Advanced Taxation

Business leaders appreciate that there are taxation implications that flow on from most business decisions. A sound knowledge of Australian taxation law is essential to ensure quality input into the strategic decision making process of a business, and to provide post-implementation taxation advice. Business structures may involve different types of entity (such as individuals, partnerships, trusts and companies), and it is important to consider the tax impact on each of them.

The wide range of skills sourced from successfully completing the other segments of the CPA Program should be applied in the context of recognising all relevant taxation implications. Accounting for income tax is covered in the Financial Reporting segment.

This segment is compulsory for candidates who have not completed studies in taxation at undergraduate level.

Segment aims

The aims of this segment are:

1. to ensure candidates are aware of the key provisions of the Income Tax Assessment Act 1936 (Cwlth), the Income Tax Assessment Act 1997 (Cwlth), A New Tax System (Goods and Services Tax) Act 1999 (Cwlth), Fringe Benefits Tax Assessment Act 1986 (Cwlth) and the Taxation Administration Act 1953 (Cwlth)

2. to ensure candidates can apply the relevant legislative section(s) to determine the taxation consequences of an event

General objectives

On completion of this segment, candidates should be able to:

• demonstrate an understanding of the Income Tax Assessment Act 1936 (Cwlth), the Income Tax Assessment Act 1997 (Cwlth), A New Tax System (Goods and Services Tax) Act 1999 (Cwlth), Fringe Benefits Tax Assessment Act 1986 (Cwlth) and the Taxation Administration Act 1953 (Cwlth) and related legal precedents
• analyse events and apply the legislation to determine tax liability
• provide strategic advice to stakeholders regarding the tax issues arising from particular business scenarios

Segment content

Module 1: Tax administration

Module 1 looks at the requirement to withhold and pay tax, to lodge a tax return and how (via assessments, objections, reviews and appeals) the final tax liability of a taxpayer is determined. The module also outlines the Taxation Rulings system and other guidance provided by the Australian Tax Office to assist taxpayers in meeting their tax obligations.

The application of interest charges and penalties, and the operation of the general anti-avoidance provisions of Part IVA are also discussed.

Contents: 

• Income tax self-assessment 
• Returns, assessments, objections and appeals
• Payment of income tax
• Business Activity Statement (BAS), Instalment Activity Statement (IAS) and running balance account (RBA)
• The rulings system
• Penalties and interest charges
• Part IVA
• Some further cases
• Part IVA and the role of advisers
• Taxpayer Alerts

Module 2: Principles of assessable income

Module 2 considers the important core concept of assessable income. The common law principles which distinguish between an income receipt and a capital receipt are discussed in depth. This is followed by a consideration of specific legislative provisions which apply to certain receipts, such as compensation, royalties and foreign exchange gains. The treatment of trading stock and the eligibility rules to access Small Business Entity tax concessions are also covered.

Contents:

Part A: The tax equation

Part B: Assessable income

• Ordinary income
• Statutory income
• Exempt income
• Non-assessable non-exempt income
• Ordinary income—Some common law concepts
• Distinguishing between income and capital
• Source of income
• Residence 
• Derivation of income

Part C: Income from business

• Existence of a business
• Commencement of a business
• Section 6-5 and income from business
• Non-cash business benefits

Part D: Compensation

Part E: Assessable income —Statutory extensions

• Royalties
• Foreign exchange gains and losses
• Other specific sections

Part F: Trading stock

•  Definition of trading stock
• Accounting for trading stock on hand
• Valuation of trading stock (not including livestock)
• Meaning of cost price 
• Meaning of replacement value
• Meaning of market selling value
• Assets that become trading stock
• Obsolete stock
• Disposal of trading stock
• Death of owner
• Trading stock and Small Business Entities (SBE)

Module 3: Capital gains tax (CGT)

Module 3 discusses the tax treatment of capital gains, the general concepts relating to CGT events and their impact on the capital gain calculation.

Contents:

Part A: Profit-making undertaking or plan

Part B: Capital gains tax

• Step 1: Does an act or a transaction involve a CGT event?
• CGT events for the 2011/12 tax year
• Step 2: Does the CGT event involve a ‘CGT asset’ or receipt of capital?
• Step 3: Does an exemption apply to a CGT event?
• Step 4: Does a rollover provision apply?
• Step 5: Does a capital gain or a capital loss arise from the CGT event?
• Step 6: Determine the assessable capital gain
• Taxpayers subject to capital gains tax
• Administration
• Special circumstances
• Relief from CGT

Module 4: Principles of general and specific deductions

Module 4 examines the core concept of general and specific deductions. The general deductibility provision together with the concept of capital outgoings are discussed in depth. There are a number of specific provisions which provide for the deductibility of expenditure in certain circumstances, including the rules relating to thin capitalisation.

