Determining The Tax Liability Of An Australian Resident With Foreign Income

Residential Status of an Australian Resident for Tax Purposes

The present learning is based on the determination of the occupancy status of Kit. The study is effectively based on ascertaining the income that is generated from the service of Kit and the remuneration received from his employment for determining the taxable income (Barkoczy 2016). As noted in the case study, Kit is regarded as the permanent Australian resident despite the fact that his original place of birth was in Chile. According to the “IT rulings 2650 underITAA 1997”, a person living in Australia will be held for assessment for the income generated from international sources.

According to the Australian taxation office, any person residing in Australia together with foreign occupant will be generally held for taxation based on their source of income generated by them. For example, a person employed in Australia shall be held assessable for taxation purpose depending upon their income derived in Australia. Kit liabilities for tax can be determined based on his residential status (Taylor and Richardson 2013). As per the case study Kit in spite of being a permanent Australian resident, he will not be considered as an Australian citizen because Kit maintains his Chilean citizenship. To ascertain the tax liability it is obligatory to ascertain residential status of Kit with the help of residential test.

According to the Domicile Act 1982 domicile test is regarded as the acceptable concept of determining an individual’s residential status. The common law rule defines that an individual attains the place of birth as their original domicile (Graetz and Warren 2016). Yet the rule lays down certain exceptions. A person can retain their place of birth as their own domicile unless he or she decides to acquire a domicile of their own choice as their alternative home.

Referring to the study held in the case of “Henderson v. Henderson [1965] 1 All E.R.179” an individual intentions should be of acquiring their place of home based on their own choice in other nation where that person has decided to live indeterminately. As evident, Kit purchased a house in Australia in order to live with his wife and children. This states the intention of Kit in acquiring the permanent place of home based on his decision of living in Australia. A person with Australian residency but residing outside of Australia can maintain his place of abode because of evidently foreseen circumstances (Cao et al. 2015). As stated under “section 6 (1) of the taxation rulings 2650” at the time of determining the permanent place of home it is necessary to consider the actual objective of the person concerning their decision to reside indefinitely. Following assumptions has been made in accordance with “section 6 (1) of the ITAA 1936”,          

1. Kit permanently lives in Australia and is in conformity with the facts that he is a permanent resident of Australia
2. Before being transferred for an overseas employment in Indonesian oilrig, Kit lived in Australia for more than half of the income year. Kit is regarded as the permanent Australian resident since he meets the criterion defined under domicile test.

Domicile Test as a Basis of Determining Residential Status

The 183 days test defines that an individual living in Australia no less than half income year with continuously or with breaks will be considered as an Australian resident (Petty et al. 2015). As evident in the study that Kit was transferred to Indonesia and returns in every three month to visit his family. This merely aggregates 120 days of his presence in or outside Australia. However, it cannot be ignored that Kit is a permanent Australian occupant and will be regarded as Australian resident because he purchase a home in Australia to dwell with his family. Referring to the evidence stated under “F .C. of T. v. Applegate (79 ATC 4307; (1979) 9 ATR 899” despite being transferred to Indonesian oilrig Kit cannot be overruled of the fact that his permanent place of abode is in Australia. The study has successfully stated that Kit decision of taking up Australian residency satisfactorily meets the requirement of 183 days test (Woellner et al. 2013).

The residency of the taxpayer forms the basis of determining the tax liability in compliance with the evidence that is applied in the income year. Upon assessment if found that the tax payer act in accordance with ordinary theory of residence test then that individual will be regarded for tax liability for his residency in Australia (Jones 2015). As evident from the case study, Kit receives pay from his employment in Indonesian oilrig, which is an Australian based company, and his pay is liable to be taxed. Besides this, Kit also derives income from the investment made in the shares portfolio, which will also be held for tax.

Referring to the case of “Applegate per Franki J 79 ATC” Kit is required to disclose all his income for being an Australian inhabitant during the time of lodging the income tax returns together with the overseas income. The income, which is earned during the year, will be considered for assessment because Kit has met the criteria of residential test and he is considered as an Australian resident (Misey 2013). Kit can keep away from the incidence of double taxation by claiming exemption for his investment in share because Australia has signed a treaty with more than forty other nations so that it can provide relief to the taxpayers of double taxation.

