Determining Tax Residency And Liability For Individuals And Companies In Australia

Case Study: Marty Goodson and Planks Pty Ltd

a. The current case study is based on determining the occupancy status of Marty and Planks Pty. As stated under the Australia taxation Resides Test is taken into the consideration in determining the residential status of a person (Sharkey, 2015). A person living in Australia in the form of Australian resident and satisfactorily meets the domicile test or 183 days test the person will be said as an Australian resident. As defined under the current case study it is found that Marty is an Australian resident but has moved to USA to develop a new platform of Web designs for several organisations throughout the world. To work out the residential status of Marty residential test is conducted below;

The term resident and resident of Australia is defined under the “subsection 6 (1) of the Income tax assessment act 1936” a person other than a company residing in Australia having a domicile in Australia, unless the commissioner is satisfied that the person has the permanent place of abode is outside Australia (Trakman, 2015). As held under taxation rulings of IT 2650 an individual on temporary basis working outside Australia and leaves Australia cease to be the resident of Australia for the purpose of income during their stay in overseas. Below stated are the rulings domicile which are as follows;

1. The actual intention and length of stay outside Australia
2. Expressing any such intention of returning in Australia at some point of time
3. The establishment of home is outside of Australia
4. The duration and continuity of existence out of Australia

As it is noticed from the following case study, Marty is regarded as an Australian occupant and upholds his Australian residency even though being involved in the development of web designs in Australia (Sharkey, 2016). The domicile test illustrates the intention and the definite span of stay outside Australia. In addition to this, under the domicile test it was noticed that Marty on his return to Australia undertook the decision of marrying his girlfriend and decided to settle in Australia with his wife permanently. The duration along with the continuity of Marty stay outside Australia comprised of two years ranging from 2012/13 and 2014/15. Furthermore, he returned to Australia so that he could live permanently following his resignation from the post of directorship in Planks Pty Ltd. Therefore, under the domicile test Marty will be considered as the Australian resident for the purpose of taxation.

As defined either under the 183 days test if a person is present in Australia for no less than half of the income year continuously or in breaks will be considered as the Australian resident (Thampapillai, 2016). In addition to this, the 183 days further establishes that until and unless it is established that a person’s permanent place of domicile is outside Australia with the intention of not having taking up the residence in Australia. The assumptions of determining the residence test are as follows;

1. From the existing case study it is understood that Marty from the financial period of 2012/2013 he did not lived in Australia and cannot be considered as an Australian occupant for that period (Thampapillai, 2014).
2. As evident in the financial period of 2013/14 Marty had returned to Australia at the time of Christmas and had spent only four weeks with his family. Therefore, Marty’s period of stay was brief and would not be regarded as the Australian resident from the period of 2013/14.
3. In the year 2014/15 Marty had came back to Australia with the purpose of spending time with his girlfriend and his period of stay in Australia ranged from 1^stSeptember to 1^st April which lasted more than six months or 183 days of the year. Therefore, Marty will be considered as the Australian resident for his stay in Australia from the period of 2014/15 and his employment income derived from the employment will held for assessment (Van, 2013).
4. As evident in the year, 2015/16 Marty had returned to Australia permanently to marry his love in order to commence his family. Marty had successfully met the condition of 183 days for the year 2015/16 and he will be taken into the consideration as an resident of Australia for that period.   

As evident from the above stated 183 days test it is found that Marty will be held as the Australian resident since he had resided in Australia in the year 2014/15 for approximately seven months. At the same time, Marty had returned to Australia to Marry the love of his life so that he could live permanently. As stated under the 183 days test a person will be considered as the Australian resident if it is established that the permanent place of domicile is outside Australia and the person does not intends to take up the Australian residency. Therefore, from the following case study it is found that Marty after his return to Australia has laid down the intention of living in Australia permanently by taking up the Australian residency.

Taxable Period	Domicile Test	183 Day Test	Residential Status
2012-13	Marty did not had any permanent place of domicile in Australia	Resided out of Australia	Will be regarded as Non-Resident
2013/14	Did not had a permanent place of domicile in Australia	Came to Australia for the time frame of 4 weeks	Will be regarded as Non-Resident
1st September 2014 to 1st April 2015	Having an impermanent place of domicile out of Australia	A resident of Australia because he had lived in Australia for more than six months or 183 days	Will be regarded as Resident
2015/2016	Expressed his intention of living in Australia permanently	A permanent occupant of Australia	Will be regarded as Resident

Tax Residency of Marty Goodson

b. For companies, corporate limited partnerships and trust to be considered as the Australian resident they must meet the different criteria defined under the Australian taxation (Pomerleau, 2014). As understood from the following case study it is noticed that Planks Pty Ltd is a tech business that is located in the Silicon Valley has been incorporated in USA. To determine the status of residency of Planks Pty Ltd it is found that during the year 2012/13 Marty was appointed as the sole director of the company and controlled the management decision of the company. Furthermore, in accordance with the residency test conducted on Marty during the year 2012/13 Planks Pty Ltd cannot be considered as the Australian resident company since he had never visited Australia for that period (Dixon & Nassios, 2016). In the subsequent year 203/14 Marty had returned to Australia for a period of four weeks and as per the residential test conducted on Marty his period of stay was considered to be short and the managerial decisions undertaken by Marty was from outside of Australia.

