Tax Residency Of An Individual: A Case Study

Determining Tax Residency

Case Study

This case study is overall related to an individual who is a permanent resident of Australia but he still attains his Citizenship of Chile country as he was born over there. As per the data provided by the present problem he is making all his investment in the base country (Chile) where he was born. At present he is working in Indonesia with a company whose headquarters is in Unites States. He has a wife and two children staying in his owned residential property in the Australia.

Determination

The tax residency of the taxpayer Kit and whether his income earned at global level (income from Indonesia and investment income from Chile) is taxable in Australia.

Applicable taxation rules framed up by ATO related to tax residency

As defined by the ATO the immigration rules applicable over the individual which is ascertaining the residential status of a person is quite different as of residential status evaluated for the purpose of tax calculations. Even though in the above case problem where the tax payer Kit is an Australian resident, he may or may not be come under taxation guidelines of ATO. To evaluate whether or not an individual is tax resident or not ATO has developed a technique or test which helps to work out his/her tax residency. This test comprises of three conditions, taxpayer fulfilling any of the below mentioned test condition will be liable to pay taxes on his global income. These conditions are tabulated as follows –

No.	Conditions or tests	Summary
1.	183 days test	This test works out over a principle that for how much period a taxpayer is staying in Australia. If in the case the Kit is staying for more than a period of 183 days then he shall be considered as resident as per ATO for the purpose of evaluating his tax residency. In the current scenario taxpayer Kit is getting the one month off after three months in which he either visits to Australia or move for the holiday purpose. Even if he completely utilizes his holidays for staying in Australia still then he disqualifies this 183 days test.
2.	Domicile test	Domicile here refers to the permanent place of residence. In the current law framed up by ATO which states that if the tax payer has a permanent house or dwelling in the country of Australia then he will be qualified in this test (ATO, Residency tests, 2016). In the present problem related to the tax payer Kit, it was stated that he has a house in the country of Australia. On the prime fascia evidence it is not given that assesse Kit has any other permanent place of residence other than Australia then he shall be qualified in the current condition. However in case if Kit is able to satisfy to the commissioner of Income tax that the current house in Australia is not his permanent place of abode then he shall be out of his current condition.
3.	Superannuation test	This test relates to those individuals who are on the position appointed by the Australian government or the commonwealth of Australia (ATO, Residency tests, 2016). As in the current problem the tax payer Kit is working in Indonesia with a company based out of United States. There with the clear picture the assesse Kit disqualifies this test also. As per this test the Kit shall not be assessable to any tax procedures for the income which he has earned outside the Australia

From the above test it is clear that the Kit is not qualifying two of the three conditions with a clear approach, however there is doubt on the condition of domicile test. If Kit falls in any of the above condition then his global income including the income earned from investments in the Chile shall be liable to tax in the country of Australia.

26 AG deductions

There are some deductions available to certain taxpayers whose incomes are liable to taxation in the country other than Australia. It is only possible when the Australia has his double tax avoidance agreement or other tax treaty with the nation in which the individual income is taxed. In the current circumstance if the Kit’s income is taxable in the Indonesia and investment income in Chile and additionally the Australia has tax treaty with these nations then the Kit shall not be liable to pay any tax duty towards the income which he has earned outside the Australia.

• In 1901 the taxpayer makes its debut with memorandum states that company main purpose is to purchase a land in the region of California. After some time company exchange its land with another company and allotted shares and realized a profit which is taxable.
• According to income tax [25]1 profit arising from the sale of land considered to be part of income nature and will be assessable to the taxpayer.
• According to law trading transaction never be considered as a part of substitution of one investment over the another and profit arising from such sell .When any transaction is done by a business which doesn’t relate to its ordinary course of business then it’s become part of taxability. Here the court of law gave his decision in favor of the department and stated that from the initial point the company do not have sufficient fund to do the mining business and the primary contention of the company is to do the activity of land development(ATO, ATO Interpretative Decision ATO ID 2005/157, 2005).

• In 1860 the assessee had purchased a land of 1771 acre for the mining business was carried out. Later on, when land becomes useless for mining business the assessee decided to sell out the land at attractive prices and for that, it has done some infrastructure expenses.
• According to law land is studied to be a CGT asset and its junking will compose CGT occurrence A1. Section 104-10 of the ITAA 1997 states that CGT event A1 occurs when we junk of a CGT asset. At the same time subsection 104-10(5) of the ITAA 1997 explains that a capital gain or capital loss that is made is unconcern if before 20 September 1985 the CGT assets is purchased.
• According to income tax commissioner, any profit is arising from the sale of the development of land will taxable in the hands of the assessee(Jade, Scottish Australian Mining Co Ltd v Federal Commissioner of Taxation).
• The court gave the decision in favor of the tax payer, judge has a view point that all the related activities with reference to the land development are done with overall objective to bring it in the saleable position, and the particular business is not done in the regular approach by the tax payer.

