Question:
Discuss about the Residential Property Market Performance.
In the present case, Jenny is recruited as an accountant in Hong Kong. She received an offer from her manager to give business consultancy regarding business entity to several past residents of Hong Kong now residing in Australia. On 25th April 2016, she took entry in Australian frontiers, her first priority was to reside there for 3 months, and in this specified time period she will reside in several motels. After 3 months, her manager said her to stay there for additional nine months. By considering this aspect, she took an administrative apartment on rent nearby she worked. In these nine months, her family visited two times. In this given case, the main concern arises in the light of taxation that if or if not Jenny is an Australian resident or not under the provisions provided by ITAA 1936 and 1997.
The ATO that is Australian Taxation Office has issued guidance via online and tools to assist an individual in identifying if or if not they are tax residents of Australia, inclusive of those situations when the individuals have arrived, or are leaving Australia.
Usually while determining if or if not an individual is a resident of Australia for the purpose of taxes, there is need to consider the individual’s situations and facts in view of statutory tests and general law (Braithwaite, 2017). For instance, an individual who makes the expenditure of more than half of the tax year they will be considered as an resident regarding computation of Australian tax.
In order to determine if or if not an individual is a resident of Australia for tax purposes (for instance, due to complex situations) must take a recommendation from their tax advisor or must contact to Australian Taxation Office.
An individual is considered as will be said to be an Australia resident for tax purposes if the person lives in Australia, in accordance with the subsection 6(1) of the Income Tax Assessment Act 1936 (Burkhauser, Hahn and Wilkins, 2015).
The common concept of residency takes into effect an individual’s total circumstances in the specified income year, inclusive of:
Under Taxation Ruling 98/17, Australian Commissioner of Taxation analysis states that usual meaning of resides lies within the meaning provided in subsection 6(1) of the Income Tax Assessment Act 1936 (Warren and et.al, 2017).
In case an individual’s does not meet the criteria of the common law tests, still, he/she would be considered as a tax resident of Australia if one or than three statutory tests are satisfied under subsection 6(1) of the Income Tax Assessment Act 1936.
It can also be achievable for the individual to satisfy the requirement of a specified category of a temporary resident of Australia (Kirsch, 2014). Temporary residents usually have a visa that enables them to enter in Australia for a limited time period (for instance, an international organization’s employee whose transfer is done in a brand of Australia for 3 years) and are subjected to explicit consequences related to income tax capital gain and superannuation.
Jenny prior working as an accountant in Hong Kong was transferred to Australia for the purpose of providing business consultancy to several past residents of Hong Kong now residing in Australia. On 25th April 2016, she arrived in Australia and resided there for twelve months and from time to time her family visited there twice. According to the provisions of law in order to be an Australian tax resident, an individual must meet these criteria:
By taking this given situation into account, during Financial Year 2015-16, Jenny did not meet the criteria of the provided statutory tests. She resided there for the tenure of 65 days (4 (April) + 31 (May) + 30 (June) in the specified financial year that will be less than half a year. Moreover, she neither met these three criteria that are no permanent resident in Australia, not enclosed under usual meaning of resident provided in subsection 6(1) of the ICAA 1936 and nor a member of the scheme of superannuation.
Thus, she is not considered as an Australian tax resident in the FY 2015-16, however in the financial year 2016-17. However, she resided in the Australian political boundaries for more than half of the FY, so he is eligible to have title of tax resident in 2016-17. Although; in case the tax commissioner of income gives the judgment that permanent residence of Jenny outside of Australia then she will be considered as a non-tax resident.
Common law criteria have not been satisfied by Jenny as the main circumstances are not met by her. As per statutory test in the Financial Year 2015-16, Jenny will not be considered as a tax resident of Australia, but she is said to be a tax resident in Financial Year 2016-17 as she has satisfied the statutory tests required to be tax resident, that is she resided in Australia for more than half financial year. However, if the Income Tax Commissioner believed that Jenny has a permanent resident outside of Australia than by his judgment he can keep Jenny out of Bracket of Tax Residency.
The case addressed a well-known personality who was paid a lump sum amount of $400,000 for joining the new television network. The addressed person accepted to work with the new network with a monthly remuneration of $100,000 along with the lump sum payment. It is to be determined that whether this two income will form a part of Assessable income as per the tax provisions provided by the Australian Standards.
The major problem which arises in the determination of assessable income as per ATP (Australian taxation provisions), is the classification of activities that can be categorized under assessable income. Thus the provisions that can be applied to this case are the provision of ordinary income [Section 6 (5)] of ITAA97. This also includes any other part of capital receipts given under the “right to Income”. Thus, as per the above-mentioned provisions, assesable income includes all the taxable income; the income under ordinary concept is also included in the same. Although the provision does not provide any description of income under the ordinary concept, however, it is considered to be the income which is earned by people that can be normally recognized as assessable income by the concept of common law’s income. In a famous case in this regard- FCT v Woit, it was found that a payment received by a person for signing a contract for not playing football for any other team other than in which the person was currently playing, was not considered as an assessable income.
