Australian Tax Rules And Land Sales Cases

Taxation on Foreign Income of Australian Tax Non Residents

Discuss about the Australian Tax and Other Cases.

The temporary employment activity in Australia has to be approved by the Government of Australia.  According to the Australian tax rules, Australian tax residents need to pay taxes on their worldwide income but Australian tax non residents do need to pay taxes on the income generated in Australia only. The overseas income of Australian tax non residents is not taxable in Australia. The income tax is charged in the basis of progressive tax rates. Australia has entered into double taxation avoidance agreement with 40 countries, this prevents double taxation on the on the same income and foster the cooperation among the countries.

The income tax rates for the individual resident tax payers are as following;

Taxable Income	Tax Payable Save Time On Research and Writing Hire a Pro to Write You a 100% Plagiarism-Free Paper. Get My Paper	Marginal tax rates % on excess
$18200	NIL	19
$37000	$3572	32.5
$80000	$17547	37
$180000	$54547	45

The income tax rates for the individual non-resident tax payers are as following:

Taxable Income	Tax Payable	Marginal tax rates % on excess
NIL	NIL	32.5
$80000	$26000	37
$180000	$63000	45

The tax residency is the important factors for calculation of the tax liability. A foreign individual being resident or non-resident may qualify as the “temporary resident”. This is an important classification for the calculation of tax residency. A resident foreign individual will have to pay taxes on the income generated in Australia and income sourced from foreign. An Australian tax resident individual will have to be “physically present in one half of the income year unless his actual place abode is outside Australia” (www.ato.gov.au, 2016).

Here, in this case Fred, an executive of a British corporation comes to Australia to set up a branch of his company. The length of the stay was uncertain but he stayed in Australia for 11 months. Fred was accompanied with her wife. During his 11 months stay he earned rent from his UK house and also earned interest from investment in France. According to the Australian tax law, the individual stayed for more than half of the income year to be considered as Australian tax resident. Here, Fred stayed in Australia for 11 months and he qualifies to be an Australian tax residents. This really presents the fact in the following manner that his salary income earned during the stay in Australia will be taxable along with the rent income originated in UK and interest income originated in France (www.ato.gov.au, 2016). 

Californian Copper Syndicate was formed to acquire the copper and other mines, mining rights, metalliferous and auriferous land. In the background, the company acquired 480 acres of copper-bearing land and the land for development. The target of the company is to develop the property and to sale it. The Attorney General established the fact that the sale of assets is the part of business process. The excess profit out of the sale proceeded is regarded as the profits or gains of the business (indiankanoon.org, 2016).

Double Taxation Agreements

The case focused on the issue to understand the fact that whether sale or subdivision of the land used for the business of mining to be considered as the business income or the ordinary business income. The case focused on the core objective of the company.  The MOA of Scottish Australian Mining Co Ltd incorporated the main object of the company as; of carrying on coal-mining operations. Once after the completion of the business object of mining on those lands the company subdivided the land and then sold the land for the residential and others like roads and a railway station. It was held that the company was not in the business of selling land but to use the land for mining and the business income only accounts for mining sales. After completion of the object, the company realized by subdividing and selling the assets to other parties and the proceeds to be considered as the capital receipts. The income tax commissioner later on amended the assessment after the order from the court of appeal. The court of appeal upheld the objections of the company regarding tax assessment process where the company is not liable to pay tax on the business income (jade.io, 1950).

Whitfords Beach Pty. Ltd was incorporated in 1954. The land of 1,584 acres was acquired by the company for the original shareholders. The target of the company was to access to shacks and therefore beachfront of the land was occupied by the company. In 1967 all of the shares of the company were bought by three companies, which were the previous shareholders of the company. The main reason for acquiring the shares by three companies was to obtain control of the land for subdivision and further development of the land. The actual purchase price of the land was of $1,600,000. It was expected that the land would be developed and to be used as sites for commercial purposes.