Contents:

Part A: General deductions (s. 8-1)

• Framework of s. 8-1
• General principles of s. 8-1 
• Analysing the wording in s. 8-1 
• The four negative limbs of  s. 8-1
• Apportionment
• Some possible general deductions under s. 8-1 
• Specific exclusions from s. 8-1 
• Effect of GST on deductions

Part B: Specific statutory deductions

• Repairs
• Bad debts
• Specifically deductible expenses
• Tax losses of previous years

Part C: Limitations on deductibility

• Entertainment expenses
• Occupational clothing
• Payments to related entities
• Prepaid expenditure
• Losses from non-commercial business activities
• Substantiation of expenditure
• Thin capitalisation

Module 5: Capital expenditure allowances

Module 5 examines capital allowances, including the depreciation of assets, amortisation of buildings and deductions available for other capital expenditure. Particular rules relating to capital allowance concessions for Small Business Entities are also covered.

Contents:

Part A: General depreciation rules

Part B: Balancing adjustments and rollover relief

• Balancing adjustment events

Part C: SBE capital allowance rules

• Taxpayers eligible for the SBE concessions

Part D: Special capital allowance rules

• Project expenditure pools
• Blackhole expenditure

Part E: Deduction for capital expenditure on capital works

Module 6: Individuals

Module 6 applies the concepts studied in earlier modules to the taxation of individuals. The module outlines and discusses the taxation of individuals, including superannuation and termination payments, personal services income, employee share schemes and tax offsets.

Contents:

Part A: Income

• Requirements to lodge an income tax return
• Determining taxable income and tax payable
• Tax rates: Resident individual—Non-minor
• Tax treatment of minors
• Assessable income

Part B: Deductions

• Allowable deductions
• Employee or contractor

Part C: Tax offsets applicable to individual taxpayers

• Family situation rebates
• Rebates that limit the effective tax rate for a class of receipt
• Rebates that effectively increase the tax threshold of recipients
• Rebates to prevent double tax
• Rebates to encourage government policy 

Part D: Levies and other charges

• Medicare levy
• Higher Education Assistance 
• Flood levy
• Family tax benefits

Part E: Specific issues

• Personal services income
• Employee share schemes (ESSs)

Module 7: Partnerships

Module 7 examines the nature and taxation of partnerships. Partnerships are not separate legal entities, but there are a number of taxation implications which arise from their use as a structure to carry on a business.

Contents:

Part A: Partnerships

• Partnership defined
• Partnership compared with joint venture
• Who can become a partner?
• How partnerships are formed
• Partnerships and Part IVA

Part B: Taxation of partnerships

• Payment of tax
• Computation of net partnership income or loss
• A partnership loss
• Non-commercial loss rules and partnership losses from business activities
• Partnership elections
• Partner’s salary
• Partner’s interest
• Partner’s life insurance and superannuation
• Work in progress
• Real and effective control of partnership income
• Alteration of partner’s entitlement to profit
• Dissolution or reconstitution of a partnership

Module 8: Trusts

Module 8 looks at the components of a trust and the different types of trusts. Tax issues including present entitlement, calculation of net income of a trust, streaming of trust income and availability of trust losses are then explored.

Contents:

Part A: Trusts

• What is a trust?
• Components of a trust
• Types of trusts
• Five basic essentials in creating an inter-vivos trust

Part B: Provisions governing the taxation of trust income from a resident trust

• Legal disability
• Present entitlement
• Typical situations
• Determining net income of the trust and tax implications on distribution
• Discrepancy between distributed and taxable net income of the trust
• Capital gains included in trust income
• Streaming of trust income including interim measures effective 1 July 2010
• Trust losses
• Family trusts
• Managed investment trusts

Module 9: Companies and dividends

Module 9 examines companies and applies the various legislative concepts to determine the tax payable by a resident company. It explains the taxation of dividends and the interrelationship with Division 7A for private companies. This module covers the dividend imputation system, with particular emphasis on maintaining a company franking account. Finally, the impact of receiving dividends by different types of taxpayers is examined.

