Discuss about the Capital Gains Method and Policies for Business Organizations.
The taxation law of Australia is one of the world’s outstanding revenue collection system introduced by the government of the country, which is based on the citizenship of an individual of the nation, capital gains method and policies for business organizations. This study will present the brief idea about the residential status based on Australian Law. In the given case, Fred seeks an advice about his residential status based on Australian Law.
After analyzing the case, it was found that Fred visited Australia with an intention to set up his own business in the country. He did not mention the duration of his stay before the arrival. According to Australian Law, it is mandatory for an individual to obtain a valid visa for his stay in the country for an unknown period. According to Saad (2014), this type of visa can be termed as Permanent Residence Visa also. In the given case, it was found that Fred has visited the country without his family; moreover, he has obtained a valid visa also. It is not possible to decide whether the obtained visa is Permanent Residence Visa or not. To decide on the matter it is necessary to highlight the requirements of the residential status of Australia. The requirements are as follows:
Physically present in the country: According to Australian Law, a person must stay in the country at least for a period of twelve months than only the person is eligible to acquire a permanent residency of the country. In the given case, Fred left the country within a period of eleven months due to his illness. In the words of Schenk, Thuronyi and Cui (2015) if the person fails to satisfy the requirements of the act than the person is not liable to pay tax in the country. So based on the assumption it can be conclude that Fred has not met the basic criteria of the act hence he is a non-resident and could not be chargeable for taxation purpose.
Policy of Dual Citizenship: Dual citizenship means a person can acquire the citizenship of more than one country at a time based on the rules and regulation of the nations. In the given case, Fred resides in UK and has the citizenship of the country. To carry on any business in Australia it is necessary for an individual to obtain the citizenship of Australia. Fred has certain investment in France and he receives certain amount of interest from that investment. According to Arthur (2016), the person who earns an income from more than one country, the amount which he earned is taxable under both the countries i.e. the country in which he resides and the country in which the income actually occurred. Based on this assumption Fred is liable to pay tax to the government of France and UK. Australian government will not get any tax on that income from Fred. In addition to it Fred has not decided his staying period in Australia before his arrival, moreover, he left the country within a period of eleven months. Therefore, he cannot be termed as a citizen of Australia (Australian Citizenship HQ 2016). Hence, he is not liable to pay tax in Australia.
Ordinary income includes income from all sources except income from capital gains. Income from wages, salaries, bonuses, and so on together forms part of an ordinary income. Short-term capital gain or sale from an asset which is held for a period of less than twelve months are included in ordinary income. It is of two types’ business income and personal income.
The court has an option to deal with the benefits related to deals and appraisal, which were charged on an individual. In the given case Californian Copper Syndicate (Anon, 2016), the income earned by an individual is to be charged as assessable income instead of income, which can be imposed on a person. In other words, the income which is obtained from carrying on any business instead of any acknowledgment or from any deals of securities than the income might be assessed to charge. Therefore, to discover the income it is important to consider whether the addition to investment is only for improving the quality of business or is it for an operation to achieve the future profit of business. So the motive of an individual should be considered before taking any decision or making any deals.
The company was associated with the coal mining business. The company was framed with a motive to secure resources of coal in the New South Wales region of the country. After sometime, the company stops this business and sold all the land. The company made a huge profit on this sale (Anon, 2016). The court held that income earned in this manner is not assessable as Income from Business because the nature of the business was coal mining. The company was not associated with the business of sale or purchase of land. Hence, not chargeable as an assessable income.
An individual bought an area for its shareholder to give them the accessability of beachfront. The court in this case verdicts that the income which was earned by the taxpayer would be assessable to Business Income because the materialness of expense which incurred by selling a land was to make profit only. Therefore, it is chargeable under the Business Income of an assessee. According to sec. 25(1) and 26(a) of the Income Tax Act, 1936 assessable income includes:
Profit made at a bargain.
Income made from the deal of the asset.
Profit earned from production.
Profit made from undertaking of an asset.
In the given case, the taxpayer has directed the matter as an area of improvement instead of accompanying it for the said wages. Therefore, it is not liable for tax.
The person acquired some area for cultivating and driving a rustic life. After the demise of the citizen, the trustees sub-divided the area. The area was sold with the help of land specialists. The court directed that the owners of the property were not associated with the profit making business. According to sec.25 (1), the deal does not form part of salary.
The taxpayer sold a land, which he acquired from his father in the year 1955. The property was sold due to the illness of the taxpayer. It was directed by the court that the deal was not assessable for tax because it was found that the taxpayer has no intention of profit making, moreover, there was no plan to make benefit from the sale. The case is similar to the case of Statham Case. The deal should be termed as an acknowledgement instead of business exchange. The court held that the taxpayer had an inactive role while making any benefits from the said exchange. The transaction reflects the plan of a taxpayer just to understand the area only (Law.ato.gov.au, 2016)
The Company bought an area, which is beachfront facing with the motive to offer sand mined from the said area. The court directed that the company has obtained and acknowledge business benefits from the area, whereas, the Memorandum of the Company expressed that the object of the Company was to buy land packages so that they can offer working from the sand business. It was held by the court that a specific area, which has been obtained for more than one intention, and then the resultant increases marked down of such land would be assessable to impose under Section 25(1) of the Income Tax Assessment Act, 1936. As the aim of the said activity was to make benefit and the said game plan was a benefit making plan.
