ADVANCED TAXATION CPA PROGRAM SUBJECT OUTLINE Study guide: Third edition Taxation is a key component of the overall skills base of today's professional accountant. Business leaders appreciate that there are taxation implications that flow on from most business decisions. A sound knowledge of Australian taxation law is essential to ensure quality input into the strategic decision-making process of a business, and to provide post-implementation taxation advice. Business structures may involve different types of entity (such as individuals, partnerships, trusts and companies), and it is important to consider the taxation impact on each of them. This subject is compulsory for candidates who have not completed recognised studies in taxation. This subject is a prerequisite for obtaining a Public Practice Certificate. Note: From Semester 2 2018 this subject will have an uplift in content and learning outcomes so it s in line with postgraduate studies and will contribute to your taxation requirements as a Registered Tax Adviser with the Tax Practitioner s Board. If you intend to complete Advanced Taxation from Semester 2 2018, or need to defer in Semester 1 2018, we recommend you complete undergraduate taxation study prior to enrolling. EXAM STRUCTURE The Advanced Taxation exam generally consists of 100 per cent multiple-choice questions. SUBJECT AIMS The aims of this subject are: to provide you with an awareness of the key provisions of the relevant taxation legislation enable you to apply the relevant legislative concepts to determine taxation consequences. GENERAL OBJECTIVES On completing this subject, you should be able to: demonstrate an ability to apply the relevant taxation legislation and related legal concepts, precedents and Australian Taxation Office (ATO) rulings analyse events and apply the legislation to determine tax liability provide strategic advice to stakeholders regarding the tax issues arising from common scenarios SUBJECT CONTENT This subject is divided into 13 modules.
The weighting column in the following table provides an indication of the emphasis placed on each module in the exam, while the proportion of study time column is a guide for you to allocate your study time for each module. Module Recommended proportion of study time (%) Weighting (%) 1. Tax Administration 5 5 2. Principles of assessable income 9 9 3. Principles of general land specific deductions 10 10 4. Capital expenditure allowances 8 8 5. Capital Gains Tax (CGT) 10 10 6. Individuals 12 12 7. Partnerships 5 5 8. Trusts 7 7 9. Companies and Dividends 11 11 10. Consolidations 5 5 11. Transfer Pricing 5 5 12. Fringe Benefits Tax (FBT) 6 6 13. Goods and Services Tax (GST) 7 7 A brief outline of each module is provided below. Note: The Advanced Taxation subject reflects the legislation in place by 15 April 2017. Exam questions will be based upon the 2016-17 tax year and the Fringe Benefits Tax (FBT) year ended 31 March 2018. Module 1: Tax administration Module 1 discusses the requirement to withhold and pay tax, to lodge a tax return and how (via assessments, objections, reviews and appeals) the final tax liability of a taxpayer is determined. The module also outlines the Australian legal environment, the Taxation Rulings system and other guidance provided by the ATO to assist taxpayers in meeting their tax obligations. The Tax Agent Services Act is discussed, focusing on the registration of tax agents and on the Code of Professional Conduct. The application of interest charges and penalties and the operation of the general anti-avoidance provisions of Part IVA are also discussed. Contents Part A: Australia s tax law environment Australian parliamentary system
Separation of powers Power to raise taxes Taxation bills The courts Administrative law involving taxation Part B: Income tax returns, assessment and payment Income tax self-assessment Tax returns and assessments Payment of income tax Business Activity Statement, Instalment Activity Statement, and running balance account Part C: Rulings and penalties The rulings system Penalties and interest charges Part D: Tax agent services regime and the Code of Professional Conduct Tax agent services regime The Code of Professional Conduct Division 30 TASA Part E: Anti-avoidance rules and Part IVA Tax avoidance Part IVA case law Part IVA and the role of advisers Module 2: Principles of assessable income Module 2 considers the important core concept of assessable income. The common law principles which distinguish between an income receipt and a capital receipt are discussed in depth. This is followed by a consideration of specific legislative provisions which apply to certain receipts, such as compensation, royalties and foreign exchange gains. The treatment of trading stock and the eligibility rules to access small business entity tax concessions are also covered. Part A: The tax equation Part B: Assessable income Assessable income overview Residence Source of income Ordinary income some common law concepts Distinguishing between income and capital Derivation of income
