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The Australian taxation system Australian law requires that we pay taxes and other charges at federal, state, territory and local government levels in order to fund a range of government programs and community services. Australia's income tax system is based on the principle of .self-assessment. Prior to self- assessment, all tax returns were individually reviewed before a notice of assessment was issued. This was a very labour intensive process with reviews relying completely on the information contained in the return forms. The system of self-assessment addresses these inefficiencies based on voluntary compliance. Tax return forms are generally accepted at face value and are not individually reviewed. To support this approach, education and information services are being provided, enhanced post-assessment audit processes have been introduced and systematic, computerised income checks for interest and certain other sources of income have been strengthened. All taxpayers are allocated a tax file number (TFN). The TFN is used to detect non-disclosure of income and for matching. of income details in tax returns with information provided from other sources. The quoting of TFNs is used for both salary and wage income, and investment income. Failure to quote a TFN may result in tax being deducted from the payment at the top marginal tax rate. The Australian Taxation Office The main functions of the Australian Taxation Office are to administer taxation legislation and the higher education contribution scheme (HECS), and to support the provision of retirement income. The Tax Office's client base encompasses approximately 11.5 million individuals, businesses and public sector agencies. The Tax Office also works with other departments on policy matters relating to taxation, child support, superannuation and HECS. When policy is determined by government, the Tax Office instructs Parliamentary Counsel in the preparation of necessary legislation. The main areas of legislation administered by the Tax Office are income tax, fringe benefits tax, sales tax, higher education funding, medicare levy, superannuation guarantee and small superannuation accounts. The Tax Office is responsible for collecting a wide variety of taxes. Income tax Income tax makes up the greatest component of the federal revenue base. While some types of income are exempt from tax, and certain categories of people or entities need not pay tax, in general residents of Australia are liable for tax upon their world-wide income and others are liable upon their income with an Australian source. In calculating income tax liability for any year, a person must first calculate his/her .assessable income.. This comprises salary and wages, interest payments etc., and can also comprise amounts other than those generally understood as being income. Some types of net capital gains are included under this extended meaning. The next step is to deduct allowable deductions in order to calculate the taxable income. The taxation rates imposed by Parliament are applied to this figure to identify a gross tax figure. Finally, the amount of any credits and rebates are subtracted in order to determine the tax liability. This basic system can apply to all types of entities, individuals, partners, companies, superannuation funds and trustees, although the particular form can vary significantly. A different system of income tax calculation applies to non-residents in receipt of dividends, interest or royalties from an Australian source. In these circumstances international with-holding taxes apply. The gross amounts of income are subjected to a relatively low tax rate, and this constitutes a first and final liability for the taxpayer in respect of that income. The pay-as-you-earn (PAYE) collection system applies to employees. Employers are required to deduct a prescribed proportion of their employees salary or wages each pay period and forward it to the Tax Office. At the end of the financial year, the amounts paid are applied against the employees tax liability. The prescribed payments system (PPS) applies across a wide range of industries to people who contract their services. Contractors must complete a payee declaration form, and the payer is then responsible for deducting tax and forwarding it to the Tax Office. The reportable payments system (RPS) applies to the fishing, clothing, smash repair and fruit and vegetable industries. Wholesale buyers from these industries are required to report details of any payments to the Tax Office at the end of the financial year. The provisional tax system applies to individuals, business and investment income. An estimate of the anticipated income is made during the course of the financial year and an amount equal to the tax that would be payable upon that amount is paid to the Tax Office. Payment adjustments to reflect the actual amount earned are made when the return is lodged after the end of the year. The company tax system and the superannuation fund tax system work on the same principles as provisional tax. Companies and superannuation funds are required to pay their tax in either four installments, or in one single payment, depending on their likely tax for the year. Likely tax is based either on the tax paid in the previous year or on an estimate lodged with the Tax Office by the taxpayer. Fringe benefits tax Fringe benefits tax (FBT) is levied upon employers and based upon the