CA ANZ Advanced Tax (Australia) common mistakes
CA ANZ Advanced Tax (Australia) · Understand the traps and how to avoid them.
Citing the general deduction provision as the sole authority for an expense that is specifically dealt with elsewhere (e.g., depreciation of a depreciating asset, superannuation contributions, or entertainment), rather than applying the specific provision first and using the general provision only for the residual amount.
Candidates memorise s 8-1 as the default gateway and stop there, missing the hierarchy in which specific provisions override or modify the general deduction rule and the negative limbs.
What to do instead
Before writing any deduction answer, run a checklist: is the item covered by a specific provision (Div 40, Div 43, Div 290, Div 32, s 25-25, etc.)? State the specific provision, then note whether any part falls back to s 8-1, and expressly address the positive limbs (gainfully employed, carrying on a business) and the four negative limbs.
Treating an amount as ordinary income or as a capital gain without testing both and without applying the CGT provisions to the same transaction, and failing to identify when the CGT event happens versus when the amount is returned.
The concepts are taught in separate chapters, so candidates silo them, and the exam fact patterns deliberately include receipts that are income under ordinary concepts and also potentially subject to CGT.
What to do instead
For every receipt, write two lines: 'ordinary income? yes/no because...' and 'CGT event? which event, when did it happen, is there an exemption or roll-over?'. Then state the ordering rule that ordinary income is assessed first and the CGT provisions apply only to the extent the amount is not already assessable.
Calculating a capital gain using proceeds minus cost base without adjusting the cost base for incidental costs, non-capital costs, or the reduction required where an asset was used for a non-taxable purpose, and without applying the discount only to the extent the gain is attributable to an individual or trust.
Candidates learn the 'proceeds less cost base' formula as a single line and skip the element-by-element build-up and the apportionment mechanics that the exam tests with mixed-use assets.
What to do instead
Build the cost base in the five statutory elements explicitly, then apply any reduction for non-assessable use, then apply the 50% discount only after confirming the taxpayer is an individual, complying super fund or trust, and after offsetting prior year losses. Show each step as a labelled line so a marker can follow the logic.
Applying the corporate tax rate and imputation mechanics without first determining whether the company is a base rate entity, and without tracking the franking account through frankable distributions, franking credits and franking deficit tax.
The base rate entity test has two limbs (aggregated turnover and passive income threshold) that candidates conflate with the small business entity tests, and franking is treated as a single '30% credit' figure.
What to do instead
Write the two base rate entity conditions separately with the current thresholds, then compute the franking account as a running ledger: opening balance, franking credits on tax paid, debits on distributions at the corporate tax rate gross-up, and note FDT consequences. Never state a franking rate without first stating the entity's status.
Determining trust income under the trust deed and net income under the tax law as if they were the same number, and failing to identify a beneficiary's present entitlement or to deal with the default beneficiary when no valid distribution is made.
The distinction between trust income, net income and the share a beneficiary is assessed on is genuinely technical, and candidates default to 'distribute the accounting profit'.
What to do instead
For every trust question, produce a two-column reconciliation: trust income per deed versus net income under Div 6, then map each beneficiary's present entitlement to a share of net income. Explicitly state the outcome if a share is not effectively distributed (default beneficiary, or trustee assessed at the top rate), and flag streaming and CGT event E4/E5 issues where relevant.
Registering or applying GST on a transaction without confirming the entity's GST registration status, whether the supply is taxable, input taxed or GST-free, and whether the going concern or margin scheme conditions are actually satisfied.
Candidates treat 'GST applies at 10%' as a reflex and skip the threshold tests and the multi-condition concessions that the exam deliberately makes fail on one element.
What to do instead
For each supply, state: registration status and turnover, then classify the supply, then test each statutory condition of any concession individually (e.g., for a going concern, that the supply is of a going concern, the recipient is registered, and the parties have agreed in writing). Show the GST-exclusive versus GST-inclusive base explicitly.
Applying the residence tests loosely, then failing to identify source, and omitting the interaction with double tax agreements, foreign income tax offsets and the foreign resident CGT withholding regime.
Residence is often assumed from 'lives in Australia' rather than tested against domicile, permanent place of abode and the 183-day rule, and the treaty tie-breaker is treated as an afterthought.
What to do instead
Test each residence limb in order and state which one is satisfied and why. Then identify the source of each item, check whether a DTA reallocates taxing rights, compute the FITO cap as the lesser of foreign tax paid and the Australian tax on that income, and note withholding obligations separately from the income tax calculation.
Answering a superannuation question by quoting the contribution cap without identifying the contribution type, the year it is counted in, and whether the concessional cap has been reduced by carried-forward amounts or the general transfer balance cap interaction.
Several caps and thresholds look similar (concessional, non-concessional, transfer balance cap, Division 293) and candidates apply the wrong one to the fact pattern.
What to do instead
Classify the contribution first (concessional or non-concessional, and any excess), state which income year it is counted in and the applicable cap with the bring-forward position, then compute excess contributions tax or Division 293 liability as a separate step. Write the cap figure only after naming the type.
Identifying a tax planning arrangement as effective without testing the general anti-avoidance provision, the specific integrity rules, or the professional and ethical obligations that attach to recommending it.
Candidates analyse the arrangement commercially and stop at 'it works at law', treating Part IVA and the professional standards as a closing remark rather than a substantive step.
What to do instead
Structure every planning answer in three layers: does it work under the specific provisions, does a specific integrity rule (e.g., Div 7A, s 100A, transfer pricing, thin capitalisation) apply, and would a dominant purpose test be satisfied on the facts. Finish with the adviser's obligations under the professional standards and the tax agent code, including the consequence of recommending a scheme.
Computing an entity's taxable income without reconciling accounting profit to taxable income, and without distinguishing the tax treatment of the entity from the tax treatment of its owners.
Candidates go straight to a list of adjustments and lose the discipline of a reconciliation, and they conflate the entity-level liability with the owner-level consequences (dividends and franking, partner allocations, beneficiary assessments).
What to do instead
Always start with accounting profit, list each adjustment with its statutory authority and amount, arrive at taxable income, then compute tax payable at the correct rate. Add a separate section headed 'consequences for owners' that traces the after-tax amount through to the owner's assessable income and any credit attached.