A general manager was also appointed by the company for 15 years to oversee the development process of the company. The sales management was made for the part of the land. The profit made out of the sale of an asset may be treated as assessable income. The profit portion is to be assessed as the part of the ordinary income of the company. In the case Californian Copper Syndicate v. Harris (1904), the famous quote was regarded as “it is not merely the realization of the assets or change of investment but it is truly the carrying on, or carrying out of the business”. The scheme of profit making process will involve the assessment of the profit for taxation purpose (www.iknow.cch.com.au, 1954).

Tax Residency Criteria

The actual issue of the case was to decide whether isolated sale of property is deductible under subsection 51(1) of the Income Tax Assessment Act 1936 (ITAA 1936). Here, the taxpayer Statham’s spouse was retrenched from her employment and decided to start a new property development business. In the process the taxpayer decided to purchase the land and started to meet with the developers for the project of building home in that land with the intention of developing the project.

During the process of development the taxpayer failed to check the property with the local authorities regarding the development conditions or restrictions which could face the development restriction. Without the knowledge and the information about the land the taxpayer decided to invest in the property. The costing analysis was also not done by the taxpayer. After the completion of the project, the costing analysis was conducted on the project and it was found that the project will not be profitable. In the case it was decided that the taxpayer intended or expected to derive a profit out of the sales arrangement. In the course of the business, the property was developed and later on sold in loss. The loss occurred was purely due to the business process. The decision from the court was that the loss is a purely business loss and will not be allowed as deduction under subsection 51(1) of the Income Tax Assessment Act 1936 (ITAA 1936) (ato, 2016).

The case refers to the situation that whether the sale of subdivided primary production land to be treated as the capital gain of the business. According to the facts of the case, the property was developed by the taxpayer and another entity. The asset in question was the primary production property and the sales transactions have taken place due to expansion of the existing business.

In the later on part, it was advised that it would not be viable to start the business on that land. In the later part the taxpayers decided to sell the part of the land but were unsuccessful. The company did not use the coherent development policy for the development of the land. Consequently, the taxpayers decided to subdivide the property and sale the blacks of the land. The subdivision portion was undertaken by the taxpayer and secured the planning for the township development from the local authority. The taxpayers were however not involved in the process of marketing of the property. The court decided in favour of the taxpayer and gave its verdict that the realized gains from the sale of the subdivided primary production land shall be treated as the capital gain under subsection 104-10(4) of the ITAA 1997 (ato, 2016).

Californian Copper Syndicate Ltd v Harris (Surveyor of Taxes) (1904) 5 TC 159

The case law will highlight the question whether profit from the isolated transactions to be treated as the income for the company. The matter of the fact is the guidance to determine whether profits from isolated transactions to be treated as income under subsection 25(1) of the Income Tax Assessment Act 1936.

Here the isolated transactions refer to those transactions which are part of the ordinary course of business. The transactions also refer to the transactions entered by the non business entities. In this case a company made an interest being loan to the subsidiary of the company. The taxpayer provided the loan to receive the interest income. In the ruling of the case two aspects were considered by the court;

1. The intention of the taxpayer to enter into a transaction with the target of making profit.

2. The transactions were entered and the profit was made in the process of ordinary course of business.

It is not necessary that intention of the transaction is of profit making but rather the dominant intention was to make profit out of the transaction process. The taxpayer must have the requisite purpose of profit making. The court ruled that isolated transactions on part of the business operation to be treated as the income under normal course of business (law.ato.gov.au, 2016).

The case starts with background of purchasing of land of 148 acres. The target of the taxpayer was farming on the land as most of the land in that area was arable and had been used for farming. The brickworks exchanged the land of the taxpayer with 15 acres of steep and stony bush land in exchange of 1½ acres of the taxpayer’s land. The target of the taxpayer was to develop a water storage facility on the 15 acre facility. The part of the taxpayer’s land overlooking Bass Strait was rezoned as the residential plot and the plot of the taxpayer was also rezoned as the residential land.

