Factors Impacting Residency Status For Australian Tax Purposes

Plagiarism Policy and Assignment Details

a) The primary functions of taxation in Australia are to administer over the taxes, superannuation and excise duty in order to affect the revenue system of Australia. Regulating the aggressive tax planning, persistent tax debtors, globalisation and the cash economy is considered as the primary function of taxation in Australia.

b) Equity in a good tax system means that everybody irrespective of personnel influence should pay a fair share of taxes as long as the individual is regarded as the residence of Australia. The equity can be divided into horizontal equity and vertical equity.

c) It is required to deduct the taxable deductions from the assessable income in order to get the taxable income in accordance with the section 4/15 of the Income Tax Assessment Act 1997.

d) The aim of a progressive tax system is to implement the corresponding effect of reducing the burden on low income, and to achieve the goal of income equality. Another goal of a progressive tax system is to provide educational attainment for the families with lower income in order to increase the opportunity for educational attainment for those families.

e) The value of allowances in the assessable income is included in the Section 15-2 of the Income Tax Assessment Act 1997.

f) In Taxation Ruling 2004-15, the residential status of the companies that are not incorporated in Australia is stated. The requirements of carrying on business in Australia and the duties and structure of the central and control management are also stated in this taxation ruling.

g) The deductions for the capital expenditure are stated in section 40 and section 25-5 of the Income Tax Assessment Act 1997,

h) The fixed taxation rate over the taxable income of $37,000 is $3572. After that, 32.5% will be deducted over the income of $37,000. Therefore, by using this rate, the tax rate for the taxpayer with an income of $80,000 will be $17,547 in 2017/18.

i) Section 11-55 lists the provisions that treat amounts as Non Assessable Non Exempt income as stated in the Income Tax Assessment Act 1997.

j) According to Tax Determination TD 2017/4, the rate which is applicable for 2500cc and above  motor vehicles is 63 percent.

It is stated in the section 6-5(3) of Income Tax Assessment Act 1997, how a foreign resident can be eligible and liable for paying the taxes to the Australian Government. In this case, Martelle has come to Australia from France in order to complete her assignment of creating colourful designs based on the vibrant colours of the Great Barrier Reef. She is expected to stay in the country for six and a half months. The salary of Martelle is paid to an Australian bank. Apart from the income that Martelle is getting from here, she has also rented a boat for her personnel use.

According to section 6-5, there are four methods of deciding the residential status of any individual living in Australia, which are, ordinary concepts, domicile test, 183-day test and superannuation test. The legislation that is most relevant for Martelle is the 183-day test. According to this legislation, if a person whose permanent residential status is outside of Australia, will be considered as the resident of Australia if the person is living in this country for more than 6 months  and there is some taxable earning that the person is getting from here. As the contract of Martelle has exceeded the time period of 6 months, she will surely be regarded as the resident of Australia for the whole year. The income of Martelle will be considered as taxable if she has managed to gain an assessable income of over $18,200. This assessable income will be considered as a total of the ordinary income and statutory income of Martelle. The income that is being generated from her properties and investments in France will not be included in the taxable income of Australian legislation as only the permanent residents of Australia needs to pay taxes even if they earn the income from outside of Australia. As Martelle has a permanent domicile of France, she is not liable to pay taxes for her properties in France. As of her properties in Australia, the boat and the residential place of Martelle will also not be included for taxation as these are not the sources of income for Martelle.

Overview of Assignment Questions

As far as the transaction gained by Ellen for the fiscal year 2017-18 is concerned, the deductibility of tax needs to be decided under the Income Tax Assessment Act 1997 provisions. In section, 15-17 of the act the assessable income of an individual is stated. In accordance with this legislation, the salary of Ellen will be regarded as taxable income and thus the annual salary of Ellen will be regarded as the taxable income as a whole of $10800. In the section 6-5 of ITAA 1997, the provision about the incomes according to the ordinary concept is discussed. According to this provision, the bank interest, prize winnings and termination contracts for Ellen will be included in this section. The total amount of income according to the ordinary concept for Ellen is $16925. Thus it can be said that the total amount of Assessable income for Ellen is $124925.

