taxes were indirect taxes on consumption rather than on income - Australia Tax History:

▪ The first income tax in Australia was introduced by the SA government in 1884, with a flat rate tax imposed on income from physical exertion, property and land. ▪ Each of the Australian states followed by imposing their own taxes before and after Federation. ▪ In 1915, the Federal Government imposed its first national tax due to the pressures of the war. ▪ This led to double income taxation from the States and Commonwealth. ▪ The Great Depression in the 1930’s encouraged uniformity between the two systems and led to a Royal Commission on Taxation. ▪ Finally, the ‘Uniform Taxation Scheme’ was introduced during WW2 which gave the Federal Government the sole control of income tax.

B. The Role and Purpose of Taxation

- Taxation is primarily used by the government to generate revenue. ▪ Yuri Grbich ( “tax is a means by which the government expropriates private property without compensation.” ▪ Kay & King ( “the basic function of a tax system is to raise revenue and relieve the inequalities of income and wealth.” - Taxation is the most intrusive of all government impositions. When an individual is required to pay tax in the public interest, the laws should be as clear as possible. They are not. ▪ Evans v FCT (Connolly J) ( “there is no discernible pattern in all these taxation laws. They reveal no consistent social policy. All socially desirable objects are not tax deductible.”

C. Goals of a Good Tax System

- The main objectives of a good tax system are “equity, efficiency and simplicity.” ▪ Equity ( fairness between individuals is the primary goal, including both horizontal equity (same tax / same position) and vertical equity (different tax / different positions). ▪ Efficiency and certainty ( the system should be efficient and certain so that collection can be relied on. If the system is not certain, it is difficult to penalise those who avoid its collection. ▪ Simplicity ( the tax system should be clear and simple so that taxpayers can understand it. ▪ Adequate ( the system must generate sufficient revenue for the government ▪ Politically Acceptable ( voters must endorse, or at least comply with the laws. ▪ Economically neutral ( the system must not interfere with market forces and decisions. D. Constitutional Basis for Taxation

- The Commonwealth gains its power to tax from the Constitution: ▪ s51(ii) Constitution ( Parliament can “make laws with respect to taxation, but so as not to discriminate between States or parts of States.” ▪ ( Parliament has the power to impose taxes, but it is restricted from discriminating between States or parts of States (uniformity of taxes). - Section 53 ( the Senate shall not originate or amend laws imposing tax. ▪ ( only the House of Representatives can originate laws relating to tax collection. ▪ The Senate may return proposed tax laws to the Lower House for amendment. - Section 55 ( laws imposing tax shall deal with one subject of taxation only. ▪ This section means that laws relating to tax cannot be attached to another bill to escape the scrutiny of the Parliament. ▪ It also implies that the Income Tax Assessment Act (ITAA) does not actually impose a tax – as this Act deals with administration and other matters, it...
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