Tax Law Notes

TAXATION LAW
BLAW30002

Course Outline Semester 2, 2012

Welcome to Taxation Law!
This course outline provides you with essential administrative information regarding the course. Please read all of the information closely. 1 Subject description 1.1 Content This subject provides students with an introduction to the Australian taxation system. Upon completion of this subject, students will have:  a basic overview of the overall Australian tax system and the policy influences behind its design;  some recognition of the tax systems of other jurisdictions and their similarities or differences to Australia;  a working knowledge of the administrative aspects of the Australian tax system;  an appreciation of the tax issues that arise in an international context, particularly with regard to the fundamental concepts of residence and source;  a basic understanding of the key aspects of the Australian income tax system such as:  the determination of tax payable;  ordinary income;  statutory income, including capital gains; and  deductions;  a working knowledge of the fringe benefits tax system;  an appreciation of the concepts of tax avoidance, tax evasion and tax planning;  the ability to recognise the differences in taxation of different entities, with particular emphasis on understanding the imputation system; and  a working knowledge of the goods and services tax. 1.2 Skills In addition to developing your understanding of Australian taxation law, this subject will develop your:  capacity for close reading and analysis of a range of sources;  capacity for critical and independent thought and reflection;  capacity to solve problems, including through the collection and evaluation of information;  capacity to communicate, both orally and in writing;  capacity to plan and manage time;  capacity to participate as a member of a team; and  intercultural sensitivity and understanding.

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2 Teaching staff 2.1 Subject coordinator and lecturer The coordinator and lecturer in this subject is Sunita Jogarajan. Her contact details are as follows: Room: 0743, Law School Phone: [phone] Email: [e-mail] You should use the Online Tutor, accessible through the subject page, for all queries. 2.2 Tutors There are also more than ten tutors in the subject. Your tutor will advise you of his/her contact details in class. We will be using an Online Tutor, accessible through the subject page, in this course. All queries relating to the subject (administrative or content‐related) must be posted to the Online Tutor and will be answered in a timely manner by a member of the teaching staff. All students enrolled in the subject will be able to view all questions and answers to the Online Tutor and students are expected to review previous postings prior to asking a question. Do not email questions directly to any member of the teaching staff. In addition to the Online Tutor there will also be a number of face‐to‐face consultations held each week. The times and locations of these sessions will be announced on the subject page.

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3 Classes 3.1 Lecture locations and times All students must attend 1 two‐hour lecture each week. The lecture is repeated twice. The lectures have been scheduled as follows: Lecture Wednesday 11:00 am – 1:00pm Th: Law GM 15 Repeat Wednesday 4:15pm – 6:15pm Th: Spot Basement Th Repeat Thursday 3:15pm – 5:15pm Th: Law GM 15 The lectures will be kept synchronised and students may attend any lecture in a week. The lectures will be recorded using Lecture Capture. Students are expected to attend all lectures and the use of Lecture Capture is intended to supplement, rather than substitute, regular class attendance. Students should note that the provision of recorded lectures is not guaranteed as this service may be affected by technical difficulties outside of the lecturer's and Faculty's control. Students should use the ‘report a problem with this recording’ link provided by Lecture Capture if experiencing a problem listening to a recorded lecture. Do not contact the lecturer in relation to problems with Lecture Capture. Students must obtain written approval from the lecturer before making recordings of classes via personal recording devices or any other medium. 3.2 Tutorials All students must also attend 1 one‐hour tutorial each week. You must attend your allocated tutorial each week. The online allocation system will be closed at 5pm on Monday 30 July 2012. The tutorials will commence in week 2 and will continue every week until week 12. Tutorials will not be recorded and students must obtain written approval from their individual tutor before making recordings of classes via personal recording devices or any other medium. The tutorial questions will be made available on the subject page in the week before the relevant tutorial. The tutorials are intended to be discussion based and students are expected to have prepared answers to the prescribed questions prior to class. Formal answers to the tutorial questions will not be provided. In addition, you will also be expected to complete a series of multiple choice questions in relation to each topic covered in the course. These questions are designed to guide your reading for the subject and test your understanding of the fundamentals of each topic. Feedback on your answers will be provided through the online system. The multiple choice questions are a non‐assessable component of the course, i.e., they do not contribute to your final mark in the subject. These questions are provided as a learning tool and an opportunity for students to obtain additional feedback.

