What is it like to apply tax law as a tax specialist?

Often you will deal with routine transactions. In working out the tax consequences for routine transactions, you need to identify the question(s) at issue and the relevant taxpayer and use taxation methodology and legal reasoning to form a view. The taxation methodology and legal reasoning will be provided by your university lecturers, the professional bodies and tax book publishers. Applying tax law to routine transactions will become second nature in the workplace.

In working out the tax consequences for complex transactions, you also need to use the taxation methodologies and the legal reasoning model. However, even when you become more experienced, this is tricky, given the research required for this task, this involves numerous steps. These steps include:

Step 1

Identify the question(s) at issue and the relevant taxpayer.

Step 2

Dr Paul Kenny

Use the taxation methodology to identify and cite the relevant legislation, cases and form an initial view. Note, beware of tunnel vision in this step. Being a grey area there are two sides to the argument. In dealing with the uncertainty you should arm yourself with alternative strategies. For example: What are the alternative views? What alternative provisions can I apply to the facts?

For example, the question may concern the revenue-capital dichotomy in ordinary income: ITAA 1997 s 6-5. Consider both sides of the argument under s 6-5 and then make a conclusion. If you are arguing a receipt is not ordinary income because it is a capital amount, you must also consider whether CGT and other statutory income provisions apply. Also, do the international tax, entity, special taxpayer or anti-avoidance rules apply?  What are the interactions with other taxes (ie GST)?

Another classic area of uncertainty in tax law is the revenue-capital dichotomy in general deductions: s 8-1. Consider both sides of the argument under s 8-1 and then make a conclusion. If you are arguing an expense is not deductible because it is a capital amount, you must also consider whether other specific deductions or Div 40 (depreciation) and Div 43 (capital works) apply. In particular, s 40-880 provides a deduction for many black hole expenses of business. Does the expense fall into a CGT cost base? Also, do the international tax, entity, special taxpayer or anti-avoidance rules apply? What are the interactions with other taxes (ie GST)?

Step 3

Research the detailed commentary/analysis and case law by searching or browsing the detailed online taxation commentaries provided by Thomson Reuter ATP, CCH and the Taxation Institute. Cite any relevant views of these commentaries in your argument to substantiate your view. Read the relevant cases as these are very important to your argument. Cite the relevant case law in your argument to substantiate your view.

Step 4

Research the ATO’s database of taxation rulings as well as case law by searching or browsing the Australian Taxation Office website at <www.ato.gov.au> and clicking on Legal Databases. The ATO view is generally provided by its taxation rulings (TR series), taxation determinations (TD) and class rulings (CR series). The ATO also publishes ATO Interpretative Decisions (ATOIDs) that show their interpretation of grey area issues. Further, edited versions of their private rulings (known as Case Decision Summaries) also can be found here. Cite any relevant ATO views in your argument to substantiate your view. The ATO also publishes numerous fact sheets and explanatory guides such as the income tax return Tax Pack and employee expense deduction guides.

Step 5

To aid your understanding of how the legislation applies to the question at issue go through the statutory interpretation steps and research the explanatory memorandum (EM) accompanying the relevant Act.

Step 6

For more detailed commentary/analysis and case law there are numerous refereed taxation and legal journals and books on taxation law.

Step 7

Use the following taxation internet sites to help your research:

1. Australian Taxation Office
2. The Tax Institute
3. LexisNexis Butterworths
4. Chris Wallis’s Tax Matrix
5. Flinders Business School’s Oz Tax, Australian Taxation Index.

Contributed by Dr Paul Kenny - Associate Professor in Taxation Law - Flinders University.

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