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

The existing case is connected with issues relating to the realisation of the capital asset to assess the profits from selling the land, which was used for exploitation of minerals. The outcome of this case defined that the income yielded from the disposal of land will be held for assessment since the taxpayer had derived the profit from the sale of land, which was capital in nature and constituted ordinary income (Kaldor 2014). The court’s decision held that selling of land was trading in nature and could not be considered as a simple substitution of one investment from another.

183 Days Test and Kit’s Residential Status

This case addresses the issues that is linked with income generated from the subdivision of land and selling of land, which constituted assessable under the ordinary concept. The taxpayer in its argument stated that the realization of land was not assessable in nature (Becker, Reimer and Rust 2015). The court’s outcome laid down that the realisation of capital by the taxpayer was capital in nature. The court further declared in its outcome that commercial activity of selling land would be regarded as the realisation of capital asset.

The case is related with the subject which is related to income produced from business to determine whether the sale of subdivided constituted capital asset. Referring to section 25 (1) the taxpayer was assessed for the activities of the taxpayer for carrying the business of land development (Yinger, Bloom and Boersch 2016). According to by Gibbs CJ, Mason, Murphy and Wilson JJ the outcome of the case denoted that the earnings from the sale of land will be taxable as the income of the taxpayer in regard to the general accounting principle.

The following case study brings forward the query arising out of the net income that is generated from the sale of subdivided property whether they can be held for tax defined under section 25 (1) or 26 (a) in the form of income. Arguably, the taxpayer brought forward the issue by stating that it had by no means entered into profit making scheme because the land was never used for carrying on business (Auerbach, and Hassett 2015). The outcome of the case depicted that the way in which the land was subdivided constituted that the taxpayer had not engaged himself in deriving profit. As a result, the realization of land did not constituted any kind of commercial proceedings.

The present case is related with the sale of portion of land which is held for taxation purpose under section 25 (1) or 25 A. The decision passed by the federal court stated that the tax payer had got hold of action view which defined that no income will be held for assessment from the sale of land in accordance with the first limb of section 25 A (1) (Tanzi 2014). On the other hand, the second limb of the subsection hardly had any kind of inferences because the sale of land did not took place in the ordinary business course or any kind of profit making scheme.

The study is associated in the determination of profit that is generated by the taxpayer from the value received upon the sale of land. The court in its outcome has clearly defined that section 25 (1) and 26 (a) is implemented at the time of considering the income of the taxpayer from the receipt of amount consisting $370,000 from the sale of land. As it was laid down in the case of “FC of T v The Emporium Ltd 87 ATC 4363”, the court in its judgement had stated that the profit formed the part of ordinary income and it will be considered for assessment (Sackman et al. 2016).

The current case study lays down the issues at the time of determining the income that was considered as profit generated from the sale of property near Hobart. In reference to “Subsection 25 (1) or sec 26 (a) of the ITAA 1936” the court had laid down the outcome the taxpayer was under burden debt (Heider and Ljungqvist 2015). The rising burden of debt had compelled the taxpayer to sell the land but the profit, which was generated from the sale of land, will be taken into the considerations for tax assessment.    

The existing case is concerned with the issues relating to the sale of property, which is taxable under section 25 (1). The taxpayer were the brothers who were assessable made the use of bank loan so that it can build house on the land (Evers, Miller and Spengel 2015). The outcome of the case stated that the venture was created perform the business activities and derive the predictable profits. The judgement of the court laid down the verdict that the both the brothers had entered into the commercial activity by engaging themselves in the activities of land development.

Reference list:

Auerbach, A.J. and Hassett, K., 2015. Capital taxation in the twenty-first century. The American Economic Review, 105(5), pp.38-42.

Barkoczy, S., 2016. Foundations of Taxation Law 2016. OUP Catalogue.