(upbeat music)
-: The Australian taxation system
is a subset of the Australian legal system.
The overarching rules regarding the Australian legal system
are dictated by the Australian Constitution.
Australia has a federal system of government
with two main levels of government
being the federal or national government
and the state and territory governments.
A third level of government are local councils
which are given their power
by the state or territory government.
The constitution gives and sets out the division of powers
between the federal and state governments
and gives courts their powers.
It also specifically states the areas
that the federal government can legislate in.
Under the constitution,
there is the important principle
of the separation of powers.
Under this principle power is separated
between the legislature, the judiciary and the executive.
The legislature is the elected parliament that passes laws.
The judiciary is the court system
that applies and interprets the law.
The executive is the governor general,
government departments and executive authorities
such as the Australian taxation office,
which administer the law.
The federal parliament contains two elected houses.
The first is the lower house
being the house of representatives.
The second is the upper house being the Senate,
income tax, the goods and services tax
and the fringe benefits tax
are all governed by the federal government.
In general, such tax laws have two main sources,
statute and case law.
The first main source of law is statute,
also called legislation,
which is what parliament has passed as law.
The power to raise taxes in Australia
is established in the constitution.
For example, section 51(ii)
gives the federal government power to make laws
relating to taxation.
Section 53, states that taxation bills
must originate in the lower house of parliament
rather than the Senate.
And section 55, only allows a law
dealing with tax to impose a tax
and not any other subject matter.
For the federal government to pass laws,
a bill needs to be written,
which is then passed
by the majority of both houses of parliament
and then receives Royal Assent from the governor general.
The second main source of law is case law,
which arises through the decisions of the courts.
The reason case law forms part of the law
is because of a legal principle
known as the doctrine of precedent.
Due to these principle
judges will generally make decisions that are consistent
with the decisions of judges in earlier cases.
However, judges are only obliged to follow earlier decisions
that are made by courts higher than them
in the court hierarchy.
When judges are not obliged
to follow earlier decisions of other courts,
there is still a tendency
for them to do so to varying degrees.
The Australian court system hierarchy
has the high court at the top
followed by the full bench of the federal court.
Below this is the federal court with a single sitting judge.
There is also the administrative appeals tribunal,
which as its name suggests
is a tribunal rather than a court.
Its decisions do not bind any judicial body.
Lower courts are only bound by statements of higher courts
when such statements are ratio.
That is the courts reason for its decision.
This compares to the obiter,
which is something that is mentioned by the way
to influence rather than bind future court decisions.
For instance, assume that taxpayer A appeared before a court
and the court found that A's receipt was assessable.
The reasons that the court stated
that the receipt was assessable would constitute ratio.
If the court then went on to comment
that the receipt would not be assessable
if certain facts were different
than this would constitute obiter.
In general, as far as tax law is concerned,
the courts will apply the law
and make decisions in two broad situations.
Firstly, assessing the facts of the case
against existing case law.
For example, courts over time have dictated
what ordinary income is.
So if a case decides that a certain gain
constitutes ordinary income,
this will form part of the law.
Secondly, interpreting and understanding
specific statutory provisions.
For example, the tax legislation states
that specific gains are assessable
and they will constitute statutory income.
In a particular case,
It might not be clear whether a situation falls
within a specific statutory provision,
and if this goes before a court to decide,
the court's decision
will form part of the income tax case law.
As far as administrating tax law is concerned
the ATO is the government agency
for administrating the federal government's tax regimes.
The commissioner of taxation
supervises the running of the ATO,
and can delegate authority to other employees working there.
To recap, the Australian Constitution
is the governing document of the Australian legal system
and therefore the Australian tax law environment.
Through the separation of powers principle
it considers the respective roles of the parliament,
the courts and the ATO.
Tax laws are both documented in statute
and arise from cases.
And it is the ATO's responsibility
for administering the federal tax regime.