The payable tax is calculated by deducting the tax deductions from the assessable income in accordance the Income Tax Assessment Act 1997. It is stated in the previous paragraph that the assessable income of Ellen is $124925 for the fiscal year 2017-18. The tax deduction amount for Ellen is calculated as $of Ellen is $124925 for the fiscal year 2017-18. The tax deduction amount for Ellen is calculated as $500 as a cost of the health insurance of Ellen. Thus the taxable amount for Ellen is $ 124425. The static rate of taxation for earning over $18,200 is $3572. For earning over $37,000, additional rate of 32.5% will be included in the payable tax amount. The total additional rate of this is measured as $16249.68 as measured from the amount calculated for the taxation. For earning over $87,000, a tax will be deducted with a rate of 37% from the total taxable amount. Thus the amount calculated for Ellen is $13847.25 in this present year. So far as, the total tax which will be deducted from the total income of Ellen is $33668.93 as per stated in the legislations related to taxation of Australia.

Calculation of the Income for  Ellen
For the year ended 30 June 2018
Particulars	Section	Amount ($)	Amount ($)
Income From House Property
Income From Salaries
Salary	Sec 15-17 Of ITAA 97	108000
Total Income From Salaries			108000
Income From Capital gains
Income From business/ profession
Income From Other Sources
Bank Interest	Section 6-5 of ITAA 97	425
Prize Winnings	Section 6-5 of ITAA 98	6500
Termination Contracts	Section 6-5 of ITAA 99	10000
Total Income From Other Sources			16925
Total Assessable income			124925
Less: Deduction
Health Insurance		500	500
Net Taxable Income			124425
Tax Calculations
0 – $18,200 Nil			nil
$18,201 – $37,000 19c for each $1 over $18,200			3572
$37,001 – $87,000 $3,572 plus 32.5c for each $1 over $37,000			16249.675
$87,001 – $180,000 $19,822 plus 37c for each $1 over $87,000			13847.25
Total Tax Payable			33668.925

In this given segment, the transactions of Jennifer are described and the declination in value for the stated transactions is being asked to analyse. For this segment, section 40-85 of the Income Tax Assessment Act 1997 is needed to be considered. The provision is stated about the deduction in the assets’ cost. According to this provision, the meaning and requirements of adjustable value and opening adjustable value of a depreciating asset is analysed. In the given case, the life span of the assets is pre-assumed. The depreciated amount of the assets is stated in the given case study. According to the provision, the cost of the hairdryer is $8000 with a life span of 7 months. A total sum of $ 1142 can be deductable as a depreciation cost from the total of the hair dryer is $1142.856. In case of the intangible assets, the cost of software is being calculated as $295. The lifespan estimated for the intangible assets is 3 months. As per the provision, the measured depreciation amount for reduction is calculated as $98.33333. In case of the depreciation on Audi Q5, as it is not related to the business of Jennifer, or as it does not generates any kind of income for her, the depreciation will not be charged upon the cost of the car. Thus the total amount which is calculated based on the cost of the depreciable assets is measured as $1241.19. The taxable income will be estimated after deducting these depreciation charges from the total income of Jennifer.

Allowable deductions
For Jennifer
Particulars	Section	Amount ($)	Amount ($)
Depreciation on hairdryer	section 40-85, section 40.25
Cost		8000
Life		7
Salvage		0
Allowable Depreciation			1142.8571
Depreciation on Software	section 40-85, section 40.25
Cost		295
Life		3
Salvage		0
Allowable Depreciation			98.333333
Depreciation on Audi Q5	section 40-85, section 40.25 ( not related to business)
Cost		85000
Life		6
Salvage		0
Allowable Depreciation			0
Total allowable Deductions			1241.1905

