An individual living in Australia either on temporary basis or permanently will be considered as foreign inhabitant depending upon their residential status. Furthermore, an Australian resident are customarily taxed based on the source of income generated in Australia. The following case study is concerned with the determination of residential status of Kit along with the determination of his remuneration generated from his employment for the purpose of taxation (Barkoczy 2016). The existing case study lays down evidently that Kit lives in Australia on permanent basis even though he was born in Chile.
Kit maintains the citizenship of Chile despite being an Australian resident permanently. It is should be noted that a person living in Australia are taxed for their income generated from all sources such remuneration received for working in Australia. In order to determine the circumstances of tax for Kit it is necessary to determine the residential status of Kit under the “Resides Test” (Barkoczy et al. 2016). The primary test for working out the residential status of Kit is Domicile Test;
As defined under the “Domicile Act 1982” the concept of domicile consist of determining the residential status of a person. As per the common law, an individual acquires the place of birth as their own place of domicile according to their origin. However, the rule has certain exceptions as well (Chang 2016). An individual shall be able to acquire their place of birth as their place of origin unless the person decides to acquire the place of abode in accordance with their own choice in any other country or state.
As held in the case of “Henderson v. Henderson [1965] 1 All E.R.179” the original objective of a person must be in order so that it can acquire the place of abode based on their own choice in a country where an individual proposes to establish their home indeterminately (Jones, Passant and McLaren 2016). The current case study of Kit states that he has bought a house in Australia three years ago to live with his wife and children. This satisfies the criteria of acquiring domicile of Kit’s own choice in Australia with the objective of establishing his home indeterminately. “Section 6 (1) of the taxation rulings 2650” represents that while determining the domicile of an individual it is vital to consider the objective of an individual where they decides to establish their home on permanent basis (Morgan, Mortimer and Pinto 2016). In the present case study, Kit is employed with an Australian firm and works in the coast of Indonesia. Kit on regular basis returns to visit his family during holidays. Kit will retain the domicile of Australia since he returns on regular basis in spite of living out of Australia. Considering the “section 6 (1) of the ITAA 1936” certain assumptions are made;
As per the 183 days test an individual residing australia for more than 183 days during an income year will be considered as the Australian resident. From the current case study of Kit, it is observed that Kit was employed in Indonesian oil rig and often returned once in three months to meets his family. Kit term of stay merely stood 120 days but he cannot be ruled out as an Australian resident. Referring to “F .C. of T. v. Applegate (79 ATC 4307; (1979) 9 ATR 899” Kit despite being not present in Australia it cannot be ruled out that his permanent place of abode was in Australia (Robin, Barkoczy and Woellner 2016). The objective of Kit living in Australia complies with the 183 days test and will be regarded as an Australian resident under the 183 days test.
The liability to impose tax on a person originates with the question of determination of residency test of the taxpayer together with the facts, which is applicable in the income year taken into the considerations (King 2016). In the present case study, the income earned by Kit from his employment amounts to Australian sourced income since he is employed with an Australian firm and shall be considered for assessment. Kit also has investment in shares portfolio that is subjected to double taxation. Kit being an Australian resident is required to declare the foreign income at the time of lodging tax return. Referring to the case of “Applegate per Franki J 79 ATC” the liability to tax for Kit originates based on his Australian residency. However, can avoid the circumstances of double taxation by claiming exemptions because Australia has signed treaties with numerous nations (Becker, Reimer and Rust 2015). Kit is required to declare income from shares at the time of filing tax return since his remuneration and income from shares attracts taxation.
I. Californian Copper Syndicate Ltd v Harris (Surveyor of Taxes) (1904) 5 TC 159
The rulings under the following case study lays down the guidance in assessing whether the revenue derived from Isolated transactions shall be held as income and consequently taxable under “subsection 25 (1)” of the “Income Tax Assessment Act 1936”. The court under this case ruled that the taxpayer will be treated for taxation for the sum of revenue generated from the sale of land and the same shall be considered as income (Chang 2016). The original intention of the taxpayer was to derive profit from the sale of land.
The taxpayer under this case bought forward the argument by stating he had merely realised the capital in an advantageous manner and did not carried the activities of business. The taxpayer further stated that extensive work conducted on land was aimed at fetching the best possible price and his profits were not assessable (Evans, Minas and Lim 2015.). The court ruled in decision that realisation of assets was enterprising on the capital account of the taxpayer. The decision of the court stated that the commercial exercise would be treated as mere realisation of capital asset.
The following case is associated with the issue of business incomes to determine whether the subdivision and sale of land constituted capital in nature. The taxpayer argued that his activities did not resulted in realization of capital and his profits should not be considered for assessment (Jones 2016). The commissioner determined that the profits of the taxpayer shall be assessable under “section 25 (1) or under 26 (a)” in the form of profit derived from business undertakings (Kaldor 2014). The court in decision declared that the activities of taxpayer constituted conducting the business of land development. The outcome of this case stated that profits must be held assessable as income in conformity with the general accounting principles.