From the period of 2014/15 Marty had arrived in Australia from 1^st September to 1^st April Marty had took all the managerial decision in Australia. Ranging from the period of 1^st September to 1^st April, Planks Pty Ltd would be regarded as the Australian resident company for the purpose of tax. As defined under the taxation rulings of 2004/15W in order to determine the residential status of the company which is not incorporated in Australia however carrying on the business in Australia or having the central management of control in Australia will be regarded as the Australian company with Australian residency (Mangioni, 2015). Despite the fact that Planks Pty Ltd was not formed or incorporated in Australia but upon the appointment of Marty as the sole director of the company from the period of 1^st September to 1^st April it will be regarded as the Australian company. This is because of the fact that its central management and control was performed from Australia. In addition to this, Planks Pty Ltd had five shareholders and out that, one of the shareholders lived in Australia that had voting power as well. Hence, Planks Pty Ltd from the period of 1^st September to 1^st April will regarded as the Australian resident company (Jacob, 2016).

c. 

Computation of Taxation for the year 2012/13
In the Books of Marty
Particulars	Amount ($)
Employment Income	100000
Tax on Taxable Income	33400
Medicare Levy	0
Total Income tax Payable	33400

Computation of Taxation for the year 2013/14
In the Books of Marty
Particulars	Amount ($)
Employment Income	20000
Tax on Taxable Income	72000
Medicare Levy	0
Total Income tax Payable	72000

Computation of Taxation for the year 2014/15
In the Books of Marty
Particulars	Amount ($)
Employment Income	400000
Tax on Taxable Income	153921
Medicare Levy	8000
Total Income tax Payable	161921

Computation of Taxation for the year 2015/16
In the Books of Marty
Particulars	Amount ($)
Employment Income	100000
Tax on Taxable Income	24947
Medicare Levy	2000
Total Income tax Payable	26947

d.

Computation of Taxation for the year 2013/14
In the Books of Marty
Particulars	Amount
Base Income	1000000
Tax on Income  (30%)	300000
Medicare Levy	0
Total tax Payable	300000

Computation of Taxation for the year 2014/15
In the Books of Marty
Particulars	Amount
Base Income	2500000
Tax on Income (30%)	750000
Medicare Levy	0
Total tax Payable	750000

Computation of CGT of Rommy for the year 2015
Particulars	Amount ($)	Amount ($)
Sales Price of the property	1500000
Less: Cost of sales	0
Adjusted selling price		1500000
Purchase Price	500000
Add: Cost of purchase and Ownership	0
Adjusted purchase price of asset		500000
Capital gains / (loss)		1000000
CGT under old Regime
Indexed capital gains / (loss)		1000000
Tax payable under old regime (marginal tax rate * Indexation factor * capital gains)		472865

On carrying on the business, activities income derived from such kind of business activities will be considered for assessment. A person having an investment property, buildings or renovating the property and using it for running the business will be taken into the considerations as the implication of income tax or capital gains (Grudnoff, 2015). From the existing situation, it is found that Rommy carries out the business of selling wine from the farming of grapes as the weekend hobby. Rommy had even sold out 20 boxes in the local market and sold another 20 boxes outside his property with the help of honesty box. It is worth mentioning that it is necessary for him understand the difference amid the hobby and business for the purpose of taxation.

Tax Residency of Planks Pty Ltd

As evident from the following case study that Rommy has been constantly engaged in the activities of farming of grapes at weekend regularly. The activities of Rommy does not forms the part of usual business activities however one cannot ignore that selling of wine from the farming activities of grapes will be held liable for tax. Generally, at the time of the calculating the assessable income a person is under the obligation is required to report the gross sum of earnings or proceeds derived from the ordinary course of business together with the profit (Dhaliwa et al., 2014). Therefore, the sum of earnings that is generated from the activities of farming of grapes and generation of wine will be considered in the assessable income of Rommy.

Capital gains or capital loss that is generated from the sale of assets consists of the difference between the purchase considerations and selling value upon its disposal (Dixon & Nassios, 2016). An individual paying tax derived from the capital gains forms the part of the income and it cannot be regarded as the separate tax despite the fact that it is regarded as the capital gains tax. From the following case study it is evident that Rommy had purchased land during the year 2000 at a price of $500,000. The land was subsequently sold for 1,500,000, which resulted in capital gains tax from such sales. As stated by the Australian taxation office a capital asset that is acquired after 20 September 1985 will be subjected to capital gains tax unless it is specifically barred (Woellner et al., 2013). As evident from the following case study, it is noticed that Rommy had bought the land during the year 2000 and capital gains generated from sale of property comprised of capital gains tax.

The profit that is generated from sale of Sub-divided land can be considered in the form of capital gains or ordinary income depending upon the prevailing situation. According to the Australian taxation if a person subdivides the block of land as the land on which an individual lives and sells the newly created block of land then the profit generated from such selling of land will be regarded as capital in nature that is subjected to capital gains tax (Barkoczy, 2016). As depicted from the following case study, it is regarded that the sale of subdivided block of land and profit generated from the land by Rommy will be considered as the ordinary income and will be taken into the considerations for assessment. As noticed from the case study the objective of Rommy at the time of entering into the transaction was to generate the profit and income from selling of subdivided land, which will constitute in the form of capital and will be held for assessment (Taylor & Richardson, 2013).

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