The main aim of the provided case study is to ascertain the residential status of Kit and payment of tax according to “IT ruling 2650 under ITAA 1997”. According to this law, the accumulated income of a citizen of Australia needs to be taxed (Wickramasuriya 2014). For this, the person needs to be present in the country for 183 days above. Having born in Chile, Kit has become a permanent citizen of Australia. Kit is an employee of one an Australian company; this reason leads him to work in the cross-border branches. It is the responsibility of the Australian tax authority to develop an effective and appropriate tax system, that does not double the amount of tax as well as maintaining an appropriate taxation policy.
As per the rules and regulations of the Government of Australia, all the citizens of Australia are subjected to be taxed as per the laws of the Australian taxation system. All the incomes that are generated in Australia are subject to tax in order to comply with the Australian legislation; in this process, the non-residents of Australia are exempted from taxation if they fail to qualify the requirement of minimum residence. As per the provided case study, Kit is the employee of an Australian business organizations and he stays in Australia with his children and wife. Hence, the provided case mainly ascertains the residential status of Kit in order to ascertain the tax liability. On the other hand, Kit needs to pay tax to Chile, as he is a citizen of Chile also; this leads to the process of double taxation. For this purpose, the tax authority of Australia has developed an effective model of residential test that can be uses to test the residential status of Kit (Barkoczy 2016). The test is explained below:
In order to identify the individual status by complying with the method of Australian taxation, the domicile test is an important tool. According to the principles of the “Domicile Act 1982”, this test is conducted to ensure the residential status of an individual. Hence, the domicile test is a significant tool to assess the residential status of the individuals to determine their citizenship. In addition, as per “Section 6 of the Taxation Ruling 2650”, the individuals who have the desire to become a citizen of Australia, are liable for taxation. In this regard, it needs to be mentioned that according to the case of “Henderson v Anderson 1965”, every individual has the right or authority to choose their domicile nation in which they he/she wants to stay or reside (Harding 2012).
As per the case of Henderson, it is the responsibility of the individuals to choose their intermediary residence. The process of selection implies that the identification of domicile country has relation with the amount of tax imposed on various kinds of citizens. The identification process of the residential status of the individuals is an important process as it ensures the amount of tax levied on their incomes. However, it needs to be mentioned that certain loopholes in the process of taxation may enable the individuals to exempt the payment of tax.
After the evaluation process of the domicile test and “Section 6(1) of ITAA 1936”, the process of identifying the citizenship of Kit can be analysed and evaluated (Sharkey 2016). At the time of commencement, Kit is the employee of an Australian company, because he has been living in Australia. Another fact is that Kit’s wife and children are also living with him with sufficient housing facilities. This process indicates the desire of Kit to make Australia his domicile country. Thus, as per the test of domicile, it can be conclude that Kit is an Australian citizen and they are subject to Australian taxation.
The 183-day test has certain specific rules and regulations that an individual needs to comply with to become an Australian citizen. As per the rules, an individual will be considered as the citizen of Australia in case he/she stays in the country for more than 183 days (Lanis and Richardson 2012). As per the provided case study valuation, it can be seen that Kit has stayed in Australia for more than 183 days; the reasons is that he works in Indonesia due to the job requirement for an Australian company. On the other hand, Kit’s wife and children has been residing in the house in Australia for more than three years and this process has made them the citizen of Australia. They have their bank account in Westpac bank and the account is associated with Kits wife who is an resident of Australia. As per “F .C. of T. v. Applegate (79 ATC 4307; (1979) 9 ATR 899”, the individuals are considered as the citizen of Australia who have been staying in the country for a long period. After this analysis, it can be said that as per the 183-day test, Kit is a citizen of Australia and for this reason, he is subject to incur tax under the Australian Authority of Taxation (Sharkey 2015).
This particular test permits the reality pertinent exception to the residency condition. As per the case study, the salary of Kit comes in the bank account of Westpac that is a bank of Australia. Apart from the, Kit’s working business organization is also located in Australia. As per the situation, Kit’s business organization pays him salary in the account of an Australian bank in the form of AUD. Furthermore, Kit is living in Australia with his wife and children and this process makes them Australian citizen as per the Law of Taxation of Australia. The exposure of stock market is conducted in the market of Chile and that process should be analysed under the legislation of Chile.
According to the “Applegate per Franki J 79 ATC”, Kit is a citizen of Australia and he needs to be confronted himself as the citizen of Australia under the Australian taxation law (Taylor and Richardson 2012). The income or revenue generated in the nation is subject to income tax and the income of shares from the stock market of the nation is subject to tax under the Australian taxation system. It is the authority of Australian government to impose the agreement of double taxation system. This process provides assistance on the process reducing the burden of double taxation on the individuals (Oats 2012).
As per this particular case, Californian Copper Syndicate Limited has been disposing the exploited mineral property and net profit has been accumulated from the sales. As per the primary declaration of the company, there is not any tax inconvenience as the organization has all the receipts from the selling of mineral-composed property (Lignier and Evans 2012). As per the primary declaration of the court, the income of the company from the selling of any kind of land is taxable under the taxation law. As per the indication of this case, the company could have used the process of unethical measurement in order to evade the tax. As per the provided verdict of the court, any additional income generate from the selling of the property is subject to taxation as per the rules of the taxation authority of the country.
