Tax Law in reflection
People ask me about tax and how to pay less tax. I have clients who have an innate fear of the taxman and a total ignorance of tax law. There are those who ‘turn their back’ and hope it all goes away. It does not, and ignorance is no defence. The obligation is on you to comply with the law. So what is the law?
I go back to textbooks and specifically Sadiq 2016, which points to the doctrine of precedent which is the basis upon which laws are interpreted by tax officials and courts. i.e. if the facts are the same or similar to earlier judgements, then a case will be decided in line with the previous case(s). If they are not then the courts must go back to the relevant legislation to see what it says in relation to the new set of facts and pass judgement, thereby setting a new precedent which equal or lower courts must follow.
The sources of tax law are the statutes known as Income Tax Assessment Act 1936 (ITAA 1936), Income Tax Assessment Act 1997 (ITAA 1997), and Fringe Benefits Tax Assessment Tax Act 1986 (FBT AA), and A New Tax System (Goods and Services Tax) Act 1999 (GST Act). Further to this base legislation is The Corporations Act 2001 (Cth) which is the principal legislation regulating business entities (mainly companies). The Corporations Act and in conjunction with the constitution of that company, regulates how the company is formed and how it operates, including the duties of officers, the raising of capital and takeovers.
As a tax accountant, I interpret the law in the same way as the tax officials. I advise instinctively on what is income and what is capital. I know what is deductible and what is not. I know how a business should be established and how it should operate to comply with the law. I answer to a professional accounting body that binds me to a set of accounting principles and standards that define our professional services and client compliance. Compliance, disclosure, and transparency are inherent in everything that I do. ‘Taxme’ is a blog to keep my customers informed of the issues surrounding tax law.
Precedent is the accepted starting point in tax law. It is like life in general. In society there is a standard by which we conduct our lives and from which we would expect from others. When someone departs from these standards, we look to the law to hold them accountable in common law or statutory law. In tax matters, the accountability lies in precedent and the laws from which it is derived.
When someone shows a fear of tax law, it is generally founded on a lack of knowledge of how it came about and why it is for their benefit. Just as life has its standards, tax has its laws to maintain a consistency in our lives and to ensure that everyone contributes to the country coffers in equitable proportions.
As an accountant, I deal with the mechanism that is detailed in the act and enforced by the officials. This includes ASIC for corporate regulatory, and the Australian Tax Office for all tax matters. Compliance can be time consuming, and, in many instances, I am not able to recover my fees for the work that I perform for clients. However, I accept this as part of the service that I provide to keep my clients compliant.
Tax law provides me with an income. The diversity of business experience gathered in a lifetime, and professional affiliation, provides me with an opportunity to practice what I have learned and to pass this on to others, so that they may have a better life. The framework that is tax law, and the precedence on which it is measured, is a major contributor to the stability and prosperity of Australia. It is the regulation necessary to ensure our lifestyle and security. Don’t be afraid of it.
Peter Cox FTI B.Bus. (Acc.)