Historical Development and Analysis of Australian Income Tax System

This report provides a comprehensive overview of the history of income tax in Australia. It begins with the introduction of income tax as a wartime measure and traces its evolution through various legislations, including the Income Tax Assessment Act 1915 and subsequent amendments. The report highlights the shift from state-level taxation to the federal government's jurisdiction, as established by the Constitution. It discusses the purpose of the taxation system, originally designed to provide government funds and later used to control inflation. The report details key legislations like the Income Tax Assessment Act 1936 and 1997, and the role of the Australian Tax Office (ATO) and other regulatory bodies. It concludes by emphasizing the significant changes and improvements in the Australian tax structure over time, with a focus on the current tax system and its established categories of income.

The History of
Income Tax in
Australia

Introduction to Income Tax
Income Tax refers to the tax which is imposed on the
personal income of the residents of the country. Income
taxes in Australia is imposed by the Federal Government
and the basic characteristic of taxation in Australia is that
they are progressive in nature (Burkhauser, Hahn &
Wilkins, 2015). Income taxes are charged on both incomes
of individual residents and corporations.

Brief History of Income Tax
• Income tax was first introduced as a war time measure in
the early 18th Century and the concept of income tax thus
spread (Frecknall-Hughes & McKerchar, 2013).
• The first income tax was imposed by South Australian
Government in 1884.
• The taxes and their respective rates at which such taxes
were imposed were income from personal exertion @
1.25%, tax on property Income @ 2.5% and tax on land
holdings @ 0.2%.

Brief History of Income Tax
(Continued)
• At an earlier stage, Federation in Australia was of the opinion excise,
customs and duties would raise enough revenue for the Government. In
1915, it became clear that the Government needed more revenue and thus
Income Tax Assessment Act 1915 was passed which Imposed Taxes on
the personal income of the residents of the country (Winer, Profeta &
Hettich, 2013).
• Modern tax structure has been amended several times as per the
requirement of the Government. A wide range of taxes have been imposed in
recent times and further breakups are available for the income taxes which
includes various exemptions, setoffs and deductions in the new tax structure
which is current in place (Taylor & Richardson, 2013).

Legislations
The Australian tax legislation which is followed by the
Government are mainly divided into seven main categories:
• Income Tax Legislations
• Income Tax Regulations
• Rating acts , Such as Medicare Levy Act 1986
• FBT Legislations
• Goods and Service Tax Legislations

Legislations (Continued)
• Taxation administration acts and regulations
• International bilateral agreements also known as double
tax agreements.

Jurisdiction over Taxation Law
• The tax laws which includes income tax and several other
taxes are under the jurisdiction of the Federal
Government and the states Government does not have a
role to play in this.
• Section 109 of the Constitution clearly states that when a
law of State is inconsistent with a law of a Federal
Government , then the latter shall prevail and the former
will be considered to be Invalid. This is the reason due to
which State Government have taxes such as Stamp duties,
Payroll Taxes and Land Tax under its Jurisdiction
(Eccleston & Woolley, 2014).

Purpose of Taxation System
• In earlier times, taxation system was originally designed
to provide the Federal Government with sufficient funds
for fulfilling the needs of the country.
• The scope increased as it is seen that in times of economic
uncertainty which was experienced in Australia, the tax
burden and application of taxes can dominate politics and
media in the country.
• In addition to this, tax system is used by Government to
control the overall inflation level in the country.

Graphical Representation of Personal
Income Tax top marginal rate.

Australian Taxation System at
Present
• At the moment, two acts are considered while determining
the tax rulings which are Income Tax Assessment Act
1936 (ITAA 1936) and the Income Tax Assessment Act
1997 (ITAA 1997).
• The Government is trying to rewrite the Act of 1997 so as
to ensure that tax system can be made more easier while
at the same time incorporating core provisions, general
provisions and special provisions.

Australian Taxation System at
Present (Continued)
• ITAA 1936 is considered to have provisions which are a
bit complex to interpret and therefore the Government is
intending to incorporate the core principles in ITAA
1997.
• The income tax formulas and income tax rates are set out
in the ITAA 1997 which is used for computing the taxable
income of a resident or a corporation.

Australian Taxation System at
Present (Continued)
• In a nut shell, it can be said that the Australian taxation
system is very good as the same is very good in taxing
established categories of Income and is especially good
for taxing salaries and wages. The Australian Tax Office
plays a vital role in collection and implementation of the
tax policies which are introduced by the government

Key Players in Australian Tax
System (Current)
The key players who are responsible for regulation and
following the relevant tax policies of the country are listed
below:
• Australian Tax Office (ATO) : It is a central executive
and administrative body which is used for collection and
administration of taxes in country (Ato.gov.au., 2018). ATO
is responsible for regulating the tax laws in the country
and the head of the ATO is known as Federal
Commissioner of Tax

Key Players in Australian Tax
System (Continued)
• Inspector-General of Taxation and Other Review Bodies: There
exist other statutory bodies which also have a degree of insights in
Australian taxation system. There is an Ombudsman which is enabled
by Ombudsman’s Act 1976, who can review treatment of taxpayers
by ATO and report the same for improvement which can be made in
the structure of ATO. Inspector-General of Taxation looks after
administration issues and does not deal with individual tax payers
matters.
• Tax Agents: These are individuals who are qualified professional
recognised under The Tax Agents Service Act 2009.

Conclusion
• Thus from the discussion of above tax provisions which
are introduced in Australia, it is evident wide range of
changes have taken place in the tax structure which was
followed in earlier time and the tax structure which is
currently followed in the Country. It can be noted that
massive changes are brought about and tax structure has
also improved significantly.

Reference
• Ato.gov.au. (2018). Retrieved 6 August 2018, from https://www.ato.gov.au/About-ATO/About-us/Who-we-
are/Our-history/
• Burkhauser, R. V., Hahn, M. H., & Wilkins, R. (2015). Measuring top incomes using tax record data: A
cautionary tale from Australia. The Journal of Economic Inequality, 13(2), 181-205.
• Eccleston, R., & Woolley, T. (2014). From Calgary to Canberra: resource taxation and fiscal federalism in
Canada and Australia. Publius: The Journal of Federalism, 45(2), 216-243.
• Frecknall-Hughes, J., & McKerchar, M. (2013). Historical perspectives on the emergence of the tax
profession: Australia and the UK. Austl. Tax F., 28, 275.
• Taylor, G., & Richardson, G. (2013). The determinants of thinly capitalized tax avoidance structures:
Evidence from Australian firms. Journal of International Accounting, Auditing and Taxation, 22(1), 12-25.
• Winer, S. L., Profeta, P., & Hettich, W. (2013). The political economy of taxation. Oxford University Press.
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