The Australian Tax System: Constitutional Foundations, Sources and Rates
Structure and sources
The Australian tax system rests on s 51(ii) of the Constitution, which gives the Commonwealth power to tax, but only so as not to discriminate between states or parts of states. Income tax is imposed through a two-step constitutional device: the Income Tax Act fixes the rate, while the Income Tax Assessment Act 1936 and 1997 create liability and define the base. Candidates must know the hierarchy of authority: statute, then case law, then ATO public rulings and determinations (binding on the Commissioner in relation to taxpayers to whom they apply), then practical compliance guidelines and interpretive decisions (not binding).
The rate structure
Resident individuals face progressive marginal rates with a tax-free threshold; non-residents pay from the first dollar and are excluded from the low income tax offset. Companies pay a flat rate, with a lower rate for base rate entities. Medicare levy and the Medicare levy surcharge sit alongside income tax. The tax mix includes GST, fringe benefits tax, superannuation taxes and state taxes (land tax, payroll tax, stamp duty), which candidates often misattribute to the Commonwealth.
Traps in questions
Common traps include treating a public ruling as legislation, confusing the tax-free threshold with the low income tax offset, applying resident rates to a non-resident, and overlooking that Medicare levy is calculated on taxable income but the surcharge on income for surcharge purposes. Another trap is assuming state taxes are administered by the ATO.
Rule of thumb
When a question asks whether a document binds a taxpayer, ask: is it a ruling or determination addressed to that arrangement? If not, it is administrative guidance only and does not displace the statute.