Week 1: Introduction to Australian Taxation Ch1-4,6 Flashcards
What is the definition of tax in accordance to Oxford?
‘Compulsory contribution to the support of government, levied on persons, property, income, commodities, transactions, etc.’
What are the 4 other ways for the term “taxes’?
Duties
Levies
Tariffs
Charges
What are the 4 functions of tax?
- Revenue raising
- Social and political
- Economic
- Redistributes
What is the revenue raising function?
Redirects resources from citizens to government
Provides government with revenue for use in its spending programs
What is the social and political function?
Used to promote government objectives
- Tax incentives – carrot to encourage certain behaviour
- Tax burdens – stick to discourage certain behaviour
What is an example of tax incentive?
i.e. superannuation are subject to tax at a lower rate than ordinary savings. Therefore, investing in super for future is more attractive
What is an example of a tax burden?
imposing tax on cigarettes discourages smoking hence reducing country’s health costs + Medicare levy health charge
What is the economic functions?
Modifies consumer behaviour:
- Higher taxation leads to less spending (deflationary effect)
- Lower taxation leads to more spending (inflationary effect)
What does it mean by economic functions?
when gov use tax to affect the cost of products encouraging spending on certain products rather than others.
What is an example of high taxation regarding Economic function?
means consumers have lower disposable income hence spends less = deflationary effect
What does it mean by lower taxation?
consumers have higher disposable income, therefore can spend more hence inflationary effect on economy
What does redistribution function mean?
Redistributes wealth among citizens – those who could not support themselves would find it harder without tax
What are 2 factors that would encourage society to accept taxation?
Sees justification for the tax
Considers the level of tax appropriate
What is Adam Smith’s maxims?
Guiding Principles of designing a good tax system on what it should be and how it should be formatted
What are the features of a good tax system? \_\_\_\_\_\_\_\_\_\_\_\_\_ Simplicity Stability Transparency and integrity \_\_\_\_\_\_\_\_\_ Neutrality \_\_\_\_\_ “Horizontal equity” “Vertical equity
Fiscal and policy objectives
Efficiency and flexibility
Equity
What does fiscal and policy objectives mean?
Tax laws should be consistent with gov broader policy objectives and should support things i.e. increase in productivity, growth in employment
What are the 2 types of equity?
Horizonal & Vertical
What is Horizontal Equity?
People in similar circumstances are treated in same way
What is Vertical Equity?
people in different economic circumstances are taxed differently fairly.
What are the structural features of taxes?
Taxpayers
Tax base
Tax periods
Tax rates
What is a tax base?
Property, transaction, activity or concept on which the tax is imposed
What is the tax base for income tax and gst?
Taxable Income
Taxable supplies and taxable importations
What are the 3 types of taxes?
Proportional taxes
Progressive taxes
Regressive taxes
What are proportional taxes?
Imposed at the same rate for all taxpayers (eg GST)
What are progressive taxes?
Imposed at rates that increase with amount of tax base (eg income tax)
What are regressive taxes?
Imposed at rates that decrease with amount of tax base
What are the 3 types of tax rates?
Marginal
Average
Effective
What is marginal tax rate?
The rate of tax that is applied to the incremental amounts of the tax base
What is average tax rate?
Taxpayer’s total tax liability/tax base
What is the effective tax rate?
Taxpayer’s total tax liability/taxpayer’stotal economic income
What is an direct tax?
Economic burden of tax is borne by person who pays the tax (eg income tax)
What is indirect tax?
Person who pays the tax is able to pass on the economic burden of tax to a third party (eg GST)
What jurisdiction approach does Australia follow?
Worldwide approach
What is the worldwide approach?
Australian residents are generally taxed on their Australian and foreign source income
Foreign residents are generally taxed on their Australian source income
What are the 2 types of primary sources of tax law
Statute
&
Cases
What is a statute?
Enacted by parliament
What are cases?
High court
Full Federal court
Federal court
Administrative appeals tribunal
What is a tax unit?
Australia taxes individuals, rather than families
generally treats partnerships and trusts as flow-through entities
treats companies as opaque companies
What does it mean for Australia to tax individuals rather than families
No general account taken of taxpayer’s dependants for tax purposes
Nevertheless, some limited tax concessions apply to individuals with families
What does it mean by Australia treating companies as opaque entities
Companies and their members are taxed as separate entities (subject to imputation)
What are the 3 levels of taxation
Types of taxes imposed
Types of tax expenditure programs
Different tax bases
Main Commonwealth taxes
Income tax
Medicare levy (ML)
Medicare levy surcharge (MLS)
Fringe benefits tax (FBT)
Superannuation taxes
Goods and services tax (GST)
What are the 3 state and territory taxes?
Payroll tax
Land tax
Stamp Duty
