Melbourne JD
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Key dates for 2013 admission
Round 1
Register for LSAT
By 25 May 2012
Sit LSAT
24 June 2012
Submit Application
13 July 2012
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Our Students – Profiles
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Our Students – Profiles
Can you deduct your educational
expenses from your tax?
And if not – why not?
30 April 2012
Professor Miranda Stewart
Law School
Our Students – Profiles
Tax law in the JD
• An upper year option
• Second or third year in your JD
degree
• After you have done some of the
“core” general law subjects
• Taxation Law and Policy
• Taxation of Business Enterprises
• Legal research in Taxation
• Masters subject in Taxation
Our Students – Profiles
Who says you have to pay tax?
Sec 4-10
(1) You must pay income tax for each financial year
(2) Your income tax is worked out by reference to your
taxable income for the income year
(3) Work out your income tax for the financial year as
follows:
Income Tax =
(Taxable Income * Rate) – Tax Offsets (rebates)
Our Students – Profiles
How much tax must you pay?
• The income tax is levied by the federal
government
• The tax law is contained in various statutes
enacted by Parliament, including:
INCOME TAX ASSESSMENT ACT 1997 (Cth)
Sec 4-1: Income tax is payable by each individual
and company, and by some other entities.
Our Students – Profiles
What is your taxable income?
Sec 4-15
Taxable income =
Assessable income – Deductions
Our Students – Profiles
Marginal tax rates for 2011-12
(year ended 30 June 2012)
Taxable income
0 – $6,000
Rate
0%
Tax on this income
Nil
$6,001 – $37,000
15%
15c for each $1 over $6,000
$37,001 – $80,000
30%
$4,650 plus 30c for each $1 over
$37,000
$80,001 –
$180,000
37%
$17,550 plus 37c for each $1 over
$80,000
$180,001 and over
45%
$54,550 plus 45c for each $1 over
$180,000
• Plus Medicare Levy 1.5%
• Low-income tax offset refunds tax for low income earners
• Rates are revised following the carbon emissions scheme for
2012-13: large tax-free threshold of $18,000 approx.
Our Students – Profiles
What is income?
Sec 6-5
Your assessable income includes income according
to ordinary concepts, which is called ordinary
income.
• This is a “judicial” concept of income – determined in
its ordinary meaning, as set out by judges in cases
• Ordinary income “must be determined in accordance
with the ordinary concepts and usages of mankind”
Scott v Federal Commissioner of Taxation (1935)
35 SR (NSW) 215 at 219 (Chief Justice Jordan)
Our Students – Profiles
What kind of income might you have while
studying?
•
•
•
•
Employment income, eg salary?
Youth allowance?
Business income?
Investment income (“trust funds”, dividends, interest,
rents)?
• Gifts or support from family?
Our Students – Profiles
What are allowable deductions?
Sec 8-1 (1) You can deduct from your assessable income any loss
or outgoing to the extent that:
(a) it is incurred in gaining or producing your assessable
income; or
(b) it is necessarily incurred in carrying on a business for the
purpose of gaining or producing your assessable income.
(2) However, you cannot deduct a loss or outgoing to the extent that:
(a) it is a loss or outgoing of capital, or of a capital nature; or
(b) it is a loss or outgoing of a private or domestic nature; or
(c) it is incurred in relation to gaining or producing your
exempt income; or
(d) a provision of this Act prevents you from deducting it.
Our Students – Profiles
What kind of education expenses might
you seek to claim?
•
•
•
•
•
•
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Fees, eg University services fee
Text books and materials
Computer, printer etc
Materials for practical training/internships
Lab equipment
Clothes/uniforms
Transport
What is the argument that these expenses are deductible?