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4 Assessment The assessment in this subject is outlined below. Students should note that all aspects of assessment are compulsory. 4.1 Tutorial attendance and participation (5%) Tutors will record students’ attendance in every tutorial and use this information to assess a student’s mark in relation to tutorial attendance. It is therefore imperative that students attend the tutorial to which they are allocated. Students are expected to attend a minimum of 10 tutorials to obtain full attendance in this subject. Students who are unable to attend their allocated tutorial in a particular week may attend an alternative tutorial for that week. Details of the ‘drop‐in tutorials’ will be posted on the subject page. Students must obtain a written statement from the tutor of the alternative tutorial stating that the student has attended the tutorial and this record must be provided to your usual tutor for your attendance to be recorded. Do not expect the tutors to coordinate and record your attendance at alternative tutorials. Tutors will also record students’ comments, preparation and participation in tutorials every week. This information will be used to determine a student’s mark in relation to tutorial participation. Students are assessed on an overall basis in relation to tutorial attendance and participation. 4.2 Problem 1 (5%; 750 words) Students will be required to answer one hypothetical problem. Guidance in relation to answering a hypothetical problem is provided below. 4.3 Problem 2 (30%; 2000 words) Students will be required to answer one complex hypothetical problem. Guidance in relation to answering a hypothetical problem is provided below. Students are to complete problem 2 in pairs. Students are free to form their own pair for completing the problem. Students do not have to be in the same tutorial to form a pair. Any student who is unable to form a pair is to inform David Madder [e-mail] by Monday 20 August 2012 and a partner will be assigned to them. Students must ensure that they have a partner or contact David Madder by the specified date. Late requests for partners or requests to submit individually will not be accepted unless there are exceptional circumstances. The problem will assess material covered in Weeks 1 to 6 (inclusive) of the course. Each pair should only submit one copy of their answer for assessment. No marks will be awarded to any student whose details appear on more than one answer submitted for assessment. 4.4 Final Exam (60%) The final exam is a 2‐hour, open‐book exam and will be held during the University’s examination period (5 November to 23 November). The final exam is not a hurdle requirement in this subject, i.e., students do not have to pass the exam to pass the subject.
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4.5 Timing, availability and submission Details regarding the timing of Problems 1 and 2 are available through the MLS Breadth Subject Assessment Schedule which can be accessed through the MLS homepage. Both Problems will be made available to students through the subject page. All answers must be submitted electronically through the subject page. Information regarding electronic submission will be available on the subject page. 4.6 Word count limits Problems 1 and 2 are subject to Word Limit Code 1. This means that the word limit will be strictly enforced and any excess will incur a marking penalty. The marking penalty will be calculated as follows: 5% of the total available marks for the piece of work will be deducted from the student’s mark for each 10% or part thereof by which the number of words in the student’s piece of work exceeds the word limit. There is no leeway to exceed the word limit without penalty. 4.7 Penalties for late submission If an answer is submitted late, a marking penalty will be imposed, calculated as follows:   For the first 2 hours late (or part thereof) the penalty is 5% of the total available marks. For every hour late (or part thereof) after the first two hours, the penalty is 5% of the total available marks (e.g. 3 hours late = 10% penalty; 4 hours late = 15% penalty).

If you are experiencing difficulties with your personal internet connection, you are expected to ensure that you arrive at the University on the due date to submit your answer electronically using the computers in the library. 4.8 Extensions and special consideration The Melbourne Law School Student Centre deals with all requests for extension or special consideration. Do not contact the subject coordinator regarding such requests. 4.9 Academic honesty The University regards plagiarism or collusion as academic misconduct. It is completely unacceptable to the University and it is punished accordingly. Students are warned to guard against any form of plagiarism or collusion occurring consciously or unconsciously in the performance of assessment tasks. Important information about academic honesty, including advice to students and university policies, is located at http://academichonesty.unimelb.edu.au/. This website provides definitions of plagiarism and collusion which students should note are very broad. Work submitted to this subject will be subject to TurnItIn. TurnItIn is an online, web‐based software that works by comparing electronically submitted papers to billions of pages of content located on the internet and proprietary databases as well as the work of other students whose papers have also been submitted into the system.
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5 Required Materials The following materials are essential for this subject and students must have access to all material: 5.1 Subject page The subject page is very important in this course and students are expected to access the subject page on a regular basis (at least once a week) throughout the semester. The subject page can be accessed through the University’s Learning Management System at http://www.lms.unimelb.edu.au. Students are required to access lecture slides, tutorial and assessment questions from the subject page. This material will be published on the subject page progressively throughout the semester. The subject page will also be used to publish announcements to students, useful links and any additional information relevant to the subject. There will also be an Online Tutor facility through the subject page. 5.2 Textbook Coleman et al, “Principles of Taxation Law’ (2012) ThomsonReuters (prior editions cannot be used) 5.3 Concise legislation Kendall and Pinto, 2012 Fundamental Tax Legislation (ThomsonReuters) (prior editions cannot be used); OR Barkoczy, 2012 Core Tax Legislation and Study Guide (CCH) (prior editions cannot be used). You may purchase either of the concise legislation books depending on your preference for the look, feel and price of each publication. They are identical in terms of content and are equally useful for this subject. The textbook and Fundamental Tax Legislation may be purchased together as a package at a significant discount as they are both published by ThomsonReuters. Please note that tax is a fast‐changing area of law and for that reason, prior editions of the textbook or legislation cannot be used. Prior editions will be out of date and not include the most recent cases or legislative provisions. Also note that Melbourne University library copies of books cannot be taken into the final exam.

