CPA TAX Notes - Module 1

8/20/2019 CPA TAX Notes - Module 1

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TAX ADMINISTRATION

Tax Administration

Two primary levels of government

Commonwealth (Upper and lower house)

States

3 types of power

Legislature – create, amend and repeal laws

Eecutive – ma!es policy decision, administers the law and

carries out the "usiness oof government #udiciary $ courts

Power to raise taxes

s%&(ii)) of constitution – ma!e law with regard to taation

'age – taation "ills process of passing "ill

s*+ – Cth has power to ma!e grants to states and territories

(ie, ST)Administrative law

S- .T//0+ – Commissioner (appointed "y gov general) is

granted general power of administration and may delegateauthority to ta officers

S&1% .T//0+$ assessment is valid notwishstanding the fact

the provision of act has not "een complied with S&11$notice of assessment is conclusive evidence of due

process in ma!ing an assessment

Challenges

Reconsideration y !ommissioner ('art .2C of T//)

$ 3nus on Ta payer to show assessment is excessive and demonstrate the correct amo"nt

/n o"4ection that forces reconsideration "y

commissioner

Review of decision y AAT ("ased on merits), which

has wide powers to rema!e the original decision (whicha court cannot do)

//T also has 5uasi 4udicial powers//T not "ound "y own precedent

//T doesn6t answer 5uestions of law

7ay otherwise appeal to 8ed Court (5n of law)

#"dicial review $s%&v !onstit"tion' "nder AD#R

#udicial review focussed on improper eercise of

power9lawfulness rather than whether decision w5asa good one

Om"dsman – independent person with wide powers to

investigate complaints a"out gov departments

Usually last resort as cannot overturn or rema!e

original decision

Commissioner

7a!e eercise 5uasi 4udicial powers to impose admin

penalties

.ncome ta assessment

S+(&) .T//0+

Lia"ility arises on assessment

S&+& .T//0+$ Commissioner pu"lishes notice each year

re5uiring lodgement of ta return

/ll ta payers deemed to "e aware of pu"lication

(ignorance is no defence) (:elton case)

7ust "e of approved form

Commissioner has power to eempt classes fromlodging a return (s&+&(&/))

Lodgement must "e signed "y tapayer

/t3 has power to etend lodgement dates from 0& 3ct

(s0--$%%(&))

'ower to re5uire further payment of ta (s&+) where not

satisfied with original return

/ssessments() Ordinary assessment $s(** ITAA3*) – "ased on info

in lodged ta return and9or any info in commissioners

possessiona; s&++ – can disregard amounts in tapayer6s return "; relies on good faith of commissioner (eorge case)

+) ,"ll self assessment $s(**A'-when payer lodgesreturn, commissioner is deemed to have made anassessment of ta paya"le9refunda"le in accordancewith info in retrun on day of lodgement

3) Defa"lt assessment-

a; S&+1 $ 'ower to ma!e default assessment if i; <o lodgement

ii; Commissioner dissatisfied with returniii; <o lodgement, "ut reason rto "elieve taa"le

income has "een derived

"; S&+1 – Commissioner can assess the amount uponwhich in his 4udgment income ta ought to "e levied

c; /ssessment may involve honest guesswor! orapproimation (=riggs case)

d; 7ethods of default assessmnet>i; /sset "etterment approach (ashi) – determine the

improvement in net position which cannot "eeplained "y other factors

ii; T account calculation (/rmirthalingam)iii; Comparative earnings

.) Special assessments $s(*/'-assesments for parts ofyear (useful where tapayer intends to leave /ustralia

part way through year)

&) Ot0er assessments $s(*1'*) !onsolidated assessments $s(*1AA)$single

consolidated assessment where ? people receiveicome on hehalf of person not in /ustralia)

/mendments of assessments (pg0)

time periods imposed (s&1@ .T//0+)

year time limit (from day notice of assessment served

on tapayer) – individuals and S7E with turnoaverAmillion)

year time limit – comple affairs

Unlimited time

where there has "een perceived ta avoidance due tofraud9evastion (s&1@(&))

give effect to review9appeal9o"4ection

epress provision providing unlimited time

(s&1@(&@))

/mendments

Ta payer re5uested (s&1@(%))