value of certain non-cash benefits provided to their employees or associates of their employees. It is complementary to the income tax system but varies markedly as the benefit recipient does not bear the tax liability. Sales tax Sales tax is imposed on goods imported into Australia and goods which are manufactured and go into consumption in Australia. The tax is imposed on the wholesale selling price of the goods. Other taxes and charges The Tax Office is also responsible for a number of other taxes and charges including the tobacco charge and the petroleum resource rent tax. Client services The Tax Office has a range of client service initiatives in place to ensure that people can meet their tax obligations at the lowest possible cost. TaxPack For the past eight years, the Tax Office has issued TaxPack, an instruction book which provides taxpayers with information to enable them to complete their income tax returns. The aim of TaxPack is to assist taxpayers to fulfil their tax obligations, while informing them of their rights and responsibilities. TaxPack is designed to provide relevant tax information for salary and wage earners, small business people, pensioners, students and people with investment income. It also reminds taxpayers of the role of tax agents and professional tax advisers. The Tax Office reviews TaxPack annually to make sure the information it contains is current and that taxpayers are given a high level of assistance when completing their tax returns. Approximately 26% of individuals used TaxPack to prepare their 1996-97 income tax return. Research shows that 90% of these people found it easy to use. ATOassist ATOassist is the Tax Office's Internet site. It provides access to the Tax Office's information holdings which include rulings and determinations, current Tax Office publications, draft legislation and discussion papers, work being done on Tax Office projects and general information on tax matters. There are also a number of electronic forms and a range of tools to help people calculate capital gains tax, tax installment deductions and HECS. Taxpayers can download most of these forms and calculation tools for personal use. The address of the site is www.ato.gov.au . This edition of Taxation Statistics is on ATOassist. Fax from Tax The Fax from Tax service was introduced in 1997 to provide quick and easy access to tax information for small business. This service gives people access to tax information 24 hours a day, seven days a week. A wide range of information sheets are available. These include: · How does superannuation work? · General information on HECS · PAYE . for employers · Sales tax . small business exemption · PPS . how it affects the professional building and construction industry · Family tax assistance summary. To use this service, phone 13 28 60. Business Entry Point The Business Entry Point (BEP) is an Internet-based initiative developed in conjunction with the Department of Workplace and Small Business Relations, the Australian Securities Commission and AusIndustry. It enables businesses to register for sales tax, pay-as-you-earn, the prescribed payments system and business tax file numbers over the Internet. The service is designed to streamline communication between businesses and all levels of government, and reduce a business compliance costs and paperwork. It will improve existing client service by providing another avenue for access, but will not supersede existing methods of registration. Phase one of the project was introduced in July 1998. You can find the BEP at www.business.gov.au or phone the hotline on 13 28 46. TaxPayers. Charter The TaxPayers. Charter is a service charter that sets out taxpayers. rights and obligations, as well as the Tax Office.s service standards. The charter was introduced on 1 July 1997 and was actively promoted to the community through a television and press advertising campaign and a range of information brochures and booklets. Problem Resolution Service In conjunction with the TaxPayers. Charter, the Tax Office launched the Problem Resolution Service (PRS) for those taxpayers who are not satisfied with the service provided to them. The role of the PRS is to provide an independent entry point to the Tax Office for people who have a complaint. As well as solving the individual.s problem, the PRS will see if there is a systemic problem that needs to be fixed, to ensure it doesn't happen again. Tax Help Tax Help is a free and confidential service for people on a low income. Volunteers are trained by the Tax Office to explain people.s tax obligations and assist them in preparing their tax return. Tax Help centres are located throughout the metropolitan areas of each state and in many country areas. Other services The Tax Office produces a variety of publications and brochures to help people understand their tax obligations. These range from explanations of a specific tax to summaries explaining the tax issues to consider when starting a business. Many of these publications are available by phoning or visiting the Tax Office. Disclaimer: All prices are quoted in Australian Dollars. Please note that all prices quoted are estimates only and are presented purely as a guide, and in no way is it implied or otherwise, that they be taken as guarantees. Types, plans, locations and fluctuating market prices will all have an impact on the actual cost of any purchase or development in the future. For further assistance please contact the Help Desk |