The Australian Tax System: Structure, Sources and Policy
Foundations
Australia's tax system is built on a constitutional division of power: the Commonwealth relies principally on s 51(ii) of the Constitution, while the states levy land tax, payroll tax and stamp duty. Candidates must know the hierarchy of sources - statute (ITAA 1936 and ITAA 1997), case law, ATO public rulings and determinations, and administrative practice. The ITAA 1997 is organised by core provisions: assessable income, deductions, and the rules that calculate taxable income and tax payable.
Key concepts
Understand the distinction between the legal and economic incidence of tax, progressive versus regressive structures, and the policy objectives of equity, efficiency, simplicity and sustainability. Know the personal marginal rate scale, the Medicare levy and levy surcharge, the company rate (including the lower base rate entity threshold), and the dividend imputation system that integrates company and shareholder tax through franking credits.
Common traps
Questions often test whether a receipt is ordinary income or capital, whether a rebate/offset differs from a deduction (an offset reduces tax payable; a deduction reduces taxable income), and whether a levy is deductible. Watch for confusion between the tax-free threshold and the low income tax offset. Another trap is assuming GST is a Commonwealth tax on business - it is a broad-based consumption tax collected by business as agent.
Worked rule of thumb
To compute tax payable: taxable income = assessable income − deductions. Apply marginal rates, add Medicare levy, then subtract offsets and credits (including franking credits and PAYG withheld). A resident individual with taxable income of $60,000 pays tax on the scale plus 2% Medicare levy; always subtract credits last, and refundable credits can produce a refund.