Despite the resistance from the taxpayer, the land was subdivided and the land was sold in blocks. The taxpayer made claim that the land developed and later on sold as the residential part was intended for the farming. The court decided that the taxpayer was not interested in selling the property which was actually intended for the farming. The circumstances were compelling him to sell that land. Therefore the sale of land after subdivision should not be recognized as the normal business. Hence, this profit shall not be considered as assessable profit according to section. 25(1) or section 25A of the ITA Act (iknow, 1996).

Here the taxpayers Bradley and Brett McCurry were assessed for their profit of $75,811 from sale of three townhouses. The background of the case starts in 1986, when they have $17000 savings. Both brothers saw a property at 20 Addison Avenue, Lake South. The property was old and was not of value. Bradley and Brett inspected the land and bought the land for $32000. The purchase value was gathered from saving of $17,000 and rests a loan from Commonwealth Bank of Australia. Later they gathered another loan of $80,000 and developed the property. The court ruled that the property development plan was part of the investment process and the profit made out of the sale of the properly is to be treated as the business income under the preview of sec 25(1) of the ITA Act (iknow, 1996).

indiankanoon.org, 2016. Karanpura Development Co., Ltd vs The Commissioner Of Income-Tax,. on 31 August, 1961. [Online] indiankanoon.org Available at: https://indiankanoon.org/docfragment/663679/?formInput=copper [Accessed 30 Augustus 2016].

jade.io, 1950. Scottish Australian Mining Co Ltd v Federal Commissioner of Taxation [1950] HCA 16; 81 CLR 188. [Online] jade.io Available at: https://jade.io/article/64663 [Accessed 30 Augustus 2016].

law.ato.gov.au, 2016. ATO Interpretative Decision Sale of subdivided farm land – Income or capital gain? [Online] law.ato.gov.au Available at: https://law.ato.gov.au/atolaw/view.htm?docid=AID/AID2002273/00001 [Accessed 30 Augustus 2016].

law.ato.gov.au, 2016. ATO Interpretative Decision; Statham & Anor v FC of T 89 ATC 4070. [Online] law.ato.gov.au Available at: https://law.ato.gov.au/atolaw/view.htm?docid=AID/AID2002483/00001 [Accessed 30 Augustus 2016].

law.ato.gov.au, 2016. Taxation Ruling; whether profits on isolated transactions are income. [Online] law.ato.gov.au Available at: https://law.ato.gov.au/atolaw/view.htm?DocID=TXR/TR923/NAT/ATO/00001 [Accessed 30 Augustus 2016].

www.ato.gov.au, 2016. Are you a resident? [Online] www.ato.gov.au Available at: https://www.ato.gov.au/Calculators-and-tools/Are-you-a-resident/ [Accessed 30 Augustus 2016].

www.ato.gov.au, 2016. Work out your tax residency. [Online] www.ato.gov.au Available at: https://www.ato.gov.au/Individuals/International-tax-for-individuals/Work-out-your-tax-residency/ [Accessed 30 Augustus 2016].

www.iknow.cch.com.au, 1954. Federal Commissioner of Taxation v. Whitfords Beach Pty. Ltd., High Court of Australia, 17 March 1982. [Online] www.iknow.cch.com.au Available at: https://www.iknow.cch.com.au/document/atagUio549860sl16841994/federal-commissioner-of-taxation-v-whitfords-beach-pty-ltd-high-court-of-australia-17-march-1982 [Accessed 30 Augustus 2016].

www.iknow.cch.com.au, 1996. CASE 32/96, Administrative Appeals Tribunal of Australia, 23 February 1996. [Online] www.iknow.cch.com.au Available at: https://www.iknow.cch.com.au/document/atagUio539949sl16718659/case-32-96-administrative-appeals-tribunal-of-australia-23-february-1996 [Accessed 30 Augustus 2016].

www.iknow.cch.com.au, 1996. McCURRY & ANOR v FC of T, Federal Court of Australia, 15 May 1998. [Online] www.iknow.cch.com.au Available at: https://www.iknow.cch.com.au/document/atagUio539084sl16707683/mccurry-anor-v-fc-of-t-federal-court-of-australia-15-may-1998 [Accessed 30 Augustus 2016].