FACULTY OF BUSINESS AND LAW SCHOOL OF LAW BLO2206 TAXATION LAW AND PRACTICE Semester 2 - 2013

HOW TO STUDY TAX LAW

BLO2206 Taxation Law and Practice

Semester 2 2013

HOW TO STUDY TAX LAW This would be the most often asked question that I receive. The following materials are a brief attempt to give some guidance on how best to study tax law. Learning Law All of you will have studied business law. The techniques you learnt in that unit are also applicable to tax law. Indeed, one of the purposes of having to do business law was to give you a strong grounding in the techniques you will require in tax law. The analytical methodology you were required to learn and display in business law is also exactly the same technique required for tax law. These are also the same techniques required for corporate law. Accordingly, for those of you who have undertaken corporate law, you have reinforced the methodology for learning tax. The common law, under which Australia operates, means that the judges have a considerable influence on the operation of laws, even where the law is one that has been made by parliament. Under the common law system there are two different types of laws: those that have been established by the judges in the courts over a long period of time. Contract law or the law of murder being two examples. Parliament may also pass laws in relation to law established by the courts, but this will generally be in such a way as to reinforce the principles first established by the courts; and those laws that have been made by parliament. The courts may have some influence on these types of laws through the process of statutory interpretation.

In relation to the first it is axiomatic that the general principles established by the courts over time must be understood. These principles of course represent the ratio decidendi of a case. You learnt how to do this in your study of contract law. In relation to the second, it is not simply a matter of reading the legislation and then applying that legislation as written. You would have learnt in business law the reasons for and the techniques of statutory interpretation. Under the common law system, often problems associated with interpretation, and application of the legislation to circumstances where it is uncertain that the legislation was meant to apply, is left to the courts. The matter does not return to parliament to have the parliament resolve the matter. In this way therefore the courts do have considerable influence over how laws passed in parliament may apply. Where this is the case, both the legislation as written and the manner in which it may be modified by the courts (i.e. the ratio decidendi of cases applying that legislation), must be read together. If you have studied corporate law, this is the process you will have undertaken. Taxation law consists of the second of these. Thus, you need to understand how to read legislation and to be able to determine the ratio decidendi of cases that have influenced how that legislation is applied. The first tutorial will introduce you to these techniques. All other tutorials will then build on these techniques.

BLO2206 Taxation Law and Practice Analysis, Analysis, Analysis

Semester 2 2013

Analysis is of course the key to learning law. Analysis can comprise two different parts depending upon the question posed to the student, or the request from a client to a professional: an analysis of the facts; and/or an analysis of the legal principles that may be applicable.

In relation to the second only, a student (professional) may be asked to explain the law, or give an opinion on the operation of the law. In such circumstances only an analysis of the legal principle itself will be involved. This will generally require: i ii iii an explanation of what the general purpose of the legislation was. This may include a brief history of why the legislation was introduced; and any problems that have arisen, or may arise, because of the way in which the legislation is written or worded, how any subsequent court interpretations have clarified how the legislation applies.

An example of the second of these is a query/question such as What does the term misrepresentation mean in relation to entering into a contract. I have used contract law as the example for you will all have studied this topic in business law. In relation to the first and second of the (smiley faces) above, a student (professional) may be asked to advise or comment on the likely outcome of the application of the legislation to a particular set of facts. In such circumstances it is only after the above two steps have occurred that a conclusion can be attempted. In reality the two steps occur simultaneously. Thus the facts must be analysed to determine which are important. A reading of the legislation and the ratio decidendi of any relevant case law will ascertain which facts are important and which facts are not important. Having decided the relevant facts the legislation can then be applied, according to the language of the legislation and any interpretation given by the courts on how the legislation is to be applied. You will work your way through many examples of this type of question in the tutorials. Study Techniques There are a number of different learning styles and your lecturers/tutors learning style may well be very different to your own learning style. Accordingly, you must discover for yourself which is your best learning style, although at the tertiary level of education you have probably already established this. An internet search will present you with a wealth of material on learning styles. What I would say in relation to the study of this unit is as follows: 1 The comments I make in the points below rest upon the basis that you are competent at English and that you understand the operation of the common law. If you are not sufficiently competent at either of these matters then you must become so before you attempt this unit.