However, as per Woite’s case, the payment will be considered under capital, if the purpose is to provide the right to earn income (Woellner and et.al. 2011). Ultimately, it seems that the payment was an incentive made to the taxpayer for entering into an agreement. Thus it makes the payment as an ordinary income provided for the purpose of rendering service in exchange of $400000. As per Section 6(5), it is the ordinary income since it is made to them for performing some service and by the agreement, no significant rights were being provided by the taxpayer. Moreover, according to section 15(2) [ITAA 1997], the taxpayer’s taxable income includes all gratitude, benefit, grants and compensation which is received by them in association with their employment or any services provided by them but it excludes ordinary income. The income which is not to be considered under the assessable income includes the following:
An incentive scheme was purposely initiated by Westpac for their employees for carrying out research and study regarding the operations they conducted in the organization. The research was to be paid by the company after finishing their respective course. Improvement of the qualified expertise staff was the main aim of the scheme (Tran-Nam, 2016). The verdict of the case in this act was that this income would be considered as assessable income under ITAA 1936, Section 26(e) and under the Section 15(2) (Faccio & Xu, 2015). The justification of the court in this regard was that this income was not a part of their “personal” gift and also not ordinary income; moreover, this scheme was designed by the company for improving performance and efficiency of the workers. Hence, this was to be considered as an income from their employment.
The salary of $100,000 paid to the taxpayer is clearly to be considered as their assessable income since it can easily be categorized as ordinary income; also there exists an obvious nexus between the receipts and services. However; the receipt of AUD400000 is not clarified; thus when compared to the case of –White and Jarrold v Boustead [1]and the Brent vs FCT[2], then it will be considered as ordinary income as the payment can be directly associated with provision of services.
As per section 15(2), it will be reliable to not consider the amount of $400,000, as ordinary income and there are an adequate amount of facts of the same. Thus, the payment of $400,000 received by the taxpayer will be considered as statutory income in accordance the above-mentioned section, because they comprise benefits given in regards to services. A recommendation is provided Under Smith v FCT (1987) 19 ATR 274 that the conduct of nexus test will make it easier to meet terms according to section 15(2), as against those mentioned in Section 6(5). The assumption that the payment is an incentive for employment agreement will disclose it as arising out of future services.
|
Income of the taxpayer |
Assessable Income |
Section to be considered |
Justification in this regard |
|
$100,000 received as Annual remuneration |
Yes |
ITAA 1997, 6-5(1) |
By the application of provisions which are cited above the annual salary of $100,000 is clearly to be considered assessable as it is simply the ordinary income. |
|
$400,000 for joining the new television network |
Yes |
Section 15(2) |
The earnings of $400,000 is statutory income as they comprise benefits given in exchange for services. |
Conclusion
According to Australia taxation provisions, both the income receipts of individual will be considered as assessable income.
References
Braithwaite, V. ed., (2017). Taxing democracy: Understanding tax avoidance and evasion. Routledge.
Burkhauser, R.V., Hahn, M.H. & Wilkins, R., (2015). Measuring top incomes using tax record data: A cautionary tale from Australia. The Journal of Economic Inequality, 13(2), pp.181-205.
Coleman, C. & et.al. (2017). Principles of Taxation law. Thomson Reuters.
Faccio, M. & Xu, J., (2015). Taxes and capital structure. Journal of Financial and Quantitative Analysis, 50(3), pp.277-300.
Higgins, D.M., (2017). Residential property market performance and extreme risk measures. Pacific Rim Property Research Journal, 23(1), pp.1-13.
Kirsch, M.S., (2014). Revisiting the Tax treatment of citizens abroad: reconciling principle and pracctice. Fla. Tax Rev., 16, p.117.
Shields, J. & North-Samardzic, A., (2015). 10 Employee benefits. Managing Employee Performance & Reward: Concepts, Practices, Strategies, p.218.
Tran-Nam, B., (2016). Tax Reform and Tax Simplification: Conceptual and Measurement Issues
Warren, C.M., Warren, C.M., Elliott, P., Elliott, P., Staines, J. & Staines, J., (2017). The impacts of historic districts on residential property land values in Australia. International Journal of Housing Markets and Analysis, 10(1), pp.66-80.
Woellner, R., Barkoczy, S., Murphy, S., Evans, C. & Pinto, D., (2011). Australian Taxation Law Select: legislation and commentary. CCH Australia.
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