'rivate ruling (s&1@(+))

S&1@(1)$commissioner can amend where /T3 has "ugen, "ut notcompleted, an eamination of the tapayer6s affairs "eforeepiry of time limit and either

8ederal Court grants etention

Tapayer consents in writing

Ta audits (pg0+)

Bis! management approach (Compliance model)

7a!e it easy for those willing to do right thing



TAX ADMINISTRATION

elp to comply for those willing "y don6t always

succeed

Deter "y detection for those who don6t want to comply

Use the full force of law for those deciding nott to

complyS+/ .T//0+$alll to create and retain hard copy electronic

records (or converta"le to@ in English which record9eplain

relevant matters for ready ascertainment of position

ATO powers to 2at0er info

S+0(&)$entitled at all times to full and free access to all

"uildings, places, "oo!s, documents and other papers for proper purpose and can ma!e copies 9 etracts from suchmaterials

Does not give power to remove original items (Citi"an!

case@

S+0(0)$occupier of premises re5uired to provide all

reasona"le facilities and assistance for effective eercise ofs+0 powers

<otice re5uiring>

'rovision of specific info (7ay case)

/ttend to give evidence to an officer (/< "an!ing

group caseF s+(&)(") &st lim")

'roduce specifc "oo!s9docs9papers in their

custody9control (3ne tel caseF s+(&)(") nd lim")

S+ – power to re5uired provision of infoLimitations9Defences to power>ATO limitations to access to info

e2al professional privile2e

Doc created for purpose of giving9receiving legal

advice 9 or anticipated litigation (T v Citi"an!)

<eed to "e confidential communications for urpose of

o"taining9receiging legal advice (not a newsletter)

Eception>

8acilitate crime, fraud or purpose contrary to pu"lic

interest (:earney case)

Gaiver (epress or implied) – ie, 5uoting priv do in

court ('etrolious)SEL8 .<CB.7.</T.3< .S <3T / 2/L.D DE8E<CE

Acco"ntants4 concessions $p31'

/T3 will see! access to source documents "ut will only

see! access to restricted source and non source docs ineceptional circumstance

Bestricted source H prepared "y eternal accountantat time of transation for urpose of advising

<on source H provided after completion of

transaction9audit9due diligence

O5ections $p2.6'

S&1%/ – can lodge written o"4ection against assessment

Timing – lodgement "y later of>

or yr time limit of original assessment

+@ days after amended assessment

Court limited to grounds stated in o"4ection

3"4ection limited "y isses which were amended "y later

assessment (s&2)

Etension granted where 4ustice of case re5uires iit (=rown

case); Court reference to

Tapayer accepta"le eplanation for delay

're4udice to /T. cause "y delay

merits of tapayer6s case

.f refusal to allow etension, tapayer can apply to //T(s&I())

Appeals $s.+'

//T (cheaper and can eercise powers of commissioner) or

8ed court (5uestions of law only$misunderstanding of legaleffect)(s&)

3nus on tapayer on "alance of pro"a"ilities

'/J income ta

Githholding rates (pg )

Salaries – *K for residents with T8<F 1K for non

residents

.nvestments with no T8<9/=< – *K

Divideents for non residents$ 0@K for unfram!ed

.nterest to non residents – &@K

Beyalties – 0@K

=usiness transaction (no /=<) – *K

Dates of remittance

Small withholders (HA%@@@) – -th day after end of each

5uarter)

with no ST payments $&st day

7edium withholders (%@@& – &million)– -th day

Gith no ST paymentsH &st day

Large withholders (&million) – within & wee! of

withholding the amount

'/J instalment systems – pg%

Calculating '/J instalments (pg+)

D' ad4usted notional ta method

.nstalment rate method

=/S (pg-)

Penalties and R"lin2s

'u"lic rulings – pg%&

7ust state that it iis a pu"lic ruling

Ghere conflicts, tapayer can rely on either (s01%$1%)

Cannot o"4ect to pu"lic ruling, must o"tain a private

ruling to o"4ect on

'rivate rulings – pg% 3nly rulee can rely on

/pplies to certain set of fact

.f arrangement changes, private ruling may not apply

(CTC resources)

