Income Tax Assessment Act 1997 Analysis

The assignment discusses the Income Tax Assessment Act 1997 (ITAA 1997) and its relevance to Australian companies. It highlights the importance of tax advisors in ensuring compliance with taxation rules and regulations. The document also emphasizes the need for clients to submit necessary documents and licenses required for filing income tax returns.

Taxation law

Table of Contents
INTRODUCTION...........................................................................................................................1
QUESTION 1...................................................................................................................................1
QUESTION 2...................................................................................................................................1
QUESTION 3...................................................................................................................................2
PART 1........................................................................................................................................2
PART 2........................................................................................................................................2
QUESTION 4...................................................................................................................................3
QUESTION 5...................................................................................................................................3
QUESTION 6...................................................................................................................................4
QUESTION 7...................................................................................................................................5
CONCLUSION ...............................................................................................................................5
REFERENCES ...............................................................................................................................6

INTRODUCTION
Taxation is a term given to the revenue which is collected by government authorities in
terms of imposing various taxes (Buehler and Pucher, 2012). It is mostly referred to as an act.
This report contains the detail information about constitutional framework of Australian
Taxation System. It also provides solution to various problems related to taxation.
QUESTION 1
A) Australian taxation system is known as one of the most complex taxation system in the
world which is made up of approximately 125 various taxes it also includes common wealth
taxes such as Income Tax, Fringe Benefits Tax, Capital Gains, Goods and Services Tax and
many more (Devos, 2012). Australian Constitution confer the power to impose the Tax on the
commonwealth under section 51(ii). The powers under Australian Constitution in section 51(ii)
consist of various powers such as concurrent Powers i.e., income tax, exclusive power which
includes custom and excise duty and residual powers includes stamp duty, payroll tax and land
tax.
B) Separation of powers: In the separation of power political theory it determines the three
powers such as The legislative power which makes the law for the country, The executive power
who governs the executive of law and enforce it and the Judicial power in order to interpret law
enforced to maintain balance on each other. Role of Parliament is to make laws for the benefit
and safety of its citizens, role of ATO is to execute the law which is made related to taxation
system and the Courts has the role to check and balance these two authorities and interpret the
law.
QUESTION 2
Double Tax Agreement: Double tax agreement is a bilateral formal agreement between
two countries which helps in prevention of double taxation. This is an agreement which help
government of both the companies to levy tax and avoid double taxation on same income. It also
provide a security level for the Tax rules which is applicable to particular transactions done
internationally (Faccio and Xu, 2015). It specify the rules in order to resolve claims related to the
status of residence of taxpayer and the source through which it earned income.
In the above given case the Australian income which a non resident US manufacturer has
earned is taxable as per the Australian Taxation Office. Under Division 13 sub sections
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136AE(4) to (7) any profit earned from the Australian customer will be taxable under its
jurisdiction. As per TR 2001/11 any business which has permanent establishment within the
territorial boundaries is liable to pay the taxes as per the rates mentioned in ITAA 1997. in the
above case manufacture operates its business through a serviced office registered under the
company name is run a manger who collects the revenue generated from Australian customer
will be liable under the head Profit and Loss for Business or Profession under Income Tax
Assessment Act 1997.
QUESTION 3
PART 1
a) Capital Gain Tax is defined in Income Tax Assessment Act 1997 under section 104 – 5
states that any property owned by an individual or partner resident acquired any assets before 20
September 1985 will be exempt from attracting any Capital gain tax on sale of those assets
(.Goldsworthy 2012). If Indianna owned this property since 1 November 1976 then any gain
from selling that assets will be exempted from her total assessable income.
b) As the regulation given under section 104 – 5 of ITAA 1997 any property held by an
individual or partner in partnership will be taxable under the head Capital Gain Tax. If the
property held by an owner for at least 12 months will attract the tax liability on gain on sale of
that assets. In the above case if the property owned by Indianna since 1 November 1986 it would
be liable to pay tax on capital gain which she earned on sale of that particular asset.
PART 2
Scenario
a) In this scenario Indianna undertakes the activities and sub divide its property into 80
different blocks and keeps 2 hectare are for personal use. In this case Indianna will derive
assessable income in the year in which she is planning to sell all the 80 undeveloped
blocks and remaining 2 hectare of land will be free from tax liability as it will be used for
personal use (Main and Baird 2018). It will be attract tax liability under the head capital
gains tax.
b) In the above given case second scenario states that Indianna will hold an auction for the
80 blocks of its property and will sell it to highest bidder. In this case Indianna will be
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liable to pay tax in the same year in which the property is sold on auction and the gain
will be taxable under the head CGT.
c) In this scenario Indianna sells her 80 blocks to a property builder and agrees to pay 65%
