Australian Laws and Guidelines on Taxation Policy - Essay Example

Australian Laws and Guidelines on Taxation Policy Name: Institution: Course: Tutor: Date: Australian Taxation Policy The concept underlying business operations and their taxation implications require a comprehensive discussion to generate enough information to the public on issues concerning business regulations and guidelines, taxation laws and procedures, tax rates of different entities, and the differences between business enterprises and hobby activities. Australian Taxation Office (ATO) defines various business activities and domestic laws governing enterprises, corporate bodies and investment ventures thoroughly (Maisto, 2011). There are however statutes that specifically outline the guidelines on the business operations. This study will seek to develop a conceptual framework on guidelines to common laws and rules regarding enterprises, direction on ATO requirements for businesses, role of taxpayer’s activities, business benefit on taxation procedures, and importance of distinction between a hobby and a business for application of GST law. Australian income tax law is determined through review of five main sources; statute laws, regulations, press releases, Australian Taxation office (ATO) and common law (Maisto, 2011). With advancement of time, law on taxation has come to rely on legislation and more considerably on common law. Tax liability on income tax is determined by the ITAA, ITAA 1997 amid ITRA and references are made on Fringe Benefit Act Assessment Act 1986 (FBTAA) and Taxation Administration Act 1953 (Maisto, 2011). According to Australian Article 3(2), there are no provisions stated to ascertain the meaning of the term “enterprise” or “profits” since these words have no established meaning according to laws related to Australian income taxation policies, which are important on outlining decision questions (Marsden, 2010). Judicial cases related to these aspects find it quite demanding to interpret cases involving these two terms. Since words like “business” and “profits” have elaborate and stretched history, judges often have in many instances been invited to distinguish and apply the meaning of these words in many treaties. The result has been definitions being derived for treaty purpose having been influenced by notions of domestic law but not identical to the meaning stated under domestic law (Maisto, 2011). The term “enterprise” has no general usage in Australian law but is often used colloquially for phrases like “commercial enterprise”, “enterprise zone” or “enterprise value”. The industrial law of Australia can be referred as one context where the term “enterprise” has been used through Australian statute. The term other instance where the term “enterprise” has been referred is in a legislation in Australian social welfare. Despite the two instances, this term seems not to be regarded substantially in the statutory and legislation records. On the other hand, the term “business” is commonly referred to in Australian statutes and legislation dealings which concern commercial laws, industry regulation and customer laws. Although the term has a pervasive usage in legislation and statutes, it has not been clearly defined. Instead, the meaning and usage of the term in a statute is implicitly incorporated from a case law (Wilmot, 2008). The term business has been defined using non-tax law as the urge for repetition of an activity with a profit making purpose through an intended idea of systematic approach on continuity of operation (Tiley, 2004). The interpretation of business in relation to enterprises was outlined by the New South Wales Supreme Court, which stated that the meaning of an enterprises involved carrying activities which may not be carried out by business but rather appear with similar characteristics of business operations (Tiley, 2004). The court also outlined that business activities uphold to some extent a certain degree of view of profit and general regularity. On the contrary, GST Act does not suppose or require that such business activities be of repetition or continuous in nature. ATO has also confirmed that the definition given by the GST Act corresponds to the definition given in A New Tax System (Australian Business Number) Act 1999 (The ABN Act). This also relates to the definition of business according To Income Tax Assessment Act 1936 (ITAA 1936), where case law from income tax definitions pertaining businesses and enterprises can be interpretative tools (Tiley, 2004). The main underlying points summarised as some activities, which are not included in the enterprise concept are: (1) Individuals carrying undertaking activities as employees, company directors, office holders, or a labourer on hire agreement. (2) Activities carried out or done as hobbies. (3) Activities undertaken with no intention of making profits (Tiley, 2004). Under the Australian domestic law on tax, enterprises occur when a foreign trust is being undertaken in Australia and the trustee is located within the country. This is outlined in the provisions section of the domestic tax law. The section uses the term without a specific definition which brings about the main question of this discussion. The most common references given to enterprises are associated with small-medium enterprises. The term as explained earlier still does not rely upon the notion of “enterprise”. Moreover, the term enterprise is used in accordance with Australia GST law where it has been defined. The term enterprises comprises several elements namely; activity conducted in a business manner entailing the aspect of venture or nature of trade, it also involves activities that surround pension funds, religious institutions and government bodies including charities. There are also other activities that entail provision of services such as labour (Maisto, 2011). The ATO has provided administrative guidelines that pertain to the definition of an enterprise as an enterprise that can take the form of an operation that involve single groups to be termed as an entity. Or where the head or the manager of an organization is actively