The taxpayer under this case were trustees of the deceased estate who died in 1980 and had acquired a large farm in 1970 to raise his family by engaging in desultory farming (Russell 2016). The taxpayer asserted that land was not used for business and the deceased had not entered into the profit-making scheme. The court in its decision stated that the manner in which the subdivision of land occurred reflected that the taxpayers were not indulged in business or revenue deriving scheme. The outcome of court stated that the degree of realization did not cover any kind of business undertakings.
The current case is concerned with the sale of parts of land taxable under “section 25 (1) or 25 (a)”. The taxpayer had originally acquired 988 acre of land to perform the activities of farming and fencing based on action view (Woellner et al. 2016). The federal court in its decision stated that the subdivision and sale of land will not be taxable under “Section 25 (1) or 25A”. The decision stated that action view has be obtained with the purpose that no profit shall be taxable in agreement with the first limb of section 25A (1).
The following case study considers whether “Section 25 (1) or 26 (a)” is applicable to determine the taxpayer income from the value received by the taxpayer after deducting the cost to derive profit from the sale of land (Xynas et al. 2014). As per Sheppard, Wilcox and Lee JJ of federal court it was held that both section 25 (1) and 26 (a) is applicable to consider the income of the taxpayer for assessment. The court referring to “FC of T v The Emporium Ltd 87 ATC 4363” passed its decision by stating that the profit will be considered taxable in terms of their ordinary income defined “under section 25 (1)”.
The following case study is concerned with the sale of subdivided land acquired for farming and profits generated shall be considered assessable for realisation of capital asset. The federal court in its verdict stated that the land will be considered taxable under “ITAA 1936” for the revenue generated from performing business activities of land development. As evident that the court had acknowledged during the initial stages that the land was used for farming however the burden of growing debt forced the taxpayer to sell the land (Yinger, Bloom and Boersch-Supan 2016). The court decision stated that the transaction was repetitive in nature and possessed the character of continuous business of land development.
The following case is based on the assessment of profit under “Section 25 (1) of ITAA 1936” for the revenue generated from the sale of land (Thampapillai 2016). The taxpayers in this case were brothers and used the funds together with the bank loan for constructing townhouse. The court passed its decision by stating the income of the taxpayer was assessable under “section 25 (1)” as profit making scheme from commercial undertakings. The decision of the court defined that the venture constituted trading in nature. The taxpayer had entered into the business activities of commercial in nature and indulged in the activities of land development.
References
Auerbach, A.J. and Hassett, K., 2015. Capital taxation in the twenty-first century. The American Economic Review, 105(5), pp.38-42.
Awasthi, A., 2017. Transformation of Tax Laws: A Global Perspective. Intertax, 45(2), pp.175-181.
Barkoczy, S., 2016. Foundations of Taxation Law 2016. OUP Catalogue.
Barkoczy, S., Nethercott, L., Devos, K. and Richardson, G., 2016. Foundations Student Tax Pack 3 2016. Oxford University Press Australia & New Zealand.
Becker, J., Reimer, E. and Rust, A., 2015. Klaus Vogel on Double Taxation Conventions. Kluwer Law International.
Chang, J., 2016. Foreign resident CGT withholding. Taxation in Australia, 50(11), p.664.
Evans, C., Minas, J. and Lim, Y., 2015. Taxing personal capital gains in Australia: an alternative way forward.
Jones, D., 2016. Capital gains tax: The rise of market value?. Taxation in Australia, 51(2), p.67.
Jones, D., Passant, J. and McLaren, J., 2016. Doubts about the Central Management and Control Residency Test for Companies. J. Austl. Tax’n, 18, p.121.
Kaldor, N., 2014. Expenditure tax. Routledge.
King, A., 2016. Mid market focus: The new attribution tax regime for MITs: Part 2. Taxation in Australia, 51(1), p.12.
Morgan, A., Mortimer, C. and Pinto, D., 2016. A practical introduction to Australian taxation law 2016.
Robin & Barkoczy Woellner (Stephen & Murphy, Shirley Et Al), 2016. Australian Taxation Law 2016. Oxford University Press.
Russell, T., 2016. Trust beneficiaries and exemptions from CGT: reflections on the Oswal litigation. Taxation in Australia, 51(6), p.296.
Thampapillai, D.J., 2016. Foreign Employment Income and Double Tax Avoidance Agreement: Australia’s Possible Governance Failure. Browser Download This Paper.
Woellner, R., Barkoczy, S., Murphy, S., Evans, C. and Pinto, D., 2016. Australian taxation law. CCH Australia.
Xynas, L., Blissenden, M., Villios, S. and Kenny, P., 2014. Allowable deductions, cost base of CGT assets and the GAAR: a minefiled for taxpayers and their advisers. Australian Tax Law Bulletin, 1(5), p.94.
Yinger, J., Bloom, H.S. and Boersch-Supan, A., 2016. Property taxes and house values: The theory and estimation of intrajurisdictional property tax capitalization. Elsevier.
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