CA Program Core 4: Tax (Australia) flashcards

37 cards. Read the term and the definition here. The deck at the top of this page is optional.

Residency test

An individual is an Australian resident if they reside in Australia, or have domicile and permanent place of abode, or are present 183 days, or are Commonwealth superannuation fund members.

Taxable income formula

Taxable income is calculated as assessable income minus allowable deductions under section 4-15 of the ITAA 1997.

Medicare levy

A 2% levy on taxable income for resident individuals, subject to low-income thresholds and a surcharge for high-income earners without private hospital cover.

Company tax rate

The corporate tax rate is 30% for most companies, but base rate entities (turnover below threshold) may pay 25%.

Self-assessment system

Taxpayers assess their own tax liability by lodging returns; the ATO may verify and amend, and penalties apply for incorrect returns.

Public tax ruling

A ruling published by the Commissioner of Taxation that binds the ATO if a taxpayer relies on it, providing certainty on tax law interpretation.

Objection period

A taxpayer generally has 60 days after an assessment or decision to lodge a formal objection with the ATO.

Part IVA

The general anti-avoidance provision allowing the Commissioner to cancel tax benefits from schemes with a dominant purpose of obtaining a tax benefit.

Ordinary income

Income according to ordinary concepts, including income from personal exertion, business, and property, characterised by regularity and periodicity.

Statutory income

Income specifically made assessable by legislation, such as net capital gains, dividends, and certain allowances.

Capital receipt

A receipt of a capital nature that is generally not ordinary income but may be subject to capital gains tax or other statutory provisions.

Exempt income

Income that is not assessable, such as certain government grants, education payments, and income of charitable entities.

General deduction

A loss or outgoing is deductible under section 8-1 if incurred in gaining assessable income, unless capital, private, or domestic.

Trading stock valuation

Trading stock may be valued at cost, market value, or replacement value, whichever is lowest, under section 70-45.

Repairs deduction

Repairs to premises or assets used to produce income are deductible if they restore function and are not initial repairs or improvements.

Capital works deduction

Division 43 allows deductions at 2.5% or 4% per year for eligible construction costs of income-producing buildings.

CGT event A1

The disposal of a CGT asset, where the capital gain or loss is calculated as proceeds minus cost base.

CGT discount

Individuals and trusts may reduce a capital gain by 50% if the asset was held for more than 12 months.

Main residence exemption

A capital gain on a dwelling used as the taxpayer's main residence is generally exempt from CGT, subject to partial exemptions.

Capital losses

Capital losses can only be offset against capital gains, not against ordinary income, and may be carried forward.

Franking credits

Credits attached to dividends representing company tax paid, which resident shareholders can use to reduce their tax liability.

Tax consolidation

A group of entities can consolidate into a single tax entity, eliminating intra-group transactions and allowing losses to be shared.

Division 7A

Rules that treat certain loans, payments, or forgiven debts from private companies to shareholders as dividends, unless compliant.

Partnership taxation

Partnerships are not taxed as entities; partners include their share of partnership income and deductions in their own returns.

GST registration threshold

Entities must register for GST if their turnover is $75,000 or more ($150,000 for non-profit organisations).

Input tax credit

A credit for GST paid on acquisitions used in carrying on an enterprise, claimable in the business activity statement.

GST-free supplies

Supplies that are not subject to GST, such as basic food, health services, education, and exports.

Fringe benefits tax rate

The FBT rate is 47% applied to the grossed-up taxable value of fringe benefits provided to employees.

FBT gross-up rates

Type 1 gross-up rate (with GST credit) is 2.0802; Type 2 (without GST credit) is 1.8868 for the 2023-24 FBT year.

Superannuation guarantee rate

The mandatory employer contribution rate is 11% for 2023-24, 11.5% for 2024-25, and 12% from 2025-26.

Concessional contributions cap

The annual cap on concessional superannuation contributions is $27,500 for 2023-24, taxed at 15% in the fund.

Transfer balance cap

The maximum amount that can be transferred to the retirement phase of superannuation is $1.9 million for 2023-24.

Foreign income tax offset

A tax offset for foreign tax paid on foreign income, limited to the Australian tax payable on that income.

Thin capitalisation

Rules limiting deductions for debt where an entity's debt exceeds 60% of its assets, unless the worldwide gearing ratio applies.

Transfer pricing

The arm's length principle requires related-party transactions to be priced as if between independent parties, under Division 815.

Tax evasion

Illegal non-compliance with tax law, such as deliberately omitting income or claiming false deductions, attracting criminal penalties.

Tax avoidance

Arranging affairs to minimise tax within the law, but schemes with a dominant purpose of tax benefit may be struck down by Part IVA.