As per the above case, the sold subdivided land of the business is considered as an assessable amount that is subject to tax. As per the regulations of Australian taxation law, any asset that is sold to meet the requirement of income is subject to tax under the head of capital gains. On the other hand, the court has provided a verdict against the Scottish Australia mining company; as per this verdict, the sale of any commercial property needs to be treated under the realization of capital assets. This kind of capital asset realizations needs to be taxed under the head of capital gain that must be taxed (Love et al. 2014).
As per the above case, any kind of realization that leads to the subdivided of the properties needs to be taken into consideration as per the Australian taxation law. In addition, the selling process of subdivided assets in the distinct occasions needs to be taxed under the taxation law. As per the statements of the court, the subdivided or sold assets are subject to tax in case the net profit can be accumulated from the business transactions. In this kind of situation, the incomes from subdivided assets needs accumulation through the processing of net incomes. As per section 25 (1), the income generated from the assets is subject to tax irrespective of the nature of the income (Hanegbi and Obst 2016).
According to the above case, no utilization of lands has been there, but the aim was to support the business. Due to some unavoidable situation, the utilization of lands for the purpose of the busyness has not been possible and hence, it has been sold. As per the case verdict, under “Section 25 (1) or 26 (a)”, any kind of transaction that is generated by the sale of properties is not subject to tax irrespective of utilization or non-utilization (Jacob 2016). However, the income generated from the sale of the properties is subject to taxation. In this case, the record of capital gain needs to be recorded in this aspect. The capital gain needs to be taxed under the law of taxation.
The above case is about a farmers having low income and for this purpose he needs to sell his property in parts. The low income accumulated from the business forced the farmer to sell his lands. In this case, the income generated from the sale of the property is not subject to taxation. However, as the net income of the farmer is generated from the sale of his lands, the income needs to be subject to tax as per the verdict of the court. In this case, the capital gain can be used to acquire tax (Cao et al. 2015).
The case states that it was not the intention of the company to make profit from investment. Some situation forced the company to sell the land that lead to the generation of net income. The court referred to a case of “FC of T v The Emporium Ltd 87 ATC 4363”, it states that income from the sales of property needs to be taxed under the taxation law of Australia (Murray and Sharkey 2014). In addition, the court also referred to the section 25 (1) or 26 (a) that state that profit from the sale of property is subject to be taxed. Hence, the profit should be taxed under capital gain.
This case indicates the activity of a land farmer by the subdivision of various parts. In order to sell the lands easily, the farmer adopted a systematic method for subdividing the entire land. As per the court, any sale of property in Australian boundary is subject to tax under the capital gain. In this case, the profit is subject to be taxed while the loss is exempt from taxation (Yagan 2015).
As per the provided case, two brothers have bought a land of residence and they were planning to sell it to the customers for capital gain. Due to not able to sell the plot, they are forced to reside in that plot of house. They sold the property after one and half year that is subject to capital gain. The brothers refused to pay tax on the sale as they sold it in difficult situation. However, the court ruled out their application. As per the rules, any income from the sale of properties is subject to taxation under the Australian taxation law (Aregger, Brown and Rossi 2013).
References
Aregger, N., Brown, M. and Rossi, E., 2013. Transaction taxes, capital gains taxes and house prices (No. 2013-02).
Barkoczy, S., 2016. Foundations of Taxation Law 2016. OUP Catalogue.
Cao, L., Hosking, A., Kouparitsas, M., Mullaly, D., Rimmer, X., Shi, Q., Stark, W. and Wende, S., 2015. Understanding the economy-wide efficiency and incidence of major Australian taxes. Treasury WP, 1.
Hanegbi, R. and Obst, W., 2016. Small-scale property development: GST implications.
Harding, C., 2012. Who is a resident of Australia?. Concise Collection of Tax Fundamentals, A, p.181.
Jacob, M., 2016. Tax regimes and capital gains realizations. European Accounting Review, pp.1-21.
Lanis, R. and Richardson, G., 2012. Corporate social responsibility and tax aggressiveness: a test of legitimacy theory. Accounting, Auditing & Accountability Journal, 26(1), pp.75-100.
Lignier, P. and Evans, C., 2012. The rise and rise of tax compliance costs for the small business sector in Australia.
Love, P.E., Matthews, J., Simpson, I., Hill, A. and Olatunji, O.A., 2014. A benefits realization management building information modeling framework for asset owners. Automation in construction, 37, pp.1-10.
Murray, I. and Sharkey, N., 2014. Chinese investment in Australian resources: can the legal debt/equity distinction still create windfalls and impediments?.
Oats, L. ed., 2012. Taxation: A fieldwork research handbook. Routledge.
Sharkey, N., 2015. Coming to Australia: Cross border and Australian income tax complexities with a focus on dual residence and DTAs and those from China, Singapore and Hong Kong-part 2. Brief, 42(11), p.41.
Sharkey, N., 2016. Departing Australia: a complex tax situation with possible benefits and hidden traps. Tax Specialist, 19(5), p.180.
Taylor, G. and Richardson, G., 2012. International corporate tax avoidance practices: evidence from Australian firms. The International Journal of Accounting, 47(4), pp.469-496.
Wickramasuriya, T., 2014. Dempsey: Don’t call Australia home. Taxation in Australia, 49(3), p.138.
Yagan, D., 2015. Capital tax reform and the real economy: The effects of the 2003 dividend tax cut. The American Economic Review, 105(12), pp.3531-3563.
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