Our Students – Profiles
Anstis case
• A full time student undertaking a teaching degree at
Australian Catholic University
• In her tax return for the year ended 30 June 2006, she
declared:
• $14,946 wages (sales assistant)
• $3,622 youth allowance
• She claimed as a deduction $920:
• Textbooks and stationary
• Student administration fee
• Supplies for children during teaching rounds
• Travel expenses to schools
• Computer - depreciation
Our Students – Profiles
Anstis case
By CLANCY YEATES, 18 December 2010, p. 5
The Age: Students win cash back on old tax
“HUNDREDS of thousands of current and former students will
receive partial tax refunds, after the Australian Tax Office said
it would change previous assessments to comply with a
landmark High Court ruling.
The Tax Office yesterday said it would amend its assessment
for all full-time students who received Youth Allowance and
paid tax between the 2006-07 and 2009-10 financial years.
The ATO will automatically deduct an extra $550 a year from
eligible taxpayers' incomes, providing an average refund of
$90 for each year.”
Our Students – Profiles
Why did the Commissioner of Tax oppose
the claim in Anstis?
•
•
•
•
Tax Ruling TR 98/9 http:/law.ato.gov.au
Commissioner’s view of the tax law
Self-education expenses are deductible where they
have a relevant connection to the taxpayer's current
income-earning activities.
Deductible if:
• Taxpayer's income-earning activities are based on the
exercise of a skill or some specific knowledge and the
subject of self-education enables her to maintain or
improve that skill or knowledge.
• The study objectively leads to, or is likely to lead to, an
increase in a taxpayer's income from current incomeearning activities in the future.
Our Students – Profiles
• Study to enable a taxpayer to get employment, to obtain
new employment or to open up a new income-earning
activity (whether in business or in the taxpayer's current
employment) is considered non-deductible
• Includes studies relating to a particular profession,
occupation or field of employment in which the
taxpayer is not yet engaged
• Commissioner took the view that education expenses
could not be deducted against Youth Allowance or
similar payments, while studying full time, because the
expenses are incurred at a point too soon to be incurred
“in gaining or producing assessable income”
Our Students – Profiles
• Earlier cases formed the basis for the
Commissioner’s tax ruling TR 98/9
• Federal Commissioner of Taxation v Finn (1961)
106 CLR 60
• Federal Commissioner of Taxation v. Hatchett
(1971) 71 ATC 4184 , Menzies J, High Court
• Federal Commissioner of Taxation v Studdert
(1991) 91 ATC 5006
Our Students – Profiles
What did the High Court have to consider?
1. Is youth allowance assessable income?
2. Are the self-education expenses incurred "in gaining
or producing” assessable income?
3. Is the deduction nonetheless to be disallowed as
being of a "private" nature?
Our Students – Profiles
What are the Youth Allowance rules?
• Social Security Act 1991 (Cth), Section 540: Requires a
Youth Allowance recipient to:
• (i) satisfy "the activity test“
• (ii) be of "youth allowance age" as defined in ss 543-543B; and
• (iii) be an "Australian resident" as defined in s 7(2).
• “Activity test”: You are "undertaking full-time study".
• enrolled in an approved course of education at an educational
institution; and
• undertaking in the particular semester at least three-quarters of the
normal amount of full-time study for the course; and
• in the Secretary's opinion, “making satisfactory progress towards
completing the course” based on guidelines set by the Minister
• Basically, requires completion of the course within the
standard minimum length of the course
Our Students – Profiles
Youth Allowance is assessable “ordinary
income”
“The character of a receipt in the hands of the taxpayer is
determined having regard to the totality of the circumstances.
That a receipt is periodical is a characteristic tending to show that
it is received as income.”
“Youth allowance payments enable recipients to rely upon them
for regular expenditure, and recipients can expect to receive those
payments but only so long as they satisfy the various
requirements of the social security legislation. It follows that such
amounts are income according to ordinary concepts.”
Referred to earlier cases, including Keily v Commissioner of Taxation, White J (1983) 32
SASR 494 at 495 (about the age pension).
Our Students – Profiles
Youth Allowance is also a “rebatable benefit”
• Although it is included in assessable income, tax on the benefit itself
is refunded (“rebated”) to the beneficiary
• S 160AAA of Income Tax Assessment Act 1936
• Government assistance payments that are taxable in law are in
effect tax-free due to the rebate.