Factors Impacting Tax Residency in Australia

Julie, an enthusiastic photographer is willing to start her own business in Australia. As photography was her hobby, she does not know much about the provisions which are needed to be considered in order to start a new business in Australia. Certain criteria needed to be followed in order to start the business in accordance with the legislations of Australia. At first, the business structure and the trademark of the business need to be decided. It is required for Julie to registere for Australian Business Number, Pay as you go withholding, Tax File Number and Goods and Service tax. The proper preparation for tax is also required in order to carry on the business. The legislations which are required for starting a fair trade in Australia are Australian standards, Australian Consumer Law, Fair Trading Laws, Competition and Consumer Act, and codes of practice. For selling a certain service, following legislations are needed to be considered, such as pricing regulations, displaying prices, warranties and refunds, Australian trade measurement laws, , product labelling, and selling goods and services. The privacy act, contract act and anti bullying laws are also essential for the proper interpretation by Australian Taxation Office. There are legal obligations of marketing which is also needed to be considered before starting a business. Proper financial plans in accordance with the legislations of ATO are also required. Security and insurance of the business can also be helpful for Julie to start with.

In the given case, Chang runs a marketing business. Some of the transactions occurred in the current financial year has been given in order to evaluate the possible deductibility of the expenses over the taxability of the overall amount. Thus the amounts that are likely to be deductable is given below:

• According to section 175-30, an amount cannot be deducted unless it is not regarded as an income or capital gain which is incurred by someone else. Thus, the salary earned by Chang cannot be deducted and thus, the whole amount of the salary will be included in the measurement of taxable income.
• For the next transaction, Chang has paid a sum of $4000 to his son for doing some graphic designing for him. This particular case comes under the section 900-30 where the work expenses have been described. According to this legislation, a work expense is a loss or an outgoing from the income and it is deductable for taxation. Thus the total amount given by Chang to his son will be totally deducted from the payable tax.
• According to the section 175-30, an individual can gain a benefit of tax deduction if there is any kind of deduction, income or capital gain available to the company. But in the given case, the expenses cannot be considered as any of such criteria. Thus the local club expenses cannot be deducted from the taxable income.
• According to the section 34-20, if there is any expenditure made for purchasing the occupation specific clothing, the amount can be deductable from the taxable income. Thus, the amount spent for purchasing the cloths will be deducted from the taxable income of Chang.
• The expenses made by Chang for buying meal comes under section 900-30 of ITAA 1997 where it is stated that if any  work expenses is spent as a loss or outgoing from the income of an individual, the amount spent will be deducted from the taxable income. Thus amount $5500 will be deducted from the taxable income of Chang.
• According to the provisions stated in 725-315 and 725-325, the interest on loan will be deducted from the taxable income as it would be measured upon its adjustable value. Thus the amount of $3400 given for the interest on loan will be deducted from the taxable income.
• In accordance with the section 28-13 of IITA 1997, the car expenses can be regarded as deductable taxation income. The travelling cost made by Chang can be deductable from the taxable income and $3000 will be reduced.
• The telephone allowances can be considered under section 175-30 where it states, an individual can gain a benefit of tax deduction if there is any kind of deduction, income or capital gain available to the company.  According to this provision, the allowances spent can be regarded as a capital deduction from the business and thus it can be deducted from the taxable income.
• In the provision 900-95 states, the business travel expenses can be deducted from the taxable income. Thus the amount of $6000 which was spent for air fare and accommodation will be deducted from the taxable income.
• The tax return fees comes under the section 175-30 where it states that the expenditure cannot be deductable if it is not any kind of deduction, income or capital gain by the company. Thus the amount of $500 cannot be considered as a deductable income from the taxable income.

The total amount of deduction that is available for Chang is $25900 out of $327800.

Calculation of Business Income of Chang
For the Year ended 2018
Particulars	Section	Amount	Amount
Salary	section 175-30	300000	0
Salary to son	Section 900-30	4000	4000
Local Club Expense	section 175-30	900	0
Clothing	section 34-20(2)	2000	2000
Meal Expense	Section 900-30	5500	5500
Interest on Loan	section 725-240,725-315,725-325	3400	3400
Travelling cost	Section 28-13	3000	3000
Telephone Allowance	Section 175-30	2500	2000
Air fare and accommodation	Section 900-95	6000	6000
Tax Return Fee	section 175-30	500	0
Total Deduction Allowed			25900

Reference

Adam Cobb, J. “How firms shape income inequality: Stakeholder power, executive decision making, and the structuring of employment relationships.” Academy of Management Review 41, no. 2 (2016): 324-348.