The taxpayer acquired some pieces of land of an area with the intention of cultivating, brushing and developing products over it. The citizen sub-divided the land and sold the same over a time to meet the financial obligations that a person acquired while purchasing the said area. It was held by the court that the transaction carried on by the taxpayer related to the advancement of area increases acknowledged at a bargain on the above-mentioned grounds were assessable to impose. It was held that the aim to convey own business or make benefit would not have been available; the Taxpayer would be taxed because it would be ventured to make planned benefit from it. According to Section 26(a), definitive subjective motivation behind the citizen ought to be considered furthermore genuine arranging which is done throughout the said exchanges. In spite of the fact that the reason for securing a benefit was not the taxpayer’s basic role, it will be regarded as a plan to add up to a benefit making an undertaking or venture.
The taxpayer acquired a land and constructed townhouses on it and later on sold the townhouses for a benefit. It was decided that the asset was obtained with the goal of making a profit on the same. The income earned by the person will be treated as an expense under Section 25(1) of the Income charge Assessment Act, 1936. Furthermore, it was held that there was no business venture or undertaking required in the said course of action. However, the Honorable Judge decided that it doesn’t make a difference if the endeavor or business wander does not exist, the negligible goal of the evaluation of business is to benefit from the offer of an area would suffice the use of tax collection on the said game plan. Therefore, it was held that if a property is obtained by a person with a motive to make a benefit in the most beneficial way that may introduce itself and the citizen embraces one of the numerous alternatives, consequently making a benefit, he will appropriately be said to do a business/profitâ€Âmaking plan.
Conclusion:
From the above discussion, of residential status of an individual it has been found that Fred has failed the citizenship test of Australia. Therefore, he is to be treated as a non-resident for the country. Hence, he is not liable for the tax in Australia according to the taxation law of the country.
Furthermore, after analyzing various cases based on the assessability of ordinary income it was found that all the cases involve the sale of land but the nature of business was different in each case. Therefore, the court gave different verdicts based on the nature of the transaction. Hence, after a brief summary of the relevant cases a person will understand the concept more elaborately.
References:
Allan, T., 1950. Truth that Sings. By William C. MacDonald. James Clarke & Co. Ltd. 6s. Scottish Journal of Theology, 3(04), pp.439-442.
Anon, (2016). [online] Available at: https://”THERMAL SYNDICATE, LTD.” (1949) 21 Analytical Chemistry [Accessed 7 Sep. 2016].
Arthur, G., 2016. Tax files: Taxation duties of executors. Bulletin (Law Society of South Australia), 38(2), pp.28-29.
Australian Citizenship HQ. (2016). Australian Citizenship Eligibility – Australian Citizenship HQ. Available from: https://www.australiancitizenshiphq.com.au/australian-citizenship/citizenship-eligibility/ [Accessed on 1 Sep. 2016].
Brown, R.H., 2000. Redeeming the Republic: Federalists, Taxation, and the Origins of the Constitution. JHU Press.
Hettich, W. and Winer, S.L., 2005. Regulation and Taxation: Analyzing Policy Interdependence. Available at SSRN 525802.
Hettich, W. and Winer, S.L., 2005. Regulation and Taxation: Analyzing Policy Interdependence. Available at SSRN 525802.
Hunt, J., 2015. South East Queensland (SEQ) Sport Development meetings.
John Caughlan, Statham (Gale Ecco, U S Supreme C, 2011).
Law.ato.gov.au. (2016). Home – ATO Legal Database. [online] Available at: https://Law.ato.gov.au [Accessed 7 Sep. 2016].
Martin, F., 1991. Audit Power of the Commissioner of Taxation: Sections 263 and 264 of the Income Tax Assessment Act 1936, The. Queensland U. Tech. LJ, 7, p.67.
Obst, W. and Hanegbi, R., 2016. Small-Scale Property Development: GST Implications. Adelaide Law Review, Forthcoming.
Pulfrich, A. and Branch, G.M., 2014. Using diamond-mined sediment discharges to test the paradigms of sandy-beach ecology. Estuarine, Coastal and Shelf Science, 150, pp.165-178.
Saad, N., 2014. Tax knowledge, tax complexity and tax compliance: Taxpayers’ view. Procedia-Social and Behavioral Sciences, 109, pp.1069-1075.
Schenk, A., Thuronyi, V. and Cui, W., 2015. Value Added Tax. Cambridge University Press.
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