BL 731 Income Tax Law

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BL 731 Income Tax Law PracticeSchool of
BusinessUniversity of Ballarat

• Topic 8 Tax Administration Lecture 1
• Lecturers Outline

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Overview

• This lecture concerns the general administrative
  system for determination of a taxpayers income
  tax and tax payable including the lodgement of
  tax returns, the assessment process and amendment
  of assessments. We will also look at the tax
  ruling system and look generally at the
  administrative process for the collection and
  recovery of tax.

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ITAA 1997

• Section 995-1 of ITAA 1997 states that assessment
  means what it did under s.6 ITAA 1936.
  Assessment under s.6 defines assessment as the
  ascertainment of the amount of taxable income ...
  and of the tax payable on such and any penalty
  imposed

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ITAA 1936

• The Commissioner calls for the lodgement of
  annual tax returns under section 161 of the ITAA
  1936. This is done by the Commissioner
  publishing a notice in the Government Gazette
  that specifies the manner and the time by which
  categories of persons must lodge their returns.

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Lodgement

• Individuals and entities have an obligation to
  lodge returns by specific dates - this depends
  upon the category in to which they fall.
• It is no excuse for not lodging a return to say
  you have not seen the notice. Authority for this
  proposition is Kelton (DFCT) v Goodes (1979) 79
  ATC 422 (ref 33.310 ATL)

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Lodgement

• While the Government Gazette usually requires
  returns to be lodged by 31 October for
  individuals, the Commissioner may extend that
  time for some returns. For example, the
  Commissioner permits registered tax agents to
  spread the lodgement of income tax returns over
  the income year. The Commissioner uses his
  discretion to allow tax agents a longer time
  frame as long as they comply with the guidelines.

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Lodgement

• In addition, the Commissioner may exempt
  specified classes of persons from the requirement
  to lodge returns and therefore such exempted
  persons do not need to provide a tax return.

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Lodgement

• The Commissioner is empowered by section 162 of
  ITAA 1936 to require taxpayers to provide
  further income tax returns in certain
  circumstances.
• An income tax return must be lodged by all
  taxpayers who have a liability to tax in
  Australia. If they are overseas, the return must
  be lodged by a duly authorised person.

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Where to lodge and form and content

• Lodgement can be done by the taxpayer or through
  a tax agent. Taxpayers can use the paper form or
  tax pack express, whilst tax agents lodge through
  the electronic lodgement system. There are
  different forms for different types of taxpayers.
  All lodgements are made with the ATO.

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Lodgement

• A taxpayer lodging an income tax return after the
  prescribed due date may have to pay a late
  lodgement interest penalty.

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Commissioners Assessments

• Under s.166 ITAA 1936 the Commissioner is under a
  duty to make an assessment of a tax payers
  income.
• Why is determining when an assessment occurs
  important?

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Assessment

• Batagol v FCT (1963) 9 AITR 207 - assessment
  under s.6(1) is ascertainment of the taxpayers
  income and the tax payable on it.
• Note an assessment must declare an amount of tax
  payable, not be a nil assessment which does not
  declare any tax payable, or be an adjustment or a
  refund notice. This is important in part because
  an objection can only be made against an
  assessment or a private ruling.

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Assessments

• The Commissioner can, at any time during or after
  any income year. Make an assessment of the
  taxable income derived by a taxpayer in that
  year, or any part of the year, and the tax
  payable on that income.
• The Commissioner, in issuing an income tax
  assessment, can rely on the taxpayers income tax
  return as lodged but is not restricted to relying
  only on that return. The Commissioner can rely
  also on any other information in his possession.

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Assessments

• A company is deemed to have lodged an assessment
  when it lodges an income tax return.
• There is no time limit in which the Commissioner
  must issue an original assessment.

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Self assessment

• Self assessment
• Returns are no longer subject to detailed
  scrutiny. Self assessment places the burden on
  tax payers to interpret and apply the tax law.
  Self assessment has been in place since 1992
  Taxation Laws (Self Assessment) Act 1992. This
  means that the information at first instance when
  the return is lodged is not checked carefully for
  accuracy or correctness by the ATO

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Assessments

• Note s.171 a taxpayer can request one if no
  assessment is received within 12 months
• s.167 Default assessments - which allow the
  Commissioner to make assessments of taxable
  income upon which in his judgment income tax
  ought to be levied. This can be done where a
  return has not been lodged, or the Commissioner
  is not satisfied with the return that has been
  lodged, or the Commissioner believes that the
  taxpayer has derived assessable income that has
  not been disclosed in a return.

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Amendments

• Note that this is not the same as objections
  under s.170(7). There is no duty or obligation
  on the Commissioner to amend as the requirement
  is merely that the commissioner MAY amend -
  however he usually does.
• Under s.169A (1) ITAA 1936 taxpayers can request
  self amendment - Commissioner may rely on
  information supplied by the taxpayer to amend
  return.

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Time Limits

• Note an amendment where there has been fraud or
  tax evasion may be made at any time.
• If there is no fraud or evasion, it must be
  within four years from the date upon which the
  assessment became due and payable
• No amendment to reduce tax payable can be made
  after four years.

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Commissioners amendment

• Commissioners amendment
• If errors are discovered in the course of an
  audit then there must be a way for the assessment
  to be amended and the Commissioner has a general
  power of amendment. Note that for the taxpayer,
  an amended assessment is the equivalent of a
  new assessment and this new assessment is
  accompanied by the same objection rights etc as
  the original assessment.

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TAX RULINGS

• The role of tax rulings is to give taxpayers
  assistance in their self assessment. They give
  an outline of the Commissioners view of how the
  law applies to taxpayers situations.
• Public Rulings issued by the Commissioner are
  addressed to the public at large and are not
  directed specifically to any individual tax
  payers or their affairs.

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PUBLIC RULINGS

• Part IVAAA Tax Administration Act 1953 (Cth)
  (TAA)
• A ruling may be issued to explain how an ITAA law
  may apply to a person or class of persons e.g.
  bonuses and professional sports persons or tips
  and hospitality industry employees.
• The law will prevail over the application of a
  public ruling if the law is found to be more
  favourable to the taxpayer than the ruling. On
  the other hand, if applying the public ruling
  results in less tax payable under an assessment
  it must be applied by the Commissioner.

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Private Rulings Part IVAA TAA

• A taxpayer may apply for a private ruling on a
  particular arrangement whether past current or
  proposed to find out how the Commissioner would
  exercise his discretion. These rulings may be
  oral or written but different rules and time
  frames of application apply and there are
  different effects.

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Private Rulings

• However, no private ruling can relate to a return
  that was lodged more than four years previously.

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Binding oral rulings

• Oral rulings are binding on the Commissioner but
  not on the tax payer.
• The aim of binding oral rulings is to provide a
  quick and convenient system for taxpayers to
  obtain a definitive ruling on a simple tax issue.
  Applications for binding oral rulings must be
  applied for by individuals (not through their tax
  agents) and made orally.
• There is a possibility that an application for a
  binding oral ruling can be made on behalf of
  another person, but this would be very unusual.

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Rulings

• Note that there are certain applications for
  rulings which the Commissioner must not follow
  through, for example if the matter is subject of
  a tax audit or the application is frivolous or
  vexatious.
• Note that where a public ruling is inconsistent
  with a private ruling the latter may be
  withdrawn. ss170BC, 170BD and 170BF(3) of ITAA
  1936 and s.14ZAW TAA.

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Rulings

• However, if the public ruling is less favourable
  than the previous private ruling, the public
  ruling will only apply prospectively ss.170BC,
  170BC and 170BF(3)