Aktaev, NurkenErbolatovich, Kristina AlekseevnaBannova, A. S. Balandina, I. N. Dolgih, N. V. Pokrovskaia, U. A. Rumina, Anna BorisovnaZhdanova, and K. N. Akhmadeev. “Optimization criteria for entry into the consolidated group of taxpayers in order to create an effective tax mechanism and improve the social, economic development of regions in the Russian Federation.” Procedia-Social and Behavioral Sciences 166 (2015): 30-35.

Basu, Subhajit. Global perspectives on e-commerce taxation law. Routledge, 2016.

Blaylock, Bradley, Fabio Gaertner, and Terry Shevlin. “The association between book-tax conformity and earnings management.” Review of Accounting Studies 20, no. 1 (2015): 141-172.

Braithwaite, Valerie. Taxing democracy: Understanding tax avoidance and evasion. Routledge, 2017.

Davis, Angela K., David A. Guenther, Linda K. Krull, and Brian M. Williams. “Do socially responsible firms pay more taxes?.” The accounting review 91, no. 1 (2015): 47-68.

Dixon, J. M., and Jason Nassios. Modelling the impacts of a cut to company tax in Australia. Centre for Policy Studies, Victoria University, 2016.

Dowling, Grahame R. “The curious case of corporate tax avoidance: Is it socially irresponsible?.” Journal of Business Ethics 124, no. 1 (2014): 173-184.

Emery, Joel. “Decoding the regulatory enigma: how Australian regulators should respond to the tax challenges presented by bitcoin.” (2016).

Endres, Dieter, and ChristophSpengel, eds. International company taxation and tax planning. Alphen aanDen Rijn: Kluwer Law International, 2015.

Evans, Chris, John Minas, and Youngdeok Lim. “Taxing personal capital gains in Australia: an alternative way forward.” Austl. Tax F. 30 (2015): 735.

Fuentes-Nieva, Ricardo, and Nicholas Galasso. Working for the Few: Political capture and economic inequality. Oxfam, 2014.

Gillitzer, Christian, Henrik Jacobsen Kleven, and Joel Slemrod. “A Characteristics Approach to Optimal Taxation: Line Drawing and Tax?Driven Product Innovation.” The Scandinavian Journal of Economics 119, no. 2 (2017): 240-267.

Grubert, Harry, and Rosanne Altshuler. “Shifting the burden of taxation from the corporate to the personal level and getting the corporate tax rate down to 15 percent.” (2016).

Ji, Xu-Dong. Development of accounting and auditing systems in China. Routledge, 2017.

Mumford, Ann. Taxing culture: towards a theory of tax collection law. Routledge, 2017.

Parker, Hermione. Instead of the Dole: an enquiry into integration of the tax and benefit systems. Routledge, 2018.

Schenk, Alan, Victor Thuronyi, and Wei Cui. Value added tax. Cambridge University Press, 2015.

Schneider, Friedrich. “Size and development of the shadow economy of 31 European and 5 other OECD countries from 2003 to 2014: different developments?.” Journal of Self-Governance & Management Economics 3, no. 4 (2015).

Snape, John, and Jeremy De Souza. Environmental taxation law: policy, contexts and practice. Routledge, 2016.

Swan, Peter L. “Investment, the Corporate Tax Rate, and the Pricing of Franking Credits.” (2018).

Thayer, Carlyle A., and David G. Marr. Vietnam and the Rule of Law. Canberra, ACT: Dept. of Political and Social Change, Research School of Pacific and Asian Studies, The Australian National University., 2017.

Thayer, Carlyle A., and David G. Marr. Vietnam and the Rule of Law. Canberra, ACT: Dept. of Political and Social Change, Research School of Pacific and Asian Studies, The Australian National University., 2017.

Wilkins, Roger. “Measuring income inequality in Australia.” Australian Economic Review 48, no. 1 (2015): 93-102.