CA Program Core 4: Tax (Australia) common mistakes
CA Program Core 4: Tax (Australia) · Understand the traps and how to avoid them.
Treating every receipt as ordinary income without first asking whether it is capital in nature, so a lump sum for cancellation of a contract or sale of a business asset is returned as assessable income.
Candidates default to the 'gains are income' intuition and skip the income-versus-capital characterisation step, which is the first fork in any assessable income problem.
What to do instead
Before classifying any amount, write one line stating whether it is income or capital and why (regularity, source, what was given up). Only after that apply the specific provision or common law principle.
Applying the general deduction provision to a loss or outgoing without checking whether a specific provision denies or restricts the deduction (entertainment, penalties, private-use portions, super contributions).
The general provision is the most familiar rule, so candidates stop there and miss the negative limbs and specific disallowance rules layered on top.
What to do instead
Run a checklist for each expense: positive limb, negative limbs, then specific disallowance and timing rules. State explicitly that no specific provision applies, or apply it.
Computing a capital gain on the full proceeds without reducing them by the cost base, or ignoring adjustments such as incidental costs, non-assessable payments, and the discount method eligibility test.
Candidates conflate proceeds with gain and forget that the cost base has five elements with their own inclusion rules and timing requirements.
What to do instead
Build the cost base element by element in the answer, subtract it from capital proceeds, then test the 12-month holding period and the discount percentage before stating the net capital gain.
Applying the GST credit for input tax on an acquisition without checking the extent of creditable purpose, so a fully creditable claim is made for a mixed or private use item.
Candidates treat GST as a simple 10% add-on and overlook apportionment, adjustment events, and the difference between taxable, GST-free, and input-taxed supplies.
What to do instead
Classify the supply or acquisition first, then state the extent of creditable purpose as a percentage and show the apportioned credit calculation with the adjustment event treatment if relevant.
Calculating an employer's fringe benefits tax liability on the gross benefit value without grossing up, or without checking whether the otherwise deductible rule or an exemption applies.
FBT has its own tax base and gross-up rates that differ from income tax, and candidates carry over income tax instincts.
What to do instead
For each benefit, state the type, the taxable value, the applicable gross-up rate, any reduction (otherwise deductible, exempt), then apply the FBT rate. Show the reduction before grossing up.
Treating a superannuation contribution as deductible for the member personally, or ignoring the concessional cap and Division 293 threshold when advising on contribution strategy.
The deductibility of personal contributions depends on the work test and the notice requirement, and candidates mix up fund-level and member-level tax treatment.
What to do instead
For each contribution, identify it as concessional or non-concessional, state the cap, the deductibility condition, and the notice of intent requirement before concluding on the tax outcome.
Ignoring withholding tax and source rules for payments to non-residents, applying only the domestic marginal rate to interest, dividends, or royalties paid offshore.
Candidates default to resident tax treatment and forget that non-residents are taxed on Australian-sourced income with specific withholding regimes and treaty rates.
What to do instead
For any cross-border payment, state the residency of the recipient, the source of the income, the applicable withholding rate, and any treaty reduction before computing the tax.
Applying a tax planning arrangement without testing it against the general anti-avoidance provision, treating any arrangement with a tax benefit as acceptable if it is legally effective.
Candidates focus on the technical outcome and treat anti-avoidance as an afterthought rather than an overlay that applies to every planning question.
What to do instead
After concluding on the tax outcome, add an explicit anti-avoidance paragraph: identify the scheme, the tax benefit, the dominant purpose, and the likely reconstruction or penalty.
Consolidating a group's tax position without confirming the consolidated group's membership and the single entity rule, so transactions between group members are taxed as if they were external.
Candidates apply consolidation as a simple aggregation and miss that intra-group transactions are ignored and the head company is the single taxpayer.
What to do instead
State the membership test, apply the single entity rule to eliminate intra-group dealings, then compute the head company's position and any entry or exit adjustments.
Answering a tax administration question by describing the objection process without identifying the statutory time limits, the review body, and the consequences of an amended assessment.
Candidates know the general shape of the dispute process but not the specific deadlines and thresholds that the question is testing.
What to do instead
For each administration issue, state the relevant time limit (objection, amendment, review), the decision-maker, and the consequence of missing the limit, citing the provision where confident.