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6 Additional Resources 6.1 Answering hypothetical problems The assessment in this subject requires students to answer hypothetical problems, i.e., advise a client about their legal situation given a particular set of (hypothetical) facts. These problems test your ability to apply the legal principles and doctrine studied to new factual situations. Further information and guidance on answering hypothetical problems can be obtained through the Law Faculty’s ‘Legal Academic Writing Resources’ website http://www.law.unimelb.edu.au/LawResources. Follow the link for ‘Hypothetical Problem Answers’ and work through the information and exercises contained therein. You may also find the material published under the link ‘Writing for Assessment in Law’ useful for this course. It may be useful to refer back to this material throughout the semester. Students will also have the option of attending seminars on answering hypothetical problems during the semester. 6.2 Primary sources Students may occasionally be required to access legislative provisions, cases or Australian Tax Office (ATO) rulings which are not reproduced in the prescribed textbook or concise legislation. This material can be accessed through the ATO’s legal database homepage at: http://law.ato.gov.au/atolaw/index.htm. 6.3 Textbooks Students often ask about other books as they find it useful to have other sources available for reference or further reading. Appropriate books for this purpose are set out below. It is important to bear in mind that tax law changes constantly and books are usually out of date by the time they are published. Students are not required or expected to purchase these books and they are only provided as sources of additional guidance if required. The simplest introductory works are:  Krever, Richard, Australian Taxation Law Cases (ThomsonReuters, 2012).  Woellner, Barkoczy, Murphy and Evans, Australian Taxation Law (CCH, current edition).  Cooper, Krever, Vann, Stewart and Burgess, Income Taxation: Commentary and Materials (ThomsonReuters, 2012).  Coleman et al, Australian Tax Analysis: Cases, Commentary, Commercial Applications and Questions (ThomsonReuters, current edition). All of these books can be accessed at the Law Library. Help in understanding particular sections or topics can also be found by reading the following practitioner‐oriented publications. These publications can often be helpful in

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obtaining more detail on a particular section or topic, although these works will often treat an issue in a way that assumes a great deal of tax knowledge already.  ThomsonReuters, Australian Tax Handbook (current edition);  CCH, Master Tax Guide (current edition). These publications can also be accessed electronically through the Law Library webpage. Please see the staff at the Law Library if you require assistance in accessing these publications. 6.4 Language and learning support The Office for Teaching and Learning in Law provides support in legal writing, study skills for law students, and English language expression. We encourage you to make the most of their services, as described online here: http://www.otll.law.unimelb.edu.au/. 7 Feedback Students often enquire about the opportunity to receive feedback in this course prior to the final exam. Some mechanisms have already been discussed earlier and the following list is not exhaustive but merely a guide as to the opportunities for feedback provided in this course.  Ability to have all questions answered by a member of the teaching staff through the Online Tutor program;  Comments provided by marker on Problem 1;  Feedback session during lecture on Problem 1;  Comments provided by marker on Problem 2;  Feedback session during lecture on Problem 2;  Provision of sample answers in relation to Problems 1 and 2 on subject page;  Personal consultations with teaching staff;  Comments provided through multiple choice questions;  Tutorial discussions every week; and  Feedback lecture held at the end of semester.