involved in the management and administrative roles of subsidiary members of the organization, then he or she can be said to be undertaking or carrying the role of an enterprise. An enterprise can also describe organizations that are non-profit making in nature; i.e. where the operations only involve the activities that are only related to the members including income and receipt management. However, if they engage in activities that involve trading with non members, the entity would be referred to as a business. Other definitions of enterprise include isolated or secluded transactions undertaken by an entity but this doesn’t separate the purpose leading to the motive of the transaction on either business or non-business engagement. There is no single factor that is determinant on which activity is the affirmed enterprise; instead it would involve a combination of several factors that will lead to conclusive fact on enterprise definition (Tiley, 2004). It is however right to compare the two aspects of business and enterprises using the domestic tax law which try to define business using cases that revolve around the similar collection of issues; expensive pastime activities, investment assets, isolated speculative ventures and profit oriented activities. The 1997 Income Tax Assessment (ITAA 1997) defined business as non-determinative component of these factors. The business is provided to be any profession, vocation, or trade that does not entail occupation of an employee (ITAA 1997). The discussion of the study leads us to conclude that an enterprise is not a business but rather is comprised of attributes that are characteristic to a business entity (Maisto, 2011). The discussion also seeks to analyses the difference between a business and an expensive hobby or pastime. In our earlier discussion, we find a business enterprise to encompass even attributes of expensive pastime ventures. This prompts the analysis of facts that would help distinguish between business and hobbies. It has subsequently been outlined in the business income tax context that the term business has a single meaning that underlies profit making for income tax purposes. This fact leads to the insignificance of this context. The disputes that involve taxpayer claims for deductions for cost associated with operating hobby firms, expensive leisure or pastimes and participating in sports and entertainment arenas like horse riding, golf clubs, sport venues, among others can demand more clarification to demonstrate the difference between business and pastime activities (Marsden, 2010). Much of the outlined explanations are done on case law discussed earlier and the guidelines provided by ATO, which captures the essence of the notion about the continuation aspect of a business entity. The federal court outlined the following statement. There are many particular elements to be considered to distinguish whether an organization is offering its services with an aim of generating profits or otherwise (Wilmot, 2008). There are particularly reasons and factors that would lead to a formation of a business although, making profit would emerge as one of them (Wilmot, 2008). The continuity objective and repetition of activities is also another major consideration. Again if the organization undertakes activities like book keeping and record management operations then it would reveal business elements in its operations. Despite providing activities that are professional and which keeps records, but where the nature of services provided is unclear, such a business will still not qualify to be a business per se. This is despite the volume of operations or nature of amount of capital injected in such a venture. In this context, the operations being undertaken by such a person may be regarded as pursuit of hobby or recreation activities with no acknowledgement that they are business enterprises even if their operations are business related (Maisto, 2011). The position of ATO on business operations is also provided in the taxation Ruling TR 97/11. Though the ruling seems to deal with the primary production treatment, it is later discussed by ATO to capture the business notion more generally through a ruling reference TR 97/11 which indicates the importance of the following criteria for consideration: (1) whether an activity comprise viable commercial purpose or characteristic. (2) Whether the main objective attention of the taxpayer is more to just opening a business or engaging in it. (3) Whether the intention of the taxpayer is to generate profit from the operation of such an enterprise. (4) Whether there lies a sense of continuity or repetitive of regular activities. (5) Whether the activity has a resemblance of a particular kind of business or operates in a manner of similar kind of a business in the trade market in general. (6) The scale, size and permanency of the entity in the market vis a vis other such enterprises. (7) And finally whether the activity can be better described as a hobby, sporting activity or a recreation activity (Tiley, 2004). Despite the fact that differentiation between the terms described above is an open minded topic on domestic income tax relation, there are other provisions that involve the entities in their existence. Taxation matters are the most engaging issues that face the entities. Additionally, rules concerning organization and firms’ taxation are dynamic and are continuously reporting changes in the country. To receive benefits associated with taxation, the businesses must comply with laws governing the industry taxation and policies involved. The major aspects which are considered when determining the taxation procedure of the business operations are like the potential and intention to make profits, size or the scale of the activity, whether the activity is undertaken in business manner, and the consideration of the taxpayer previous experience on tax compliance (Tiley, 2004). The benefits or advantages associated with tax compliance and proper records when maintained is that the business would receive departmental guidance and consultancy benefits. Additionally, there are other