The central issue is to ascertain whether taxpayer Kit would be termed as Australian tax resident or not. Further, to determine the applicable tax treatment that would apply on the total income derived from different sources by Kit during the financial year.
Section 6(1), ITAA 1936 highlights the provisions related to the tax residency status of the taxpayer. Tax ruling TR 98/17 is used to determine tax residency status of the taxpayer who is residing in other places rather than Australia. The taxpayer would be classified as tax resident of Australia if the taxpayer has satisfied the essential conditions of the residency test. These tests along with the applicable terms and provisions are given below (Barkoczy, 2017):
“Applicable: Australian government officers posted on duty abroad”
The taxpayer who is recognised as officer of Australian government and the relevant government authorities has sent the officer to foreign countries to complete the work would liable to test the tax residency with the help of superannuation test. The essential condition of superannuation test is the investment on behalf of the taxpayer in the selected superannuation fund scheme of Australian government (Woellner, 2015).
“Applicable: Foreign resident only”
The taxpayer who is foreign resident and has been present physically in Australia for minimum time period of 183 days in a given financial year and also has the aim or plan to permanently settle in Australia would be termed as tax resident of Australia under this test (Coleman, 2016).
“Applicable: Permanent resident Australian only”
The taxpayer who has lived or spent a subsequent time period in foreign country and possessed Australian domicile would be considered for the domicile test if they have to reside abroad. The essential condition of this test is that permanent place of abode (as outlined in Levene v, I.R.C. (1928) A.C.2017) of the taxpayer must be in Australia only.
The decision that permanent place of abode continues to be located in Australia only is depends on various factors as given in IT 2650. These factors are as listed below (Woellner, 2015):
“Applicable: Foreign resident only”
The application of this test derives highly from the judgments and claims of the relevant case law because no statute defines the real meaning of word ‘resides’ in legal context. The factors that are taken into account by the tax commissioner are purpose to create visits to Australia, duration of stay, frequency or repetition of visits and stay, presence of any association with Australia and with the other country, level of social arrangement created on the part of taxpayers and so on. Finally, the country of origin and nationality of the taxpayer are also considered (Sadiq, et al., 2016).
Application
Residency Test Applicability
The below highlighted table describes the various facts and decide which test is applicable on taxpayer Kit
|
S. No. |
Residency Test |
Applicability |
|
1. |
Superannuation test |
Kit is not a government officer and also, he has not invested in superannuation fund scheme and hence, this case is not applicable for Kit. |
|
2. |
183-day test |
Kit is a permanent resident of Australia and thus, this test is also not applicable because the test is valid for foreign resident only. |
|
3. |
Domicile test |
Applicable because domicile test is valid for Australian resident only and Kit is a PR of Australia. |
|
4. |
Resides test |
Kit is a permanent resident of Australia and thus, this test is also not applicable because the test is valid for foreign resident only. |
Domicile Test–As discussed above, domicile test is applicable for the present case. Hence, the next step is to find whether the taxpayer passes this test or not. Taxpayer holds domicile of Australia (as per Australian Domicile Act 1982). His permanent place of abode is in Australia because of the below highlighted evidences as per IT 2650.
Therefore, it can be said that even though Kit is working in foreign country, his permanent place of abode is present in Australia only. Hence, he passes both the essential conditions of domicile test.
Conclusion
The conclusion can be drawn that taxpayer Kit is an Australian tax resident because he passes the requisite conditions of domicile test. Hence, section 6-5(2), ITAA 1997 would be the tax treatment applied on Kit and thus, the part of income from domestic (Australian) sources and from international source would bring for taxation purpose under ordinary income concept. As a result tax would be applied on the dividend income (from Chile) and foreign employment income derived from US based employer.
Company acquired copper mine but did not even start the mining process because of low operating budget. Investors decided to sell the mine to another company with the compensation in the form of shares in that company. The shares caused huge benefits to investors. Court decided that land should have been used for mining for which they also took the licence but they instead used the land for profit and this was planned before hand. Therefore, the income obtained from isolated transaction would be assessable income (Sadiq, et al., 2016).
