What is income tax law important?

Income tax law is very complicated and create a headache for you. This is why having a professional to work on the matter for you is always a good idea. Knowing the rules can also assist you to legally minimize your tax liability and make decisions which will impact your tax position positively. Getting sued by the legal department of a revenue authority is never a pleasant or cheap experience and this the worst case scenario which can result if you do not follow taxation law. The revenue authority in Australia is the Australian Taxation Office which overseas and administers the taxation system. The keeping of taxation records is essential to the integrity of any accounting system which attempts to deal with the implications of changes to taxation law effectively. Keeping tax returns and their accompanying data for at least 6 years is an excellent practice to help ensure that you can justify your position if you are ever audited by a revenue authority.

What are the key pieces of income tax legislation?

The major pieces of legislation in relation to income tax are the Income Tax Act 1986 (Cth), the Income Tax Assessment Act 1936 (Cth), the Income Tax Assessment Act 1997 (Cth) and the International Tax Agreements Act 1953 (Cth). Together, these acts define the income key concepts related to income tax and create the legislative framework which all of the income tax law hangs off.

Who must pay income tax?

Probably the most important first distinction to make is that income tax is paid by companies and individuals. In Australia, there is a flat rate of income tax for companies which has been approximately 30% for a substantial period of time now. There is then the individual income tax rate which increases on a sliding scale from 0 at the lower end where a person’s income is below $6,000.00 to the upper threshold which is 48% of every dollar over approximately $120,000.00 per year. There are also special rules for partnerships and trusts, but it is difficult to generalize about this.

How much income tax do I need to pay?

The first concept in income tax law is of taxable income. This is assessable income minus deductions. So this begs the question, what is assessable income? The following simple equation is used to work out the assessable income.

Assessable income = (Ordinary income + Statutory income – exempt income)

There are a large number of details to examine about what types of income relate to what types of income and a taxation lawyer can assist you with interpreting the tax law to understand this. If you have a legal query and would like assistance with this, you can chat to one of our lawyers online or post your question to the contact form to the right. Also, if you need an immediate answer, you can post your question below.