as a fees for development and agrees to receive the total payment after the sale of last
block. In this case she will be liable to pay the tax only once all blocks are sold and she
receives her 35% from the total process.
QUESTION 4
As per Income Tax Assessment Act 1997 under section 8 – 1 any resident who has taken
loan for the purchase of rental property can claim the deduction of interest for consecutive three
year after the loan is taken. However, the property which is purchased with that loan must be
rented or available for rent in the same year in which it has claimed the deduction. In the above
given case Amity has taken a loan to purchase a land and start an accommodation business, in
this case Amity is eligible to claim a deduction for only 18 months till it owned its business,
however later he sold his complete interest to his partner Archie. Amity can claim deduction of
interest on loan only till the time Amity has owned the business i.e., 18 months and remaining
interest paid after 18 months will not be available to claim the deduction for interest paid on loan
from total assessable income.
QUESTION 5
As per the Australian Taxation Office under Income Tax Assessment Act 1997 any
individual resident of Australia is liable to pay tax on the sale of its long term assets held after 20
September 1986. if any individual sell a assets held for more than 12 months will be eligible for
the capital gain.
Calculation:
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Sold price $325,000
Purchase price $140,000
Capital gain $185,000
Taxable capital gain $92,500
Current taxable income $444,000
Capital gain tax payable $43,475
QUESTION 6
Article:
1). One-third of large Australian companies paid no tax, ATO data show(ABC 2019)
(a) The above article summarises that from 2109 large business entities only 66% of these
entities pay their due taxes. ATO says that in the year 2016-17 only 66% of large
business groups have paid tax remaining one third has provided valid reasons and some
of them do not pay taxes, as per the transparency report issued to ATO. Total corporate
Tax collected was $45.7 billion resulted in the lift by 19 per cent. As per the transparency
report 1721 Australian and foreign owned companies increase the tax which was driven
from mining, water and energy industries. As per the ATO report it has seen a great
compliance with petroleum resources rent tax which reported at $946 million.
(b) In the above article two taxation concept are discussed such as Multinational Anti –
Avoidance Law (2016) under ATO and Petroleum Resource Rent Tax Assessment Act
1987. PRRT states that companies selling Marketable petroleum Commodities is liable to
pay taxes on the profit generated through those product. The MAAL came into effect in
the year 2016 in order to make sure that multinational countries working in Australia are
paying the right amount of tax.
(c) The connection between the MAAL and PRRT with the indicators which states that tax
policy are good is that the tax system should be equal and fair for all. Taxation system in
Australia is fair for all and they also have a effective tax administration, which collects
the tax payable to different countries and companies.
2.) Eight charts that illustrate our growing tax problem(ABC 2019)
(a) The above article states that ATO tax problem have risen in the past few years, it also
states that the tax revenue have risen by 26 per cent from the year 2009 to year 2016.
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individual income tax revenue grew in the year 2016-17 by 37 per cent at an average of 5
per cent every year.
(b) The above article shows the concept of Income tax of individual and companies. As per
the Australian Taxation Office under the Income Tax Assessment Act 1997 states that
every individual and company having resident in the Australia.
(c) The concept discussed in the above article is income tax and its relation with good tax
policy are that the ITAA 1997 is equal for every citizen of the country who are resident.
It also provides the simplicity in the calculation of tax liability.
QUESTION 7
It is important for tax agent to provide the compliance of the taxation rules and
regulations it is one of the important role of tax advisor to make sure the data which is provided
by its clients are true and all information is relevant and it is important for the tax advisor to
check for deductions which its client can claim in order to reduce the tax liability attracting to its
client. It is also important for tax advisor to check the residence status of its client that its client
is a resident of Australia or not. It is also important for the advisor to collect all the necessary
licence documents which sis provide by its client. It important for the clients to submit all the
necessary documents and licence required to file the income tax return.
CONCLUSION
From the above file it can be concluded that any company doing business in the territorial
boundaries of Australia will be eligible for the payment of tax liability under the Income Tax
Assessment Act 1997,it also provides the solution of various tax related problems.
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REFERENCES
Books and Journals
Buehler, R. and Pucher, J., 2012. International Overview: Cycling Trends in Western Europe,
North America, and Australia. City cycling, pp.9-29.
Devos, K., 2012. The impact of tax professionals upon the compliance behaviour of Australian
individual taxpayers. Revenue Law Journal. 22(1). p.31.
Faccio, M. and Xu, J., 2015. Taxes and capital structure. Journal of Financial and Quantitative
Analysis. 50(3). pp.277-300.
Goldsworthy, J., 2012. Constitutional cultures, democracy, and unwritten principles. U. Ill. L.
Rev., p.683.
Main, R.S. and Baird, C.W., 2018. Polluters’ profits and political response: direct control versus
taxes: comment. The Theory and Practice of Command and Control in Environmental
Policy, pp.411-412.
Marshall, S. and Ramsay, I., 2012. Stakeholders and directors' duties: Law, theory and
evidence. UNSWLJ. 35. p.291.
Mason, R., 2015. Citizenship Taxation. S. Cal. L. Rev.. 89. p.169.
Pan, P. and Perera, H., 2012, June. Market relevance of university accounting programs:
Evidence from Australia. In Accounting Forum (Vol. 36, No. 2, pp. 91-108). Taylor &
Francis.
Penner, J., 2016. The law of trusts. Oxford University Press.
Vadi, V.S., 2012. Global health governance at a crossroads: trademark protection v. tobacco
control in international investment law. Stan. J. Int'l L.. 48. p.93.
Online
ABC 2019 [Online] Available through:<https://www.abc.net.au/news/2018-12-13/one-third-of-
australian-companies-paid-no-tax-ato/10614916>
ABC 2019 [Online] Available through: <https://www.abc.net.au/news/2018-05-07/eight-charts-
on-our-growing-tax-problem3a-what-abandoning-tax-/9734334>
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