There is an incredible amount of misinformation floating around regarding tax and the Australian Taxation Office, and most of that is spread around by the ATO themselves and the many registered accountants that, ultimately, work for them.
Let’s see if we can clear up some of that miscommunication and direct you to the truth about taxation in this country.
Firstly, do you know the history of taxation? Do you realise that it was brought in to pay for the debt associated with the Second World War? That was supposed to be repealed after that time, but never was, because the government was, of course, by that point, hooked on all the extra income it was making.
Since that time, everything has been commercialised and corporatised and, as a result, companies have an obligation to pay tax on money that they earn after expenses, otherwise known as profit.
However, when it comes to individuals, the same does not apply. You see, the original taxpayers' charter clearly says that personal tax is voluntary. It works on a system of voluntary compliance. You can actually download a copy of that Taxpayers Charter here and you can read section 6 on page 23 for yourself.
Now, of course, most people are never told this and believe that they MUST pay tax when, in fact, they do not. If you want to find out more about this, I recommend that you go to You Tube and type in "Income Tax is Voluntary" and you will find a number of videos where the IRS has specifically and publically declared that paying personal tax is voluntary, and the same principles apply here in Australia.
One of the fundamental reasons for this is because no-one can determine what you would be paying tax on. If we go back to the corporate or company argument, you can clearly see that a company makes sales, they have expenses associated with those sales and, depending on the company, they would also have wages, which they pay to individuals in return for their hours, their efforts and their energy. I don't think that anyone would argue that it is fair and reasonable for someone to be compensated for their time, effort and energy.
So, in regards to a company, it's fairly simple to work out what they are paying tax on - they take their sales, or their "income", they deduct their expenses, including wages and they pay tax on any "profit" that they make.
After all, once the expenses and wages have been covered, there is no effort on behalf of the company itself to earn or make that profit - the company, which is just a paper entity, makes it for nothing, so why shouldn't it pay a portion to the government? Again, most people would agree that this is fair.
However, when it comes to an individual, things aren't as clear. As we just explained, whether you are a PAYG employee or you run your own business, you put in certain hours for your job. You expend energy, effort and thought, and most of you would also have some kind of experience or expertise that you also provide, and you should be justly compensated for all of that.
So, what do you value your time, effort and energy at? If it just so happens that you value it at the current rate you are being paid - or more - then you have not personally made any "profit", you have simply exchanged your time for money and there should be no obligation to give anyone a part of that - which, as we mentioned before, is actually the case.
So, how does the tax office get around this? They issue your ALL CAPS name with a TFN and treat you like a company. Now this opens up another whole argument about the difference between you - the flesh and blood human being - and the corporate ALL CAPS name that the government created for you, but it's too much to go into now. We recommend that you read the section on your “Strawman” on our Home page to find out more.
It's interesting to note, though, that when you ring the tax office they say "Don't give your TFN to anyone, including us." That's because the TFN only applies if you work for the ATO - which most of us don't and, because you don't, you don't have to give them that number.
Then, to really pull the wool over your eyes, they ask you to voluntarily fill out an income tax return statement. Again, there is NO lawful requirement for you to do so, but we are brainwashed into believing that we must. Now, here's the challenge: when you go to fill out their form, they ask you to specify your income, BUT they don't actually ever define the word 'income'.
The Income Tax Assessment Act is a monumental document, and they refer to terms such as 'assessable income', 'statutory income', 'ordinary income', 'exempt income', 'non-assessable, non-exempt income' - all these crazy terms, but not a single, simple definition of 'income'.
Remember with the company example we gave earlier, the income is the money from sales, and then they deduct expenses and pay tax on profit. Well, where is the profit for an individual? The only way an individual can make a profit is if they value their time at, say $50 an hour but actually get paid at $75 an hour - then they would make a profit of $25 an hour - but why would anyone do that?
The reality is that the ATO works on the assumption that your ALL CAPS name has no expenses so all of your "income" - whatever that may be - is actually profit to that paper entity, and that's how they justify it.
We challenge you to write to the ATO and explain to them that you are considering voluntarily filling out an income tax return statement but, before you can do so, you need them to define the word 'income' for you and just see what they come back with. Depending on what they say, you might then want to follow that up with a letter asking them to simply direct you to the section of the Income Tax Assessment Act that specifically defines the word 'income'.
You can read a great article here - http://www.investigatemagazine.com/FEB00%20Tax%20NZ.htm - that covers all of these points and more, and is well worth the read.
Another argument that many people aren't aware of is the fact that the ATO - or the Australian Taxation Office - is not actually a legal entity, and that has been established very clearly in an irrefutable High Court case. The case to look up is the Moeliker v Chapman Case in the High Court on 17 May 2000 - a simple search under Austlii will reveal that case, but we have also uploaded a highlighted copy of it, which you can access via our Court Cases page.
And, here’s yet another strategy that has been suggested to us, and that is to write to the ATO and ask them for a specific breakdown of all GST that you have paid during the year so that you can properly fill out your income tax statement. There is simply no way that they can do that and we have heard some positive responses from people who have tried that strategy as well.
Please note that we’re certainly not suggesting everyone should rush off and stop paying tax, but we definitely recommend looking into these strategies and principles for yourself and, once informed and educated about this subject, you can make proper decisions, at that point, about what is the best course of action for you.