Company started the mining on the land and when the mine was completely exhausted and could not use for mining purpose, then the taxpayers decided to stop the mining and make it appropriate for domestic and other residential uses. The land was then subdivided into plots and after subsequent installation was sold to buyers. Court passed the judgement that land was used for the mining purpose only and the sale was commenced because the land was not in the position to be mined. Therefore, the act would be recognised as “realisation of capital asset” and the receipts would be capital receipts and not assessable income (Jade, 2017).
A company which used the land for fishing purpose was purchased by estate development companies. The company used the land for their business purpose and hence, divided the land installed attractive facility to enhance the revenues and sold it to buyers. For this, they made respective corrections in the article of association of the acquired company. Court decided that the land was a capital asset but the company used the asset for their business purpose. Therefore, the income received from the business course would be assessable income (Barkoczy, 2017).
Taxpayer who started a cattle business had sold significant sections of land because of poor financial condition. They had to sell the land because the cattle business closed down in the initial days which led to erosion of initial capital and consequent capital crunch even to meet living expenses. Court took the conditions of taxpayers and ruled that land sale was conducted because of poor financial condition and not with the profit making action. Hence, the income would not be classified as assessable income (Nethercott, Richardson and Devos, 2016).
Taxpayer believed that he would pay the loan amount through the income received from farming and hence has issued loan at high rate of interest. The income was not enough to repay the amount and hence, liquidated a part of land. With this proceeds, he paid the amount and used the rest of the amount or treatment of his bad health and to start the farming in the land. Court opined that taxpayer’s intention was not profit making and hence, the income would not be assessable income because it was realisation of capital asset (CCH, 2017c).
Company sold the land which was used for sand mining because of the fact that it was not deriving expected revenues as the reserves depleted . Further, to make handsome profits, they made attractive facilities on the land. The court said that the intention was purely to maximize the profit and hence, the income would be assessable income via isolated transaction (Barkoczy, 2017).
Concerned Taxpayer Crow had closed his farming business because he was selling the land after doing subdivision. He was receiving significant revenues from the sales and hence, acquired several land blocks. Court took a note and said that the nature of the action of land sell was purely repetitive and systematic and hence, the income received from the sale of land would be termed as assessable income (Nethercott, Richardson and Devos, 2016).
Taxpayer borrowed money to make new houses and to start advertisement for the newly constructed houses. They made houses on the land which already had unstructured houses. They were not getting expected returns and thus, decided to hold the land for time being. They sold the houses only when they got expected revenues. Court said that the land was purchased to so that maximum revenues could be derived. Further the incidence of holding period and advertisements were the evidence of profit intent and thus, the income would be assessable income (CCH, 2017e).
References
Barkoczy, S. (2017). Foundation of Taxation Law 2017. 8thedn. North Ryde: CCH Publications.
CCH 2017c, Casimaty v FC of T 97 ATC 5135, Available online from
https://www.iknow.cch.com.au/document/atagUio539843sl16716249/casimaty-v-fc-of-t-federal-court-of-australia-10-december-1997[Accessed May 11, 2017]
CCH 2017e, McCurry & Anor v FC of T 98 ATC 4487, Available online from
https://www.iknow.cch.com.au/document/atagUio539084sl16707683/mccurry-anor-v-fc-of-t-federal-court-of-australia-15-may-1998 [Accessed May 11, 2017]
Coleman, C. (2016). Australian Tax Analysis. 4th edn. Sydney: Thomson Reuters (Professional) Australia.
Jade 2017, Scottish Australian Mining Co Ltd v FC of T (1950) 81 CLR 188, Available online from https://jade.io/j/?a=outline&id=64663 [Accessed May 11, 2017]
Nethercott, L., Richardson, G., and Devos, K. (2016). Australian Taxation Study Manual 2016. 9th edn. Sydney: Oxford University Press.
Sadiq, K., Coleman, C., Hanegbi, R., Jogarajan, S., Krever, R., Obst, W., and Ting, A. (2016). Principles of Taxation Law 2016. 8th edn. Pymont: Thomson Reuters.
Woellner, R. (2015) Australian taxation law 2015, 9th eds., North Ryde: CCH Australia.
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