• In 1954 a company is formed which is governed by a group of fisherman who primarily held all the shares for the objective fishing shacks after some time the land after some development was disposed of by the group of promoters to Infrastructure Company and through earned certain profit.
• According to law rules and regulation profit arising from ordinary course of business or not will taxable in the hands of the assessee.
• According to section 25[1], any amount earned by the assesse when either it is inside or outside the business is liable to pay tax.
• The court gave decision that by doing the task related to land development activities do not change the prime purpose of the land utilization(Jade, Federal Commissioner of Taxation v Whitfords Beach Pty Ltd).
• The taxpayer was owner of the land died in 1980 and land is handled to Charles Alderman (the deceased)   the company was incorporated to perform a farming activity later the taxpayer died and land is owned by deceased and he dispose half of the land portion to the company which is owned by family member but due to improper management the half land which is purchased by family member sold at loss.
• According to law when in ordinary business transaction any income arises from progress sale of land the taxpayer is assessable and liable to pay tax.
• As per income tax commissioner profit arising from the sale of land is the part of normal business and taxable(ATO, ATO Interpretative Decision ATO ID 2005/157, 2005).
• The court of law favored the tax payer Statham & Anor and gave decision that land development activities are mere result making the land saleable. As the assesse is facing out huge losses in its current farming operations he has to enter into this land dealing operations. These tasks are not performed by the tax payer as regular business operations. Therefore such income shall not be taxed as an ordinary income.

• In 1955 the taxpayer purchased the 958-acre land after one year purchase another land of 40 acre and conducts with son and wife various farming activities few years but unfortunately due to some health problem and debt he has to sell a portion of land.
• As per law, assesse income will be taxable if thesale of subdivided land originally acquires and utilized for normal farming.
• According to income tax officer, any income or profit arising from thesale of subdivided blocks were assessable under either s 25(1).
• Decision of Judge was not in the favor of tax authorities and judge stated that sale of part property was done to recover the current farm operation losses; this activity is not done by the assesse as his regular income approach(ATO, ATO Interpretative Decision ATO ID 2002/273 (Withdrawn), 2002).

• On 30 March 1955 Company came into existence. Its memorandum of association states that the company deals with only purchase and sales of sand. The taxpayer develops the land for two main reasons one is of receiving anexcess benefit on thesale of sand and another is to hold land for future sales. Later on, after few years when government converted the land into the rural region and paid the appropriate compensation of $ 500,000 in the two parts. The earlier government of the zone decided to mine individual part of land but the assesse affirm that the land was to be used for the purpose of the subdivision.
• Accordingly, income earned as profit above the cost price treated as profit and income, therefore, charged to taxation.
• According to lawIncome Tax Assessment Act 1936 assessable under subsection 25(1) income arising from thesale of routine course of business or by non-business basis taxable in the hands of assesse (ATO, Taxation Ruling TR 92/3).

• As per the given  case the assesse  deals with acquiring  of the varied  properties and the ensuing subdivision and disposal  of parcels of land concern transactions which were duplicative and orderly and had the feature  of a  long term  business of land development.The taxpayers sell out the house and took out another bank loan to  start  the construction of three town houses on the land.
• As per the law sales of subdivided land basically  obtained and utilized for farming either  surplus occur from sold of capital assets during the business shall be assessable to the assesse.
• According to income tax commissioner assesse has taken a loan to acquire five large blocks of land and after some time farm on it and then dispose of a part of acquiring land, therefore, assesse will be liable for tax on profit arising on the disposal of a part of acquiring land.
• Here in the current case law the judge gave the decision in the favor of income tax department and is of view point that the jobs done by the taxpayer showcase the motive of profit earning. Income earned in the case will be referred as normal income earned in ordinary course of business(ATO, ATO Interpretative Decision ATO ID 2001/55 (Withdrawn), 2001).

• In the given case, when the taxpayers were not running the business, the profit to be taxable must have arrived from a transaction that can be described as a commercial dealing. A profit-making undertaking or scheme is such dealing.
• As per the given case law, assesse acquired an old residential property and exchanged the property for the commercial purpose. The taxpayer’s price sells out the house and took out another bank loan to start the construction of three townhouses on the land.
• According to income tax commissioner income states that any profit arising from thesubsequent sale of residential earlier used for personal utilization then it will be considered apart normal course of business and become taxable in the hands of assesse.
• In this case the judge favored the contention of the income tax department and stated the profit motive of assesse behind taxing the relevant income.

ATO. (2001). ATO Interpretative Decision ATO ID 2001/55 (Withdrawn). Retrieved May 1, 2017, from https://www.ato.gov.au/law/view/document?docid=AID/AID200155/00001

ATO. (2002). ATO Interpretative Decision ATO ID 2002/273 (Withdrawn). Retrieved April 30, 2017, from https://law.ato.gov.au/atolaw/view.htm?docid=AID/AID2002273/00001

ATO. (2005). ATO Interpretative Decision ATO ID 2005/157. Retrieved April 30, 2017, from https://www.ato.gov.au/law/view/document?docid=AID/AID2005157/00001

ATO. (2016). Residency tests. Retrieved April 30, 2017, from https://www.ato.gov.au/individuals/international-tax-for-individuals/work-out-your-tax-residency/residency-tests/

ATO. (n.d.). Taxation Ruling TR 92/3. Retrieved April 30, 2017, from https://www.ato.gov.au/law/view/document?DocID=TXR/TR923/NAT/ATO/00001

Jade. (n.d.). Federal Commissioner of Taxation v Whitfords Beach Pty Ltd. Retrieved April 30, 2017, from https://jade.io/j/?a=outline&id=67040

Jade. (n.d.). Scottish Australian Mining Co Ltd v Federal Commissioner of Taxation. Retrieved April 30, 2017, from https://jade.io/j/?a=outline&id=64663.