Part C: Income from business Existence of a business Commencement of a business Section 6-5 and income from business Non-cash business benefits Part D: Compensation Part E: Assessable income Statutory extensions Royalties Foreign exchange gains and losses Other statutory income sections Part F: Trading stock Definition of trading stock Accounting for trading stock on hand Valuation of trading stock (not including livestock) Meaning of cost Meaning of replacement value Meaning of market selling value Assets that become trading stock Obsolete stock Disposal of trading stock Death of owner Trading stock and Small Business Entities (SBEs) Module 3: Principles of general and specific deductions Module 3 examines the core concept of general and specific deductions. The general deductibility provision is discussed in depth, together with the exclusion from general deductibility of capital. Private and domestic outgoings are discussed in depth. There are a number of specific provisions which provide for the deductibility of expenditure in certain circumstances, including the rules relating to thin capitalisation. Part A: General deductions (section 8-1) Framework of s. 8-1 General principles of s. 8-1 Analysing the wording in s. 8-1 The four negative limbs of s. 8-1 Apportionment Some possible general deductions under section 8-1 Specific exclusions from section 8-1 Effect of GST on deductions Part B: Specific statutory deductions
Repairs Bad debts Specifically deductible expenses Tax losses of previous years Part C: Limitations on deductibility Entertainment expenses Occupational clothing Payments to related entities Prepaid expenditure Losses from non-commercial business activities Substantiation of expenditure Thin capitalisation Module 4: Capital expenditure allowances Module 4 examines capital allowances, including the depreciation of assets, amortisation of buildings and deductions available for other capital expenditure. Particular rules relating to capital allowances concessions for small business entities are also covered. Part A: General depreciation rules Part B: Balancing adjustments and rollover relief Balancing adjustment events Part C: SBE capital allowance rules Taxpayers eligible for the SBE concessions Part D: Special capital allowance rules Project expenditure pools Blackhole expenditure Part E: Deduction for capital expenditure on capital works Module 5: Capital gains tax (CGT) Module 5 discusses the tax treatment of capital gains, and how the CGT regime interacts with other areas of the tax legislation. The module provides detailed commentary on the six-step process to determine the net capital gain or loss of a taxpayer, including application of the various CGT exemptions and concessions.
Part A: Overview of capital gains tax (CGT) Part B: the six-step approach to CGT Part C: Step 1 identify a CGT event Part D: Step 2 identify a CGT asset Part E: Step 3 calculating a capital gain or loss Part F: Step 4 considering exceptions or exemptions Part G: Step 5 considering rollover provisions Part H: Step 6 determining net capital gain/loss Taxpayers subject to capital gains tax Administration Part I: Special circumstances Part J: CGT concessions and special rules Module 6: Individuals Module 6 applies the concepts studied in earlier modules to the taxation of individuals. The module outlines and discusses the taxation of individuals, calculation of rebates and tax offsets applicable to individual taxpayers, including superannuation and termination payments. The module also considers the tax implications under the personal services income regime and employee share schemes. Part A: Income Requirements to lodge an income tax return Determining taxable income and tax payable Tax rates: Resident individual non-minor Tax treatment of minors Assessable income Part B: Deductions Allowable deductions Employee or contractor Part C: Tax offsets applicable to individual taxpayers 1. Family situation rebates 2. Rebates that limit the effective tax rate for a class of receipt 3. Rebates that effectively increase the tax threshold of recipients
4. Rebates to prevent double tax 5. Rebates to encourage government policy Part D: Levies and other charges Medicare levy Higher education assistance Family tax benefits Part E: Specific issues Module 7: Partnerships Module 7 examines the nature and taxation of partnerships. Partnerships are not separate legal entities, but there are a number of taxation implications which arise from their use as a structure to carry on a business. Part A: Partnerships Part B: Taxation of partnerships Module 8: Trusts Module 8 looks at the components of a trust and the different types of trusts. Tax issues addressed include present entitlement to trust income, taxation of beneficiaries or trustees, calculation of net income of a trust, streaming of trust income and availability of trust losses for recoupment. Part A: Trusts What is a trust? Components of a trust Types of trusts Five basic essentials in creating an inter-vivos trust Part B: Provisions governing the taxation of trust income from a resident trust Division 6 key concepts Determining net income of the trust and tax implications on distribution Discrepancy between distributed income of the trust and net income of the trust Capital gains included in trust income Streaming of trust income Family trusts Trust losses Distribution of non-assessable amounts CGT event E4 Expanded trust TFN withholding and reporting rules
