Taxation Law

Australia’s taxation system plays a key role in our financial affairs with a range of tax issues applying throughout different phases of life – starting our first job, buying major assets, getting into business, or inheriting from an estate.

Taxation laws are complex. Understanding how our tax system works and managing our tax liabilities to achieve the best financial outcome possible can make a significant difference to our future wealth.

We assist individuals and businesses to implement strategies to help them comply with their reporting requirements, resolve tax issues, and structure their affairs to achieve more favourable tax outcomes.

Personal income tax

Our income tax system is ‘progressive’ meaning that the proportion of tax paid by a taxpayer increases according to how much they earn. Taxpayers are required to report earnings by lodging a tax return declaring their assessable income over the duration of a tax year with the Australian Taxation Office (ATO). Assessable income includes earnings from an employer as well as other payments such as income from a business or rental property, interest, and dividends.

Allowable deductions and any offsets may be claimed against the assessable income resulting in either a tax debt or refund.

If you are an employee your employer will deduct Pay As You Go (PAYG) tax from your regular earnings and submit these funds to the ATO. This amount is credited against your annual tax liability. Medicare levies assessed in accordance with income earned, also form part of an individual’s tax liability.

For various reasons, some people fail to lodge a tax return, perhaps for several years. Their financial records may be scant, and they may become anxious about a pending tax debt. As time passes, it becomes more difficult to locate records.

If you have put your taxation affairs in the ‘too-hard basket’, we can help. We have assisted many clients through a voluntary disclosure process with the ATO resulting in manageable assessments and payment plans.

Capital Gains Tax

Capital Gains Tax (CGT) is the financial gain made on the disposal of an asset. This is assessable income and must be included in a tax return. Many assets are subject to CGT however, personal use assets such as a principal place of residence or a motor vehicle are generally exempt. There are also other exemptions and discounts available when assets are held for a certain period before they are sold.

If you are inheriting a significant asset or making an investment, it is important to understand your potential CGT position, which could result in an unexpected tax liability. The impact of CGT can be significant. Our lawyers can advise on events that could trigger a CGT liability and help structure your affairs accordingly.

Superannuation

People are encouraged to save for their future through superannuation which offers tax incentives, such as lower tax rates on contributions and earnings and access to tax-free superannuation payments on retirement.

Contributions to a superannuation fund may be concessional (before tax) or non-concessional (after tax). Concessional contributions such as compulsory employer and salary-sacrifice contributions are (unless the taxpayer is a very high-income earner) generally taxed at a flat rate. Individuals can also make voluntary contributions to their superannuation over the course of a tax year, to a specified cap, without paying extra tax.

Non-concessional contributions are after-tax contributions as they are made from any source of fund for which a person has presumably already paid tax. These funds can provide a tax-effective way of increasing your retirement funds. There are however caps on non-concessional contributions which, if exceeded are heavily taxed. It is therefore important to obtain advice before making additional contributions to your superannuation.

Reviews and audits

The ATO may conduct reviews and audits regarding the financial and taxation activities of an individual or organisation. The purpose of these investigations is to ensure compliance and target conduct relating to tax avoidance. The ATO’s investigative powers are broad, and it can impose substantial penalties for non-compliance. A review and audit are separate processes although both will involve the ATO looking at the taxpayer’s taxation and financial affairs to ensure accuracy and compliance.

The review process focuses on risk assessment and identifying areas of potential or actual non-compliance. It is generally less invasive than an audit and the ATO encourages full cooperation and will ask questions regarding any processes in place to overcome and manage tax risk.

Information and records are checked and if issues can be resolved or no significant risks are identified during the review, an audit is avoided.

If during the review the ATO finds sufficient evidence to suggest non-compliance and risk concerning a taxpayer’s obligations, an audit usually follows.

An audit is more comprehensive – detailed information is collected and scrutinised where underpayments of income tax, GST or excise are suspected. If the audit uncovers additional issues, it may result in a broader scope of enquiry.

During both the review and audit processes, the ATO is empowered to contact third parties such as banks, employers, customers and suppliers to obtain information.

Tax officers may require access to business premises to inspect records and documents. Certain documents however may be ‘privileged’ meaning you are not obliged to provide these to the ATO. Confidential information such as documents exchanged between you and your lawyer or accountant should not be provided before obtaining legal advice.

If you receive notification of a pending review or audit, it is important to act quickly. Getting professional advice can help resolve the matter efficiently, and may avoid or minimise any penalties, and the potential for a broader scope of enquiry.

When it comes to dealing with your personal or business tax affairs, it is important to get early professional advice to ensure you reach the best possible outcome for your circumstances. Our experienced team can assist with:

• Personal tax advice
• Business tax advice
• Property development and tax
• Income tax and Capital Gains Tax (CGT)
• Goods and Services Tax (GST)
• Superannuation and Binding Death Benefit Nominations
• Self-managed superannuation funds
• Taxation audits and disputes
• Trust structures and business succession

If you need assistance, contact one of our lawyers at [email protected] or call 02 9661 6044 for expert legal advice.