/pplication in writing

Buling within +@ days

.f no ruling, can give commissioner notice

.f nothing after notice, (0@ days), can o"4ect

7ust state that is a private ruling

Commissioner rights 9 responsi"ilities 7ust ma!e a ruling unless eception

're4udice the admin of ta law

/lready "een considered

Commission defers payment

Be5uested further info



TAX ADMINISTRATION

Correctness would depend on assumptions, leading to

reasona"le opportunity for tapayer to respond

Timing$ latest of>

+@ days after commissioner rulingF or epiriy of 0@ day

period of notice

years for individuals9S7E or years from lodging return

for others

3ral rulings (p%)

3nly to individuals

<o right to o"4ect, nor receive written record

Penalties and interest c0ar2es

P2 && tale of penalties relatin2 to statements

<o reasona"le care (@ 'Us>%K of shortfall)

Bec!lessness (@ 'Us>%@K of shortfall)

.ntentional disregard(+@'us> 1%K of shortfall)

<o reasona"le argua"le position with significant shortfall

(%K of S8) 8ailure to ma!e statement (1%K of S8)

<ot lia"le for penalty where too! Reasonale care

/re which reasona"ly prudent person with tapayer6s

!nowledge , education, s!ill would ta!e

Create a safhar"our "y providing registered agent with al

relevant ta info

8ollowed advice of /T3

Penalties realtin2 to statements not reasonaly ar2"ale

Lia"le where application of law is not reasonaly ar2"ale

Beasona"ly argua"le position (B/') H .s a"out as li!ely to

"e correct as incorrect for omitting

Penalties for sc0emes $p&%'

aggravating the situation "ase penalty increase "y @K

voluntary disclosure of shortfall –penalty reduced "y @K or

-@K, or nil where AM&@@@

/dmin penalties for fail"re to lod2e on time

S7Es – & penalty unit (M&1@) for each - day period, with

ma of % penalty units (M-%@)

7edium siNed (& million – @ million) $ M0@ for each - day

period

Large '/J withholders (M-%@ for each - day period)

,ailin2 to wit00old 7 remit PA89 amo"nts

&@ penalty units (M&1@@)F or

'enalty e5ual to amout that should have "een withheld

Miscellaneo"s penalties

<ot !eeping records as re5uired (@ penalty units)

'reventing ta officer from access to premises9records when

permitted (@ 'us)

Promotin2 tax avoidance sc0emes $. years application'

Civil penalty %@@@ 'Us for individualF

%@@@ 'Usfor corporateF or

Dou"le the consideration receiva"le in relation to

scheme

iaility limited:

To etent that tapayer is capa"le of complying with the

re5uirement (an!e)

Offences ; penalties $p2*6'

Befusing

8urnish info

Lodge doc <notify commissioner

'roduce doc

ive info

To answer a 5n

8alse or misleading statement

.ncorrectly !eeping records

Bec!less ma!ing of statements9records

8alsifyin, alterin 9concealint records with intention to

mislead9deceive9defeat purpose of ta law

Crimes act

3"structing, hindering , intimidaiting or resistin Cth official

8raud 9 conspiracy to defraud Cth

/iding or a"etting

9eneral $9I!' and S0ortfall interest c0ar2es $SI!' $p2 *('

.nterest charges apply whether or not a penalty applies

/pplies to>

Ta, charge, levy or penalty remaining unpaid

Underpayment of ta

.nstalment of ta underestimated

Late lodgement of return

8ailure to remit amounts Stated as an annual rate depending on which 5tr of year

/pplies to amounts owing (daily rate)

.C applies in addition to penalty units

S.C

K points lower ta" .C

/pplies in cases of amended assessments wherer ta paya"le

is increased compared with original assessment

S.C replaces .C for period "etween due date for paymenyt

of original (understated) assessment and date of amendedassessment

TAX A9<NTS $p2*3'

TAS Act

Definition of ta agent service (pg+)

=/S service definition (pg+%)

8inancial advice definition

Begistration re5uirements )&- yrs, fit and proper, satisfy

education prescri"ed and have prof indemnity policy)

