Taxation Fundamentals
Frameworks and principles
Understand the difference between taxable income and accounting profit, and why temporary and permanent differences arise. Know that temporary differences reverse over time and give rise to deferred tax, while permanent differences never reverse.
Income and deductions
Revise the concepts of ordinary income versus capital gains, assessable versus exempt income, and the general deduction rules including the positive limbs (incurred in gaining assessable income) and negative limbs (capital, private, exempt). Understand timing rules, prepayments, depreciation and capital allowances, trading stock, and bad debts.
Entities and transactions
Know the conceptual treatment of companies, partnerships and trusts, franking or imputation concepts, dividend treatment, and the tax consequences of disposals. Understand goods and services tax mechanics: output tax, input tax credits, registration thresholds and the fact that GST is borne by the final consumer.
Compliance and administration
Know the role of self-assessment, record-keeping obligations, lodgement deadlines, penalties and the objection process. Understand the general anti-avoidance concept and the role of purpose in determining tax outcomes.
Traps
Questions blur the distinction between a deduction and a capital allowance, or treat cash timing as always controlling. Watch for items that are exempt rather than deductible, and for GST-inclusive versus GST-exclusive calculations.
Worked rule of thumb
Deferred tax: multiply the temporary difference by the tax rate. A carrying amount of 100 and tax base of 70 gives a taxable temporary difference of 30; at 30% the deferred tax liability is 9. Always identify the direction of the difference before choosing asset or liability.