Legt2751 Mid Sem Notes

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Topic Three

Brief Outline Of This Topic

jurisdictional aspects of the ITAA
assessable income
taxable income
exempt income
ordinary income
statutory income
tax offset
marginal rate
average rate

Detailed Outline Of This Topic

3.1Jurisdictional Aspects Of The ITAA


ITAA97 s6-5; s6-10

Text:UTL 2.31 to 2.49

Income tax treatment of residents
Income tax treatment of foreign residents
CGT treatment of foreign residents

ITAA97 s6-5 and s6-10 provide common jurisdiction limits to Aus claim to tax. Aus residents are liable to tax on worldwide income, non- residents’ liability is limited to Aus source income.

A non-resident’s exposure to Aus CGT is limited to property specified in s855-15

The decisions in Applegate and Jenkins establish that ‘permanent’ does not mean everlasting, merely indefinite, and so Applegate’s departure for an indefinite but short (3 years) period was enough to demonstrate his permanent place of abode was outside Aus despite his being of Aus domicile.

3.2Determining The Taxable Quantum

Assessable income
Exempt income/ Non Assessable Non Exempt Income
Taxable income
Tax rates
Proportional vs progressive rates of tax
Rates of tax: individuals and companies
Tax offsets
Calculation of tax payable – examples


ITAA97 s4-1; s4-10; 4-15; 6-5; 6-10; s6-15; s 6-20; 6-23; 6-25; s 8-1; s8-5; s8-10; Div 11 Subdivision 11-B

Text: UTL 2.1 to 2.4

3 types of income concepts derived from the legislation: ordinary income(s6-5), statutory income(s6-10) and exempt income.

ITAA36 operates concurrently with the ITAA97

s4-15(1) is the taxable income equation: taxable income = assessable income – deductions.

Assessable income is defined in division 6. Assessable income is made up of ordinary income and statutory income (ITAAS97 s6-1).

An important feature of a credit/rebate/offset is that it reduces one’s tax, as opposed to a deduction, which reduces one’s taxable income. One of the best known tax credits is the imputation credit accompanying a franked dividend paid by a company to a shareholder.

Ordinary Income
Income under ordinary concepts.
Australia resident is subject to assessment on all ordinary income, irrespective of its source. Foreign resident is liable only in respect of Australian source income.

Statutory Income
All other amounts that are not ordinary income.

Exempt Income
6-15 What is not assessable income: if an amount if not ordinary income, and is not statutory income, it is not assessable income (so you don’t have to pay income tax on it) 6-20 An amount of ordinary income or statutory income is exempt income if it is made exempt from income tax by a provision of this Act or another Commonwealth law.

Scott v CT (NSW)
He was dismissed and was paid compensation. This amount represented what he would have received had his services been used. Held: No part was income under the NSW Income Tax ACT

Tennant v Smith
Mr Tennant was allowed to live in a rent-free premises.
Held: The amount was not liable to tax because income must be convertible into money. FCT v Cooke & Sherden further supports this decision as two taxpayers were awarded holiday and it was held that it did not represent income.

3.3Returns and Assessment


UTL Chapter 16
Requirement to lodge returns
Form of returns
Electronic Filing
Self Assessment and Administrative Assessment
Notice of Assessment
Amendment and Reassessment

3.4Competing Concepts Of Income
TextUTL 2.5 to 2.18

The Accounting Concept
The Economic Concept
The Judicial Concept: Income As A Flow From A Source

Income As A Reward For Services
Income As A Business Gain
Income As A Return On Investment
Compensation Receipts As Income

2.6 The accounting concept
The accounting approach to income definition and measurement is generally taken...
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