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8 Course Content This course provides a broad overview of the operation of the Australian income tax system and an introduction to the fringe benefits tax and the goods and services tax. The course consists of the following general topics and you are expected to complete the required reading for each topic. Only the relevant reading from the textbook is outlined below. You are also expected to read all relevant legislative provisions discussed in lectures or mentioned in the reading. Topic 1: Introduction to and Administration of the Australian Tax System In this topic, students are introduced to the elements of the Australian tax system and how it is administered. Upon completion of the topic, students are expected to:  Appreciate the broader role of tax in society and its different impacts on decision making;  Understand the structure and kinds of taxes in Australia’s tax system;  Know the different sources of Australian taxation law and their respective importance;  Understand the role of the Australian Taxation Office;  Describe the process for the assessment and collection of tax in Australia; and  Understand the role and different types of ATO rulings. Reading:  Textbook: Chapter 1  Textbook: Chapter 2  Textbook: Chapter 3: [3.10] – [3.30]; [3.150] – [3.190]  Textbook: Chapter 24 Topic 2: Jurisdiction to Tax In this topic students are introduced to the operation of the income tax in an international context. Upon completion of this topic, students are expected to:  Understand the basic model for taxing income from transactions with an international aspect;  Understand and apply the rules which allocate the residence of individuals and companies to a jurisdiction;  Understand and apply the rules for finding that income is sourced in Australia;
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  Understand the taxation of Australian sourced income of foreign residents (including withholding tax). Understand and apply the exemption method of relief from international double taxation and broadly understand the foreign income tax offset system; and

Reading:  Textbook: Chapter 3: [3.50] – [3.80]; [3.110] – [3.130]  Textbook: Chapter 4  Textbook: Chapter 22: [22.10] – [22.150]; [22.250] – [22.340]; [22.440] – [22.490] Topic 3: Tax Payable and Introduction to Income In this topic, students are introduced to the basic formula for determining tax payable and the elements of that formula. Upon completion of the topic, students are expected to:  Understand the basic formula for determining income tax payable;  Be familiar with the fundamental terms relevant to the taxation of income;  Understand the general characteristics of ordinary income;  Explain the concept of ‘statutory income’; and  Understand the concept of ‘exempt income’ and how it arises. Reading:  Textbook: Chapter 3: [3.40] – [3.180]  Textbook: Introduction to Part 2  Textbook: Chapter 5 (excluding [5.70]) Topic 4: Income from Services In this topic, students are introduced to some of the different types of income that commonly arise in a services context and their treatment for tax purposes. Upon completion of this topic, students are expected to:  Understand and apply the rules for the taxation of amounts received as a reward from employment (salary & wages);  Understand and apply the rules for the treatment of employee allowances;
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Understand and apply the rules for the treatment of gifts and other benefits; Understand the capital vs income distinction in the personal services context; and Understand the tax treatment of some other amounts (eg. superannuation; frequent flyer benefits) commonly received in an employment context.

Reading:  Textbook: Chapter 6: [6.10] – [6.240]  Textbook: Chapter 7: [7.85]  Textbook: Chapter 10: [10.10] – [10.110] Topic 5: Fringe Benefits Tax In this topic students are introduced to the basic operation of the fringe benefits tax and its interaction with the income tax. Upon completion of this topic, students are expected to:  Understand and apply the rules for determining an employer’s fringe benefits tax liability; and  Understand the interaction between income tax and fringe benefits tax. Reading:  Textbook: Chapter 7 Topic 6: Income from Business and Income from Property In this topic, students are introduced to the concept of a business for tax purposes and are the tax consequences of earning income through a business or from property. Upon completion of this topic, students are expected to:  Understand and recognise the circumstances in which a taxpayer will be regarded as carrying on a business and the consequences thereof;  Understand and recognise the circumstances in which an incidental and relevant transaction will give rise to ordinary income;  Understand and recognise the circumstances in which a profit from an extraordinary transaction (i.e., made outside the ordinary course of business) will be income;  Understand and recognise the circumstances in which an isolated transaction will constitute the carrying on of a business;

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Understand and recognize the common forms of income from property which are assessable as ordinary income; and Understand the distinction between income and capital in relation to the common forms of income from property.

