Chapter 8 Income tax

8.1 Introduction
8.2 Income tax legislation

8.3 Calculating income tax liability

8.4 Assessment, payment and collection of income tax

8.5 Taxable income

8.6 Other concepts relevant to calculating income tax

8.7 Income tax rates and levies

8.8 Tax offsets

8.9 Higher Education Loan Program

8.10 Sample income tax calculation
8.11 Reconciling income tax with GST and FBT

Chapter 9 Residence and Source

9.1 Introduction
9.2 Residence

9.3 Source

Chapter 10 Ordinary income

10.1 Introduction
10.2 Characterising income-key concepts

10.3 Categorising and calculating income

10.4 Income from personal exertion

10.5 Income from business

10.6 Income from profit-making schemes

10.7 Income from property

10.8 Compensation amounts and reimbursements

Chapter 11 Statutory income

11.1 Introduction
11.2 Annuities

11.3 Miscellaneous provisions in Div 15 ITAA97

11.4 Recoupments of deductible amounts

Chapter 12 Exempt income and non-assessable non-exempt income
12.1 Introduction
12.2 Exempt income

12.3 Non-assessable non-exempt income

Chapter 13 General deductions
13.1 Introduction
13.2 Loss or outgoing and apportionment

13.3 Positive limbs

13.4 Negative limbs

13.5 Clothing expenses

13.6 Travel expenses

13.7 Self-education expenses

13.8 Home office expenses

13.9 Rent and licence fee expenses

13.10 Interest expenses

13.11 Legal expenses

13.12 Management expenses
Chapter 14 Specific deductions
14.1 Introduction
14.2 Tax-related expenses
14.3 Repairs
Nature of a repair
Maintenance costs as opposed to acquisition costs
Restoration of an item as opposed to making it functionally better
14.4 Lease-related expenses
14.5 Borrowing expenses
14.6 Bad debts

14.7 Loss from profit-making undertaking or plan

14.8 Losses caused by theft
14.9 Pensions, gratuities and retiring allowances
14.10 Patments to associations
14.11 Election expenses
14.12 Gifts

15.1 Introduction
15.2 Substantiation

15.3 Car expenses

15.4 Taxes
15.5 Entertainment expenses
15.6 Non-compulsory uniform expenses
15.7 Non-commercial business losses of individuals

15.8 Miscellaneous ITAA97 provisions that deny deductions

15.9 Miscellaneous ITAA36 provisions that deny deductions
Chapter 16 Tax timing

16.1 Introduction
16.2 When is income derived

16.3 When is a loss or outgoing deductible

Chapter 25 Tax losses

25.2 General tax loss rules

Chapter 45 Financial transaction regimes

45.2 Pre-payment regime

Chapter 48 Identification and payment systems

48.1 Introduction

48.2 The TFN system

48.3 The ABN system

48.4 The PAYG system

Chapter 8 Income tax

Introduction
Income tax legislation
Tax Law Improvement Project
Style of the ITAA97
Continued operation of precedent and rulings
TLIP superseded by ANTS reforms
Coverage of the ITAA36 and ITAA97
Calculating income tax liability
Taxable income
Income tax formula
Additional levies payable by individuals
Overall tax liability
Tax losses
Assessment, payment and collection of income tax
Tax returns and assessments
Payment of income tax
Pay As You Go (PAYG) tax collection system
Taxable income
Assessable income
Deductions
Other concepts relevant to calculating income tax
Income tax rates and levies
Marginal income tax rates payable by individuals
Temporary budget repair levy (for 2014/15 to 2016/17)
Medicare levy
Medicare levy surcharge
Calculating income tax and levies
Top tax rate and tax planning issues
Tax offsets

Type of tax offsets

Concessional tax offsets
Averaging tax offsets
Incentive-related tax offsets
Credit-related tax offsets
Higher Education Loan Program
Sample income tax calculation
Reconciling income tax with GST and FBT
GST reconciliation rules
FBT reconciliation rules
Chapter 9 Residence and Source
Introduction
Residence
Individuals
Companies
Dual residence
Source
Services income
Business income
Interest income
Rental income
Royalty income
Dividend income
Chapter 10 Ordinary income
Introduction
Characterising income-key concepts
Gain concept
Accretion, flow and trust concepts of income

Quality in the hands of the recipient, reliance and regularity

Income must "come in" and be "money" or "convertible into money"
Income must come from "outside sources"-the "mutuality" principle
Statutory non-cash rules
Categorising and calculating income
Categories of income
Calculating income
Income from personal exertion
Reward for services
Voluntary payments that relate to professional activities
Payments that are incidental to employmemt
Payments that are a substitute for salary
Payments that are personal gifts
Payments for relinqushing rights
Payments for entering into restrictive covenants
Income from business
The Californian Cooper principle
Trading transaction
Mere realisation of a capital asset
Venturing an asset into a trading activity
Carrying on a business
Small scale business can constitute a business
Short term activities can constitute a business
Athletic pursuits can constitute a business
Illegal activities can constitute a business
Gambling activities can constitute a business
Ordinary proceeds of a business
Business restructuring and restraint cases
Banking, insurance and investment cases
Share trading cases