BLO2206 Taxation Law and Practice

Semester 2 2013

Whilst the laws in relation to taxation can be complex, those parts of the system that we study in this unit are not overly complex. The difficulty in relation to this subject lay in the amount of information that needs to be read. Accordingly, you must start your study in week 1. You must gain an understanding that many law subjects, and tax more so than many, requires being able to consider many rules at the same time. A solution often depends upon the consideration of more than one concept that has been studied during the semester. Tutorial questions have been developed to aid your study. It is by attempting tutorial questions, and being prepared to share your answer in tutorials, that you will learn. Please note that written answers to tutorial questions are not available from your tutor or lecturer. The tutorials are designed to have you work your way, in a methodical basis, through the materials you are required to learn. If you do not attempt the tutorial questions for yourself you will have little chance of being able to apply the analytical methodology required to successfully complete this unit. You cannot achieve this if you simply rely on others to provide the answers to you. 5 In answering law related questions the first step to be undertaken will depend on the type of question, i.e. whether an application of legal principles to a set of facts is required, or simply whether an explanation of a legal principle is required.

Explanation of legal Principle Only Two examples of the second type of questions are:
(a) (b) When does fringe benefits tax arise or You write a monthly newsletter, on taxation matters, for the accounting firm you work for. The newsletter explains tax laws and is sent out to all the firms regular clients. You must assume these clients do not have any background in taxation law. In this months newsletter you have been asked to write explanatory articles on: (i) What is the effect of, and who is entitled to, an input tax credit for GST purposes.

In both these examples, all you need to do is ensure you read the question properly and answer only the question that is asked. Identifying what is relevant to the answer is important. If you explain material that is not relevant to the question asked, then you demonstrate you do not fully appreciate the question asked and the material required to answer that question. The second requirement of course is to be able to accurately explain the principle that is required to be explained. Application of Legal Principle To Facts Two examples of this type of question are:
(a) Francis Wong is employed by the Melbourne branch of the HangSeng Bank. His parents are both Chinese, but he was born in Australia and has lived here all his life.

BLO2206 Taxation Law and Practice

Semester 2 2013

Because he can speak both Cantonese and Mandarin his employer is sending him to China for an indefinite period. Francis will be accompanied by his wife. However, his 12 year old daughter will be remaining in Australia attending boarding school. She will visit her parents in China during school holidays. The house will be rented out. Francis parents will remain in Australia to keep an eye on the daughter. Francis is paid in China by his Shanghai employer. He also teaches Australian tax law and Corporate Law at the Shanghai University. Advise Francis of his Australian taxation position (b) Rogue Raiders Pty Ltd was a company that ran a theme park for children, based around the theme of pirates. Fully explain how each of the following expenses will affect the taxable income of the company. (i) (ii) (iii) (iv) (v) Paid $5,000 for legal expenses for the preparation of a loan agreement. The loan was to buy a new ride for the theme park. As well, the company paid $2,500 legal expenses to the lawyers for negotiating the purchase of the ride. Paid $12,000 to a client being for hospital fees ($3,000), lost salary (3,000), and pain and suffering ($6,000) after being injured because one of the rides was not maintained carefully enough. Spent $7,000 on new cooking equipment for the cafeteria of the theme park. Paid the government a $2,000 fine for breaching safety regulations. Spent $46,000 on special food for the Penguins in the special animals enclosure.

In both these examples a number of steps must be followed: Identify the relevant facts From the relevant facts identify the relevant principle(s) of law to be applied Explain the identified relevant principle(s) of law Apply the explained principle(s) of law to the relevant facts to reach a conclusion.

Learn Through Tutorials Both these methodologies, and how to apply them, will be reinforced as you attempt the tutorial questions throughout the semester. Thus, in attending tutorials you are not only learning the relevant principles of law, you are also learning the appropriate methodologies for answering questions.