Reading:  Textbook: Chapter 8 (excluding [8.280] – [8.300])  Textbook: Chapter 23: [23.160]  Textbook: Chapter 9: [9.10] – [9.20]; [9.80]; [9.150] – [9.160]; 9.190] – [9.200] Topic 7: Taxation of Capital Gains In this topic, students are introduced to the legislative regime for taxing capital gains in Australia. Upon completion of this topic, students are expected to:  Understand the context of capital gains taxation as statutory income and not a separate tax;  Understand the basic features of the CGT regime;  Understand how the amount of a capital gain or capital loss is calculated;  Understand and apply the principle exclusions from CGT; and  Understand the application of the CGT rules to a change of residency for tax purposes. Reading:  Textbook: Chapter 11 [11.10] – [11.50]; [11.70] – [11.80]; [11.130]; [11.170] – [11.310]; [11.380] – [11.580]  Textbook: Chapter 22: [22.320] – [22.330] Topic 8: Deductions In this topic, students are introduced to the concept of deductions and the different types of expenses that may be deductible. Upon completion of the topic students are expected to:  Understand the positive and negative “limbs” of the general deduction rule (section 8‐ 1);  Understand and apply the rules about the substantiation of deductions;  Understand and apply the general deduction rules to some commonly incurred work‐ related expenses;
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 Reading:  Textbook: Chapter 12 (excluding [12.450] – [12.570])  Textbook: Chapter 13 (excluding [13.210])  Textbook: Chapter 14 (excluding [14.130] – [14.170]; [14.190]) Topic 9: Taxation of Entities In this topic, students are briefly introduced to the taxation of partnerships and trusts and a number of the special rules relevant to the taxation of companies are discussed. Upon completion of this topic, students are expected to:  Broadly understand how income earned through a partnership is treated for tax purposes;  Understand how the capital gains tax rules apply to partnerships;  Broadly understand the tax treatment of income and losses derived through trusts;  Understand the rules that apply to income derived through trusts by minors;  Understand the application of the income tax rules to companies;  Understand and apply the rules regarding the recoupment of losses by companies;  Understand the rules regarding tax consolidation in Australia;  Understand and apply the Australian imputation system rules to companies and shareholders. Reading:  Textbook: Chapter 19: [19.10] – [19.80]; [19.160] – [19.170]  Textbook Chapter 20: [20.10] – [20.40]; [20.130] – [20.245]; [20.290]  Textbook: Chapter 21: [21.10] – [21.20]; [21.150] – [21.270]; [21.310] – [21.340]; [21.370] – [21.390]; [21.410] Topic 10: Tax Avoidance This topic introduces students to the broad topic of tax avoidance and the legislative provisions regarding tax avoidance. Upon completion of this topic, students are expected to:
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Understand and apply the some of the more common specific deduction provisions; and Understand and apply the options for deducting capital expenses.

Understand the differences between tax planning, tax avoidance and tax evasion;  Understand the legislative approach to tax avoidance; and  Understand the concept of a ‘sham’ for tax purposes. Reading:  Textbook: Chapter 23: [23.10] – [23.100]; [23.180] – [23.260] Topic 11: Goods and Services Tax This topic provides students with a basic introduction to the operation of the goods and services tax in Australia. Upon completion of the topic, students are expected to:  Understand the basic structural elements of the GST;  Understand and apply the rules relating to the making of a taxable supply;  Understand and apply the rules relating to the making of a GST‐free supply;  Understand and apply the rules relating to the making of an input‐taxed supply;  Understand and apply the rules relating to the entitlement to a credit for tax on inputs;  Understand and apply the rules relating to imports; and  Understand the rules regarding the administration of the GST in Australia. Reading:  Textbook: Chapter 25 It must be stressed that the lectures in this course cannot attempt to cover all of the material referred to in the textbook or to exhaust the content of those topics which are discussed. Instead the lectures will, in some cases, develop further the basic knowledge which is available from the materials by drawing out implications and, in other cases, will use the readings as a starting point from which to consider other related propositions which do not appear in the readings. Students should not, therefore, be surprised if the lectures do not recite the reading assigned for the lecture. Assessment tasks will not be limited to the material covered in lectures and will assess all material covered by the prescribed reading.

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9

SYLLABUS

Week 1 2 3 4 5 6 7 8

Date

1st Hour Introduction to the Australian tax system Jurisdiction to tax Taxation of income Taxation of fringe benefits (FBT) Taxation of income Capital gains tax (CGT) Deductions Deductions MID‐SEMESTER BREAK

2nd Hour Administration of the Australian tax system Jurisdiction to tax Taxation of income Taxation of income Taxation of income Capital gains tax (CGT) Deductions Deductions

9 10 11 12 Swot vac

TBA

Taxation of partnerships & trusts Tax Avoidance Goods & Services Tax (GST) No Lecture Feedback Lecture

Taxation of companies Tax Avoidance Goods & Services Tax (GST) No Lecture Feedback Lecture

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