Foundations of Taxation Law

The Australian income tax system is considered to be among the most complex tax systems in the world. In order to properly understand how the income tax system works, it is necessary to adopt a structured approach that starts with the most basic elements of the regime. At the centre of every tax system are the statutes that govern their operation and contain the rules for calculating tax liability. This chapter introduces Australia’s income tax legislation and focuses on how a taxpayer’s income tax liability is calculated. It discusses the concept of taxable income and how income tax interacts with GST and FBT. The chapter outlines a number of speical concepts related to calculating a taxpayer’s tax liability as well as the special rules that apply to SBEs. It also examines the rates of income tax payable by different entities and focuses on the marginal tax rates and additional levies that apply to individuals (eg Medicare levy and Medicare levy surcharge). It also discusses tax offsets, the Higher Education Loans Program (‘HELP’) and the basic assessment, payment and collection rules. The chapter concludes with a detailed example showing the steps involved in calculating a taxpayer’s income tax liability.