Contents:

Part A: Taxation of companies

• Concept of a company for tax purposes
• Classification of companies—Public or private
• Residency
• Calculation of taxable income
• Gross-up and franking credit tax offset
• Special tax issues

Part B: Taxation of dividends

• Definition of dividend
• Deemed dividends
• Is the dividend assessable?
• Debt and equity
• Dividend imputation system

Module 10: Consolidations

Module 10 sets out the costs, benefits and eligibility criteria which must be considered prior to creating a consolidated group for tax purposes. It identifies the steps that must be applied in forming a consolidated group and discusses the rules concerning the cost base of assets and the utilisation of losses within a group. The module explains key ongoing tax issues which must be addressed by a consolidated group, and discusses the tax treatment of a subsidiary leaving a consolidated group.

Contents:

Part A: Eligibility to consolidate

• Consolidatable group
• Head company
• Subsidiary member
• Comparison to accounting consolidation rules

Part B: Key consolidation rules

• Single entity rule
• Entry history rule
• Benefits and costs of consolidation

Part C: Joining a consolidated group

• Tax cost-setting of a subsidiary's assets
• Calculating the allocable cost amount (ACA) of the joining member
• Allocating the ACA over a joining member’s assets

Part D: Transfer and utilisation of losses

• Determining losses to be transferred
• Utilising transferred losses

Part E: Consolidated group’s tax compliance

• Income tax liabilities
• Other tax compliance issues

Part F: Exiting a consolidated group

• Resetting costs of membership interests in a subsidiary
• Exit history rule
• Calculating the ACA of the leaving entity
• Allocating the ACA to membership interests on exit

Module 11: Transfer pricing

Module 11 discusses the key features of the transfer pricing legislative regime. It outlines the four-step process used to determine the arm’s length price of international related-party dealings, sets out the five approved transfer pricing methodologies and provides an overview of related ATO compliance issues.

Contents:

Part A: Transfer pricing legislative framework

• Overview of Division 13 
• Double taxation agreements (DTAs)
• Key ATO rulings

Part B: Applying the arm’s length principle

• Arm’s length principle 
• ATO approved four-step process
• Sources of comparable data

Part C: Accepted arm’s length methodologies

• Background
• Comparable uncontrolled price (CUP)
• Resale price method (RPM)
• Cost plus method (CPM)
• Profit split method (PSM)
• Transactional net margin method (TNMM) 

Part D: Key compliance issues

• Interaction with thin capitalisation provisions
• Safe harbour concessions
• Advance pricing arrangements
• Records and penalties

Module 12: Fringe benefits tax (FBT)

Module 12 examines the general scheme for taxing fringe benefits and the valuation of specific benefits for FBT purposes. This tax is paid by the employer.

Contents:

Part A: Fringe benefits tax—Core concepts

• Background
• Essential features
• Who pays FBT?
• Definition of a benefit
• Interaction of FBT with other tax legislation
• Administration
• Value of a benefit
• Otherwise deductible rule
• FBT and GST: The gross-up formula
• Threshold exemption for hospitals and charities
• Non-deductible expenses
• Steps in determining FBT

Part B: Specific fringe benefits

• Motor vehicles (Division 2, ss. 7-13)
• Car parking benefits (Division 10A, ss. 39A-39E)
• Debt waiver (Division 3, ss. 14 and 15)
• Low interest loans (Division 4, ss. 16-19)
• Payment of employee’s expenses (Division 5, ss. 20-24)
• Housing (Division 6, ss. 25-28, s. 58ZC)
• Living away from home allowance (LAFHA) (Division 7, ss. 30-31, s. 63)
• Board (Division 9, ss. 35-37)
• Goods and services (Division 11, ss. 40-44)
• Airline benefits (Division 8, ss. 32-34)
• Residual benefits (Division 12, ss. 45-52)
• Exempt benefits (Division 13, ss. 53-58) and reduction in taxable value of certain benefits (Division 14, ss. 59-65CC)
• Rebate for exempt employers
• Record keeping (s. 132)
• Case law: Some important lessons

Module 13: Goods and services tax (GST)

Module 13 examines GST, outlining general concepts and compliance issues. Specific GST issues such as the effect on insurance and financial services are also discussed.

Contents:

Part A: Overview of the GST

Part B: Fundamental GST concepts

• Taxable supply
• GST-free and input taxed supplies
• Taxable importations
• Calculating the GST
• Input tax credits

Part C: GST compliance and reporting 

• Timing and accounting for GST liability
• GST groups, branches, joint ventures etc.
• The general anti-avoidance provision

Part D: Special GST issues and transactions

• Insurance
• Financial services
• Incapacitated entities and mortgagees in possession