Leasing cases
Lease incentive cases
Intellectual property and "know-how" cases
Debt defeasance cases
Income from profit-making schemes
The first strand of Myer
The second strand of Myer
Historical cost concept of profit
Income from property
Amounts received from the exploitation or use of capital assets
Amounts received from the sale or realisation of capital assets
Distinguishing between gains severed from capital and accruing to capital
Income streams
Compensation amounts and reimbursements
Compensation for loss of use of money
Compensation for loss of trading stocks
Compensation for loss of income under insurance policies
Compensation for cancellation of employment contracts
Compensation for closing down or sterilisation of a capital asset
Compensation for cancellation of trading contracts
Compensation for cancellation of structural contracts
Compensation for cancellation of agency agreements
Compensation for personal injury
Compensation payments that are undissected lump sums
Reimbursements and refunds
Chapter 11 Statutory income
Introduction
Annuities
Definition of annuity

Deductible amount
Miscellaneous provisions in Div 15 ITAA97
Allowances
Return to work payments
Accrued leave transfer payments
Bounties and subsidies
Profit-making undertakings or plans
Royalties
Payments made to members of a copyright collecting society
Amounts received for lease obligation to repair
Insurance or indemnity for loss of assessable income
Interest on overpayments and early payments of tax
Mining, quarrying or prospecting information
Work in progress amounts
Funeral policy payments
Reimbursed car expenses
Bonuses on life insurance policies
Recoupments of deductible amounts
Chapter 12 Exempt income and non-assessable non-exempt income
Introduction
Exempt income
Classes of exempt income
Special conditions and exceptions
Non-assessable non-exempt income
Chapter 13 General deductions
Introduction
Loss or outgoing and apportionment
Loss or outgoing

To the extent that

Positive limbs
Establishing a "nexus" between a loss or outgoing and the positive limbs
Pragmatic and commercial approach to determining nexus
The "in the course of" and "incidental and relevant" tests
The "character" test
Characterising outgoings by reference to objective advantages obtained
Characterising outgoings by reference to a taxpayer's subjective purpose
Characterising outgoings when related party transactions are involved
Nexus between loss or outgoing and the taxpayer's assessable income
"Necessarily" incurred in carrying on a business
Temporal connection
Losses or outgoings incurred before the commencement of a business
Losses or outgoings incurred after the cessation of a business
Negative limbs
First negative limb: Capital losses and outgoings
Second negative limb: Private or domestic losses or outgoings
Third negative limb: Losses or outgoings incurred in gaining exempt income or non-assessable non-exempt income
Fourth negative limb: Losses or outgoings that are not deductible under the ITAA36 or ITAA97
Clothing expenses
Travel expenses
Travel on work
Travel between home and work
Travel between two unrelated places of work
Travel to find new work
Car expenses
Self-education expenses
Self-education expenses linked to current occupation
Self-education not linked to current occupation
Self-education exoenses linked to other kinds of assessable income

Statutory restrictions on deductibility of self-education expenses

Home office expenses
Rent and interest expenses
Other expenses
ATO's view
Rent and licence fee expenses
Rental payments
Licence fees
Payments to secure a licence or lease
Interest expenses
Character of interest ordinarily depends on the use of the borrowed funds
Refinancing principle
Interest is ordinarily a revenue outgoing
Special circumstances in which interest may be a capital outgoing
Legal expenses
Management expenses
Chapter 14 Specific deductions
Introduction
Tax-related expenses
Repairs
Nature of a repair
Maintenance costs as opposed to acquisition costs
Restoration of an item as opposed to making it functionally better
Lease-related expenses
Borrowing expenses
Bad debts
Debt must exist
Debt must be bad
Debt must be written off

Special rules for corporate and trust bad debts

Loss from profit-making undertaking or plan
Losses caused by theft
Pensions, gratuities and retiring allowances
Patments to associations
Election expenses
Nature of a gift
Inter vivos gift
Political gifts
Chapter 15 Provisions that deny or limit deductions
Introduction
Substantiation
Written evidence
Car expenses
Travel diaries
Maintaining records
Commissioner's discretion
Car expenses
Entertainment expenses
Non-compulsory uniform expenses
Non-commercial business losses of individuals
Deferral rule
Exceptions
Miscellaneous ITAA97 provisions that deny deductions
Miscellaneous ITAA36 provisions that deny deductions
Chapter 16 Tax timing

Introduction
When is income derived
Methods of accounting for income
Employees and sole traders
Professional partnerships
Sole trader forms a partnership (change in accountancy basis)
Impediments to enforcement
Trading businesses
Conditional contracts
Unbilled services
Advance payments
Refunds provided after the end of the year
Income which is subject to a dispute
When is a loss or outgoing deductible
An outgoing can be incurred even if it is not known when it will be discharged
An outgoing can be incurred even if it cannot be precisely ascertained
Chapter 25 Tax losses
General tax loss rules
Amount of a tax loss
Limitation on amount of a tax loss
Deduction of tax loss
Chapter 45 Financial transaction regimes
Pre-payment regime
General rules
Special rules
Chapter 48 Identification and payment systems
Introduction

The TFN system

When TFNs must be quoted
PAYG consequences of not quoting TFNs
The ABN system
ABNs and GST
ABNs and supplies
ABNs and investments
ABNs and deductible gift recipients
The PAYG system
PAYG withholding

Cross reference