Australian Law For Taxation Office – Residency And Taxation Of Income

Case Study on Residency Status and Taxation of Income

Discuss about the Australian Law for Taxation Office.

ISSUE: We need to advice Kit if he is to be considered as a resident of Australia, as an accountant. Kit also needs to be advised on how his salary and also his investment income is to be taxed.

Kit was not born in Australia. He is still to be considered as a resident of Australia. Kit has his Chilean Citizenship retained as he was born in Chile. Kit was employed with a United States based company. He had to spend most of his time off the coast of Indonesia as he worked in the oil rigs over there. Kit was a married man with a house bought by him over three years ago and had three children from his marriage. Kit had been working most of the time in Indonesia, even though he had actually been recruited in Australia. Kit and his wife had a joint account in the Westpac Bank where he would get his salary credited. Apart from his salary, Kit also had some other sources of income in the form of investments from which he would earn some dividend income. However, these dividends were earned from investments that he had made in Chile and not Australia. After every three months, Kit gets a month off from his work in Indonesia. This one month he can either go for holidays around South America or visit his family in Australia. His parents were actual residents of Chile. The provisions related to this case need to be understood clearly before providing with the answers to the case study.

RULE: A person is considered to be an Australian citizen as according to the Australian Income Tax Act, only if he is holding a permanent Australian Visa with him at all times. A person thus holding a permanent Australian visa is given permission to study, live or work in Australia without any restrictions and hassles. If a person who is a permanent resident of Australia decides to travel abroad, he needs to carry a permanent Australia along with an intention to return back to Australia and has to carry proper travel authority. If there is absence of intention to return back to Australia then he is not to be considered as a resident of Australia anymore. Such a person needs to declare all his income, whether he has earned it in Australia or abroad, when filing his income tax return in Australia if he is deemed to be an Australian citizen (Government, 2017). All such income that has been earned by him needs to be declared in the income statement.

Criteria for Determining Residency Status

As we are aware a person in Australia, on every source of income earned by him, needs to pay tax on it. However, for a foreign resident one does not need to declare all their interest royalties and dividends earned by him in Australia. There are some other criteria’s also present that determine if a person is an Australian citizen or not. Situations are as follows:-

If a person who is visiting a foreign country with no intention of staying permanently in the foreign country, he is considered to be an Australian citizen.
If a person, who is actually an Australian citizen, goes out of Australia to a foreign country with no intention of coming back to Australia, he is not considered as an Australian resident anymore.
A person staying in Australia for a period of more than six months for studies, he is considered to be an Australian citizen for taxation purposes.
A person who stays in Australia for his job for a period more than six months, he is considered to be an Australian resident for taxation purposes.
A person visiting Australia for vacation or visits Australia from a foreign country for a period of less than six months, he is not considered to be an Australian resident. However, if the person stays for a period extending six months he is to be considered as an Australian resident for taxation purposes.
A person who was not actually a resident of Australia if shifts to Australia with an intention to stay there permanently, he is to be considered as a resident of Australia.

As according to the Section 6(1) of the Income Tax Assessment Act there are four parameters set to determine if a person is an Australian resident or not. A person needs to declare his income from abroad when filing his income tax return if he is an Australian resident (Income Tax, 2017).

APPLICATION: The given case study and provisions that have been mentioned above we can determine that Kit is a permanent resident of Australia. We can see that Kit was born in Chile and then came to Australia for work purposes. He worked in Australia with a company that was based in United States. The company made him work most of the time in oil rigs off Indonesia. Kit bought a home in Australia for his family thereby proving his intentions of staying permanently in Australia. He also has a permanent visa with him at all times as he travels a lot for work purposes.

The provisions state that if a person has a permanent visa of Australia with him and has all the intentions to return back to Australia, that person is to be taken as Australian resident for that financial year. Thus we can say that Kit is a resident of Australia. As mentioned above Kit has a joint account with his wife in the Westpac Bank where he gets his salary. His salary thus needs to be taxed as according to the income tax laws of Australia. Kit has some investments made in Chile. He gets additional income on the dividends received from the investments. The income thus received shall be taxed in Australia even if it is not earned in Australia. Kit needs to pay tax in that financial year on his salary and additional dividends received in that year (Australian Government, 2017).

