Week 1 Flashcards
Why do we have taxes?
For financial expenditures (hospitals schools etc), to achieve economic goals (eg discourage people using petrol cars by taxing petrol etc), and to redistribute income to achieve social objectives
What type of taxes do we have?
Direct taxes (Assessed on and collected from person intended to bear it, Income tax).
Indirect taxes (Tax collected by intermediary from person that bears it, GST and Duties)
Sources of Tax Law
Primarily Statute law (Income tax act 2007, G&S Tax act 1985, Tax administration act 1994, maxation review authorities act 1994, inland revenue acts and several other acts),
Delegated legislation (Regulations and determinations)
Case Law/Common Law (NZ courts (eg Supreme court etc) and foreign courts)
Administration of tax system
Commissioner of Inland Revenue (CIR)
COE of Inland Revenue Department (IRD)
CIR charged with care and management of taxes
Duty to collect over time highest net revenue practicable having regard to
Resources available to CIR
Importance of promoting voluntary compliance
Compliance costs incurred by taxpayers
CIR delegates powers and functions to IRD employees
NZ tax system relies on self-assessment
Inland revenue publications
Binding rulings (Binding on IRD not taxpayer) (eg Public ruling, private ruling and product ruling)
Policy and Interpretation Statement (Not binding) (eg Interpretation statement, standard practice statements, questions we’ve been asked)
General Publications (eg tax info bulletin, inland revenue guides).
What is income tax
Tax on a persons income
Determining taxable income
Subtracting any available tax loss that a person has from their net income
A persons annual total deduction for the tax year
Total of their deductions that are allocated to the corresponding income year
Taxable income is
Annual gross income
less
Annual total deductions
equals
Net Income
less
Available Tax Losses
equals
Taxable Income
Assessable income
The amount of income that is not
Exempt income, Excluded income or non-residents’ foreign sourced income
An amount is income if
It is income under ordinary concepts (Case law)
or if it is income under a provision in part C of the act (modifies ordinary concepts)
Income defined under ordinary concepts is
something that comes in (a receipt) and it is money or money’s worth
What is not income?
Income is not what is saved from going out
Income is not something that cannot be converted to money
Income is not a receipt that is a
Windfall gain; or
Capital receipt
Non-income receipts examples
Use of colour TV for subscribing for debenture
(Dawson v CIR (1978) 3 NZTC 61,252)
Overseas holiday for meeting sales target
(FCT v Cooke & Sherden 80 ATC 4140)
Employer providing employee with use of a motor vehicle
What is a windfall gain?
Something that comes in
Something that is money or convertible to money
BUT not income