Income tax is one of the most basic concepts in taxation law. Section 51 to the Commonwealth Constitution provides the parliament may make laws with respect to taxation, but not discriminate between states all parts of states. Further, section 55 of the Constitution provides that laws imposing taxation shall only deal with the imposition of taxation and with one subject of taxation only. To avoid this restriction, parliament traditionally separates the act setting out the assessment of liability to pay tax from the actual imposition of tax which is dealt with in income tax rates act and other acts.
income tax is payable by individuals, companies and some other entities it is paid for the year ending on 30 June called the financial year. The two fundamental formula for income tax are:
Income tax = taxable income X tax rate – tax offsets
Taxable income = assessable income – deductions
So what is assessable income?
There are usually two issues which practitioners will have to address in relation to assessable income:
1. Is an amount assessable?
2. When is it included in assessable income?
The central provision regarding this stability is section 61 of the 1997 act, which states that assessable income consists of:
a. ordinary income; and,
b. statutory income,
But does not include exempt income and non-assessable non-exempt income. The amount shall not be included in assessable income more than once on the specific provisions of the act will apply in preference to the rules about ordinary income. In relation to the timing issue, for ordinary income is question of when it is derived. For statutory income, the particular assessing provision will usually specify when it is included in assessable income. the first issue to determine is whether an amount is income according to ordinary concepts. This requires considering what the court to determine on a case-by-case basis, including what is income? This essentially a surprisingly complicated question, however there are a few guidelines. it must be convertible to cash, it must be derived beneficially by the taxpayer, it is often periodical, recurrent and regular force to a taxpayer cannot derive income from themselves. The windfall gain is not income. Capital gains are not income, more for the traditional metaphor of the income/capital distinction is that capital is a tree or land in income is of record crop. Compensation receipts may be income.
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