Module 9: Companies and dividends Module 9 examines companies and applies the various legislative concepts to determine the tax payable by a resident company. It explains the taxation of dividends and the interrelationship with Division 7A of the Income Tax Assessment Act 1936 (Cwlth) for private companies. This module covers the dividend imputation system, with particular emphasis on maintaining a company franking account. Finally, the impact of receiving dividends by different types of taxpayers is examined. Part A: Taxation of companies Concept of a company for tax purposes Classification of companies public or private Residency Calculation of taxable income Assessment and payment of tax Gross-up and franking credit tax offset Special tax issues Part B: Taxation of dividends Definition of dividend Deemed dividends Is the dividend assessable? Debt and equity Dividend imputation system Module 10: Consolidations Module 10 sets out the costs, benefits and eligibility criteria which must be considered prior to creating a consolidated group for tax purposes. It identifies the steps that must be applied in forming a consolidated group and discusses the rules concerning the cost base of assets and the utilisation of losses within a group, upon an entity becoming a group member. The module explains key ongoing tax issues which must be addressed by a consolidated group, and discusses the tax treatment of a subsidiary leaving a consolidated group. Part A: Eligibility to consolidate Consolidatable group Head company Subsidiary member Comparison to accounting consolidation rules Part B: Key consolidation rules Single entity rule Entry history rule
Benefits and costs of consolidation Part C: Joining a consolidated group Tax cost-setting of a subsidiary's assets Calculating the allocable cost amount (ACA) of the joining member Allocating the ACA over a joining member's assets Part D: Transfer and utilisation of losses Determining losses to be transferred Utilising transferred losses Part E: Consolidated group's tax compliance Income tax liabilities Other tax compliance issues Part F: Exiting a consolidated group Resetting costs of membership interests in a subsidiary Exit history rule Calculating the ACA of the leaving entity Allocating the ACA to membership interests on exit Module 11: Transfer pricing Module 11 discusses the key features of the transfer pricing legislative regime. It outlines the four-step process used to determine the arm's length price of international related-party dealings, sets out the five approved transfer pricing methodologies and provides an overview of related ATO compliance issues. Part A: Transfer pricing legislative framework Overview of subdivision 815-B Key ATO rulings International taxation agreements (ITAs) Part B: Applying the arm's length principle Arm's length principle ATO approved four-step process Sources of comparable data Part C: Accepted arm's length methodologies Background Comparable uncontrolled price (CUP)
Resale price method (RPM) Cost plus method (CPM) Profit split method (PSM) Transactional net margin method (TNMM) Part D: Key compliance issues Interaction with thin capitalisation provisions Advance pricing arrangements Documentation requirements Module 12: Fringe benefits tax (FBT) Module 12 examines the rules relating to fringe benefits tax, including the 12 categories of fringe benefits including the specific valuation rules for each type of fringe benefit. It also outlines how FBT is calculated and discusses the application of the otherwise deductible rule and how employee contributions can be used to reduce the taxable value of fringe benefits. The module concludes with a discussion of a range of exempt fringe benefits and record keeping requirements. Part A: Fringe benefits tax core concepts Background Essential features of FBT Who pays FBT? Definition of a benefit Interaction of FBT with other tax legislation Administration Reducing the fringe benefits taxable value of a fringe benefit FBT and GST: The gross-up formula FBT-exempt employers Part B: Specific fringe benefits Car benefits Car parking benefits Debt waiver Loan fringe benefits Expense payment fringe benefits Housing Living away from home allowance (LAFHA) Board Property Residual benefits Exempt benefits and reduction in taxable value of certain benefits Rebate for exempt employers Part C: Administration and reporting of FBT
Module 13: Goods and services tax (GST) Module 13 examines GST, outlining general concepts and compliance issues. Specific GST issues such as the effect on insurance and financial services are also discussed. Part A: Overview of the GST Part B: Fundamental GST concepts Taxable supply GST-free and input taxed supplies Taxable importations Calculating the GST Input tax credits Part C: GST compliance and reporting Timing and accounting for GST liability GST groups, branches, joint ventures, etc. The general anti-avoidance provision Part D: Special GST issues and transactions Insurance Financial services Incapacitated entities and mortgagees in possession