CONCLUSION: We can thus conclude that Kit is an Australian resident. As Kit is an Australian resident he shall have to pay taxes on it as according to the Income Tax Act of Australia (Visa Solutions, 2017). It does not matter if he earns the money in Australia or not. While filing his income tax return Kit needs to take care of his salary and additional income both.

Taxation of Income for Australian Residents and Foreign Residents

CASE 1: The given situation states that the said company wants to acquire mining rights, copper mines and land for itself in California and such other places in the United States of America. If a company sells its assets and objectives together, the amount that has been earned after the expenses incurred in acquiring the business is to be considered as profit or loss that has been earned from the business (Australian Tax Office, 2017). This case revolves around rights that include concessions and minerals that are provided to a company when it sells its objectives of business.

CASE 2: In the given question we deal with taxation of the income that is earned from a business in Australia. We know that land can be taken as ordinary income or even as realisation of capital asset only if it was earlier used for mining purposes. It has been given that the mining land in question had been sold. The company was also dealing in other work like subdivision. Thus, the High Court gave the decision that the land was thus to be realised in such a manner that it would prove to be advantageous for the company, making the profit derived to be inaccessible. The revenue earned is not to be considered as revenue, rather is to be made a part of the capital account. The decision by High Court is however ruled out by the Judicial Terrain.

CASE 3: Profit that is made from selling an asset as under the Income Tax Assessment Act is to be treated as assessable income. It was decided by the court that on selling any part of the land of a taxpayer, it became a part of the assessable income of that particular year.

CASE 4: In the given case, the entire situation and decision of the Court was aided by the points given below. From an isolated transaction, the loss thus derived needs to be deducted under Section 51(1) Income Tax Assessment Act. The two reasons are mentioned below-

The taxpayer expects to or even intends to earn profit that will be taxable
Transaction that we come across when carrying on business or business operations or even a commercial transaction runs into a loss.

We see an absence of assessable income. However, an expectation to earn assessable income was seen. At the end we see that there is dearth on advice of taxpayers as to how to run a profitable property development business. Profit motive was not seen (Australian Government, 2017).

CASE 5: We see that the taxpayer has been gifted with a farm by his father in the year 1955. Later on the tax payer had to sell his farm for business purposes. The income earned by him falls under Section 25(1) of the Income Tax Assessment Act 1936. At the end we see that the transaction was not conducted in a proper business manner as no work was taken by the taxpayer beyond the number that is necessary to obtain permission of municipality. The court thus gave the decision that the land was thus to be used for both residential and production work.

CASE 6: The judgement in the given situation was given in the year 21^st of November, 1988. The profits of the shareholders were realised by selling off the land. There were also profits derived from the anticipatory sale of capital that has been issued by Malgor Pty Ltd. Over here the decision had been given in the favour of the company. They were unable to update the scheme to the point of completion of the sales. We can thus make out from the given case that the sand mills would have been removed by the company before the sales had been completed.

Case 7: The judge gave its decision on this case on 17^th of August 1988. The taxpayer in the given case was involved in purchase of many properties. As under Section 25(1) of the Income Tax Assessment Act 1936 we see that if the sales of the land near Hobart are to be considered as an income. So from the given case we can derive that income cannot be determined by the Section 25(1) of the Income Tax Assessment Act 1936. For taxing an income under Section 26 we need to make sure there is a profit making enterprise present while the scheme is being carried out to make profit (Australian Taxation Office, 2017).

CASE 8: On 15^th of May 1988 judgement for the given case was passed by the Federal Court. There were two people mentioned in the given case, Brett and Bradley. The case discusses that both Brett and Bradley had to build in the Addison Avenue Property three town houses. Now, they wished to sell one of the three town houses for profit purposes. However, the other two town houses Brett and Bradley wished to keep with themselves for residential purposes. The judgement thus given in the case was that the house that was to be sold shall not be considered as an assessable income. This means that tax is to be levied on the house that is being sold.

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