• If you have no other income except your taxable government
assistance payment, then the beneficiary rebate extinguishes
the tax liability.
• If you also have other income, eg, employment income, you
still have the tax on their government assistance payment
extinguished by the rebate, but are taxed on any other
assessable income at your marginal tax rate.
• We will come back to the significance of this later…
Our Students – Profiles
Education expenses were deductible!
•
“The respondent's desire to obtain a degree, whether to enable her to
become a teacher or for some other reason, cannot deny the
circumstance that expenses occasioned by her enrolment, full-time
study and satisfactory progress in that degree were incurred by her as
a recipient of youth allowance”
•
“The prospect of the future employment of the respondent as a teacher
was not the basis on which her education expenses have been held to
be deductible. Rather, the question is whether the occasion of her
expenses was productive of her "passive income", in the form of youth
allowance”
•
The outgoings did not lose their connection with the "position" she held
as a recipient of youth allowance simply because she might have been
studying for reasons other than enjoying an entitlement to youth
allowance.
Our Students – Profiles
Education expenses were not disallowed
because private
• Ms Anstis was not "paid to undertake [study]" but that was not
required for the deductions to be allowable.
• The assessable Youth Allowance was gained or produced by her
entitlement to that payment consequent on the determination by the
Secretary that she qualified for the payment.
• The notion of "gaining or producing" income within the meaning of
s 8-1(1)(a) is wider than those activities which may be said to earn
income, in its ordinary meaning.
• To "gain" means not only to "earn or obtain (a living)" but to
"obtain, secure or acquire" or to "receive".
Our Students – Profiles
The legal effect of Anstis decision
• Taxation Ruling TR 98/9 is now wrong as it is not in accordance
with the law established by the High Court
• The High Court decision establishes that the law allows a tax
deduction for education expenses against Youth Allowance
• The ATO must respond in accordance with law
• Decision Impact Statement issued
• The ATO takes steps to amend its Ruling
• The ATO adopts an administrative approach to assist students:
automatic $550 deduction for all years from 2006 to 2011
Our Students – Profiles
The policy consequences of Anstis
decision
Assistant Treasurer, the Hon Bill Shorten MP, 17 December 2010
The Government will not amend the tax law retrospectively to
deny deductions against Youth Allowance for prior years
following the High Court decision in Commissioner of Taxation
v Anstis. “The Government will not be playing Christmas
Grinch for those taxpayers that can benefit from the Tax
Office's decision to allow an automatic deduction and for those
taxpayers that can substantiate their claims," he said.
In terms of deductibility against youth allowance for the
current and future income years, this will be considered by the
Government in the New Year.
Our Students – Profiles
The policy consequences of Anstis
decision
• In May 2011 Budget, the government announced that it would
legislate to deny deductions against all government assistance
payments for individuals from 1 July 2011
• Budget Paper No. 2 Revenue Measures
• Education expenses will not deductible against Youth Allowance
from 1 July 2011 onwards
• But can be deducting by amending assessments for years
2006 to 30 June 2011
Our Students – Profiles
The Government’s view of the decision
The High Court decision represented a departure from the
principle that study expenses unrelated to employment are not
deductible. The decision means that individuals in like
circumstances (such as students with the same income) have
different tax obligations depending on the type of government
assistance payment they receive, or whether they receive any
government assistance payments at all.
In that sense, the decision has long-term implications for the
integrity of basic tax principles; involves a costs to revenue; and
introduces additional horizontal inequities into the tax system.
Our Students – Profiles
Exposure Draft legislation released
• Available from Treasury website, www.treasury.gov.au
• http://www.treasury.gov.au/contentitem.asp?NavId=&Conte
ntID=2296
• Proposed new s 26-19 Rebatable benefits
(1) You cannot deduct under this Act a loss or outgoing to the
extent 15 that the loss or outgoing is incurred in gaining or
producing a rebatable benefit …
• Still not introduced into the Parliament as a Bill, or enacted in
legislative form
www.law.unimelb.edu.au