8it O 'roper test$ good reputation, competence and

integrity, with reputation and a"ility and preparehonestly and competently

3od fame integrity and character

.n last % yrs

<o dis5ualifying vent occurred

<ot "een "ac!rupt at any time

Did not serve time in prison

Educational ep re5



TAX ADMINISTRATION

Tertiary 5ualificationF & month p

<o tertiary ep, must show -yrs p

!OD< = div 36 TASA

Be5 a letter of engagement (description or wor!, how parties

communicate, respective rights, "asis of fee calc)

>onesty and inte2rity $pr */'

&; /ct honesty and with integrity

; Comply with ta laws0; /ccount for property received on "ehalf of client and

held "y trust

Independence $est interests of client'

; /ct lawfully and in "est interests of client%; ave ade5uate arrangement to manage conflicts of

interest

!onfidentiality

+; 7ust not disclose info relating to client6s affairs to 0rd party without clients permission unless legal duty

!ompetence

%) Service are provided competently

/) 7aintain !nowledge and s!ills re5 to service provided1) Beasona"le care in ascertaining client affirs(6) Beasona"le care in application of ta law

Ot0er responsiilities

(() <ot !nowingly o"struct admin of laws(+) /dvise client of rights, o"ligations and ta laws that are

materially related to services provided(3) 7aintain professional indemnity

(.) Bespond to re5uests and directions from T'D intimely manner

Conse5uences of failure to comply – T'= can>

Ta!e "reaches into account in determining registration

'ursue civil penalty

Caution

3rder action

Suspend registration

Terminate registration

Civil penalties and in4unctions (pg10)

Safe 0aro"r defence from penalties $p2%3'

/pplies to consumers for failure of agents (late lodgement or

false 9 misleading stamtent s resulting in shortfall)

Doesn6t apply where tapayer or agent was rec!less or

showed intentional disregard

Anti-Avoidance r"les an Part I?A

Ta evasion – deli"erate non compliance

Ta avoidance – use of legal means in a way unintended "y

legislation

Ta planning – ues of legal means in a way intended "y

legislation

Application of I?A = anti avoidance provisions

() T0ere is a sc0eme

Scheme, plan, proposal, action, course or action or

conduct Spotless case$documentation is important in determining

nature of transaction; Can ma!e reference to su" schemeto determine dominant purpose if "roader scheme has anoverall commercial o"4ective

.f lac!s commercial crediility, then 'art .2/ may

apply>

8CT v 'ea"ody – must have a realistic

commercial purpose

Spotless$need to formulate sufficiently relia"le

prediction of events if scheme had not "eencarried out

+) Dominant p"rpose was enalin2 taxpayer to otain taxenefit

Ta "enefit – o"tained in several ways (pg 1+)

/nnihilation approach ("ased on alternative that

would have "een occurred if scheme had not "eenentered into)

Beconstruction approach ("ased on alternative that

might reasona"le "e epected to occur if scheme notentered into; Be5uires prediction of alternativetransaction and constraints)

/ factors = p"rpose of sc0eme$considerations'

7anner in which scheme was entered into

8orm and su"stance of scheme Time and duration

Besult achieved

Change in financial position that resulted9reasona"le

epected to result

Change in financial position of person connected to

tapayer

Conse5uence of person connect t tapayer

<ature of connection "etween the relevant tapayer

and other person connect with tapayer

Dominant purpose – o"4ective test> reasona"le person

would conclude such a purpose using - matters a"ove

3) !ommissioner determines t0at w0ole7part of enefit iscancelled$deny ded"ction'

T' su"4ect to scheme penalties of %@K of ta avoided

7ay "e reduced to %K of ta avoided if ta payer has

reasona"ly argua"le position

/pplication of 'art .2/

Doesn6t typically apply to sale and lease"ac! arrangements

.nterest repayment arrangements

art case – dominant purpose was gaining ta "enefit

.ncome splitting $ prevent redirection of income to others

7och!in – loo!ed at - factors

.nvestment loan repayments H generally not antiavoidance

art – home and investment loan; 'referred to payoff

home loan

7ost cases go against the /T3 (pg -1)

Part I?A Role of advisors

2incent – etends to not only those who entered "ut also

promoter of scheme or any part of it

/dvisor may "e lia"le under contract law and negligence

/dvisors should challenge strengths of assertions "efore

relyinn on them

Part I?A Promoter Penalties

Civil penalties

CPA TAX Notes - Module 1

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