provisions provided for compliance with tax payment like security provisions, social amenities, infrastructure improvement and other social welfare benefits (Tiley, 2004). Discussions on Division 35 ITAA97 provisions and their relevance are significant for better generation of information on income tax laws and guidelines governing Australian expenditures and income activities. The ruling provides the considerable level of protection to the public going by the guidelines provided for the purpose and underlying objectives of Taxation Administration Act 1953. A public ruling calls for expression of Commissioner’s views and opinion regarding the taxation provision being applied, or would function in general terms in relation to entities or to a particular class of entities with regard to the different class or certain schemes (Wilmot, 2008). In correspondence to ruling, it emerges that one must apply in a way what the law applies for one to get the satisfaction outlined in the provision. The essence lies in the understanding that one would be protected from paying the underpaid tax, interests, or penalties in accordance to the issues covered or provided by the ruling on cases when it turns out to be incorrect on the perceived state about the applicant, the relevant provision will then apply in your favour (Marsden, 2010). The ATO doesn’t sanction on guarantee of commercial success. In addition, it doesn’t give an assurance for commercial viability of a product. The ruling contains the most appropriate industry norms that ensure projected returns are reasonably based and will be achieved. The provision provide that potential participants to form their views on commercial and available financial viability of the product of interest. This will ensure consideration of the facts and views raised by the complaint for projected growth or returns to be analysed if they are realistic. This is done by the management team through review of their records in relation to fees level comparison to such products and including how the products fair and fit in their existing portfolios (Tiley, 2004). The ruling provision creates certainty for potential participants to confirm and review their tax benefits which have been laid out in the Ruling part. These benefits are available provided that the scheme takes a positive accordance with the information available in the scheme. If there is inefficiency in undertaking the product schemes, the participants may end up losing their protection of the ruling that pertain this product. The potential participants are allowed to seek assurances from their promoter that the scheme will be undertaken in a manner that is described in the ruling (Wilmot, 2008). They should also be aware of that the Tax office will be involved in undertaking frequent review activities to ensure that the scheme is implemented in a manner described below to foster proper guidelines on the running of the scheme. This will ensure that the participants in the scheme are compliant with income tax returns laws (Wilmot, 2008). Terms to use on this product are in line with the Product Ruling which provides that the entity which applied for the Ruling will abide to it or any failure to comply with the provided terms will lead to withdrawal of the protection benefits from Ruling. The Product ruling is all about the following provisions. The Product ruling provides the commissioner’s opinion on other manner in which the relevant provisions are to be applied through identified Ruling section to the defined class entities. A legislative references guide on the ruling are provided in the Income Tax Assessment Act 1997 (ITAA1997) unless otherwise stated. Class of entities First, this provision in the Product Ruling specifies the particular entities that can depend on the tax benefit outlined in the Ruling section which also specifies the entities that cannot depend on the tax benefit. Secondly, the classified entities which are allowed to rely on the tax benefits are known as the Growers. They are entities that have been allowed to actively participate in the schemes operations specified as after 11 April 2007, the date in which the Ruling was made and the authority which executed the relevant project agreement as per paragraph 31 of the ruling which concerns any issue dated before 1June 2007(Wilmot, 2008). They must also have a purpose of operating the scheme until its completion date (relevant of the scheme agreement until the term expires) while at the same time deriving assessable returns or income from engagement of the scheme (Wilmot, 2008). Finally, The provisions of Division 35 ITAA97 outlined above provide guidance on the taxpayers whose intentions are to operate schemes that would generate revenue to them and the government. In conclusion, the study on Australian domestic tax operations focus on a few areas which are particularly fundamental to the public for advancement of the knowledge they possess on taxation regulation policies. The main discussion focused on the differences in the meaning between the business and enterprise terms according to Australian taxation operations and policy. It has emerged the term enterprise doesn’t operate as business activity but is an activity with characteristic qualities of a business. There are also different types of businesses according to this discussion. The application of GST Act has also been outlined in correspondence to provisions generating various tax implications. The provisions on Division 35 ITAA97 have been elaborated and the possible benefits gained from the Product Ruling to the applicants of these provisions. The study also pursued other areas such as ATO activities, taxation remedies and benefits, various domestic tax provisions and various business types. References Maisto, G. 2011. The meaning of "enterprise", "business" and "business profits" under tax treaties and EU tax law. Amsterdam: IBFD Amsterdam. Marsden, S. 2010. Australian master bookkeepers guide. Australia, North Ryde. Tiley, J. 2004. Studies in the history of tax law. Oxford Hart. London. Wilmot, C. 2008. FBT compliance guide. Sydney: CCH Australia. Read More