Tax Treatment And Implications For Foreigners In Australia

Definition of foreigners in Australian Taxation Law

Question 1;

According to the Australian Tax Office on Federal Tax legislation, both foreigner and foreign business are deemed as non-resident on the basis of tax aspect and not on immigration grounds (Maisto, 2010.Pg 51.) Ideally, this has no relevant relationship with the movement that requires travel documentation instead it is explained about tax implication an individual or business is associated with.

A foreigner individual for tax purpose is therefore deemed different from an ordinary resident citizen for tax purpose since they have different respective tax treatments. Australian Tax Office on Federal Tax legislation defines a foreigner as that individual who makes frequent visits to Australia while working around Australia and whose most work is done while traveling across Australia (Devos and Zackrisson,2015.Pg.31.) He has deemed a foreigner because he comes to work once in a while or even on the frequent basis.

An individual is likewise deemed foreigner if he departs and leaves Australia for another country on permanent basis. Since he will not be spending anything or contributing to any tax while away from Australia. This permanency foreign residency is recognized as soon as the individual depart or moves away from Australia. The other act that makes an individual a foreigner for tax purpose is if he spends the holiday in Australia for a period that is less than six months similarly to number of visits he or she might be making to Australia for a duration that is less than six months. The above-listed scenarios define a foreigner for both individual and business for tax purpose in Australia.

Foreign business entails international activities conducted in a country that is different from which the tax resident citizen comes from. This involves the company that is incorporated in another state different from Australia. There are therefore agreed treaties between the foreign countries and the country of origin when it comes to tax for purposes of avoiding double taxation. It is further explained in Australian Tax Office⁷ that there are countries of listing whose treaties are treated special for tax purpose this include states like UK, Canada, France, New Zealand, USA, Germany, and  Japan.

Any foreign businesses venture in these listed countries has special treatment but only limited to the above-listed states. Similarly to companies and ventures incorporated overseas or abroad subsidiaries which are included overseas are likewise termed as foreign business. It should also be known that any international transaction that is conducted away from the country of origin¹⁰, that business activity is termed as foreign since its initial operation was performed in an overseas state.

Tax treatments for foreigners compared to residents

In a nutshell let it be known that any business venture incorporated, registered or that which runs its operation across the border or rather overseas qualifies to be termed as foreign business thus generating foreign business income for tax purposes⁸. This venture may be conducted by either an Australian tax resident, non-resident or even foreigner individuals all of course with different tax treatments as a result of their position for tax purpose (Deegan, 2012.Pg.13.)

Question 2;

Australian Tax Office legislation states that there exist some factors and tax implication that significantly differentiate between a foreign tax resident and an Australian tax resident for tax purpose. The first item that is highly considered is the number of days within that tax year that is spent by both parties.  Australian Tax Office has regulated that for a foreigner to be considered for tax purpose he must produce proof of dwell in Australia for some days that are fewer than 183 days in that year of tax. On the other hand, an Australian resident for tax purpose has proof of stay for tax purpose for a period that is more than 183 days in that year of tax.

According to Australian Tax Office a foreigner is only taxed on all those incomes and investment property that are deemed sourced and earned within the peripherals of the law of the land. It is thus expected that full declaration of Australian pension and annuities granted to a foreigner, disclosure of all investment income earned, unfranked dividend and interest, franked dividends, foreign business income and any other income deemed declarable for tax purpose be dislcose. An Australian Tax resident on the other hand have all worldwide income earned taxed at a marginal rate that is considered high.

A foreign individual tax bracket rate for tax purpose is relatively high compared to that of an Australian resident citizen for tax purpose. For instance, Australian Tax Office informs us that there is no minimal base earning for which taxation starts for a foreign individual whereas only that income that is more than $ 18200 is taxed less than this it is not taxed. For a foreigner, the minimum base starts at zero profit. Likewise it should be known that the income tax bracket for a resident is spread across different levels of income in 5 ranges while for a foreigner it is only 3 ranges compressed to see into it that the tax on this income is squeezed to suit all the levels of income. Thus, a foreign income brackets taxes more than the resident tax bracket in Australia.

Implications of tax treatments for foreigners

Likewise, let it be known that Australian Tax Office requires all medical levies be provided on all resident incomes contrary to foreign profits whereby they are not required by the law to pay the medical levy. This is an aspect that sees into it that foreigners do not contribute any income for medical levy. A foreigner business income attracts a rough estimate tax percentage of 47%, i.e., 45% for corporate profit and 2% for catering levy, while for resident business it is at 30%. Also need in bibliography

The regulation is likewise seen to exempt a foreign venture both as an individual and as a company from declaring and paying capital gain tax or claiming any capital loss on any shares sold in whatsoever means while a resident company or individual resident is expected to pay and announce any capital gain earned and have its 50% portion declared for tax purpose explained in. Generally there exist different tax treatments including tax withholdings between a foreigner and an Australian Tax resident, but it should be known that most of the procedures attributes to favoring the resident instead of the foreigner.

Question 3;

The fact that all income earned overseas is to be taxed regardless of the laws on taxation of those states in a nutshell it shows that lack of treaties among the states causes double taxation or rather tax cascade since the income is taxed both at abroad and in Australia simply because every country of operation expects declaration of any income earned in that land (Arndt, 2013.Pg.49.)

One of the other critical implications of the tax treatment that has affected foreigner is on the tax brackets rates as well as the marginal corporate tax. In normal circumstance, no single individual will be willing to live in an environment that is full of exploitation in a negative way. So, believe whenever an investment venture is done in a foreign country, besides the revenue it contributes, it  likewise  helps the society and citizens at large by giving them jobs through employment, improvement of infrastructure through corporate social responsibility as well as overall donations.¹⁶

 It is therefore unfair to tax this foreign business and individual at that high and unmindful tax brackets without minding their business status since there might be others who are just struggling to grow their business. This struggling may result from tax rates in bracket and corporate form hence making it so demanding for companies and individual honor their tax obligation, hence opting to leave or even cease operating. The Federal Commissioner of case in totality illustrates how these greedy tax brackets are not doing any good to Australia, since it is making the business environment difficult, thus forcing foreign investors to leave the un-conducive climate.

Recommendations for relevant law reforms

These tax brackets of 47% and the individual different range brackets are negatively affecting business environment since the investors feel oppressed to the extent of even not recovering back their initial cost capital of investment, thus opting to leave the venture. Closure of business therefore, creates unemployment as well as lowering and retarding the economy. Foreign individuals are likewise affected by the fact that the bracket range adversely affects the low-income earners hence causing of oppression and lack of equity and equality.

The tax exemption on capital gain tax on foreign capital venture is a plus to foreigners, however this limits them from exercising interest in ownership as well as hindering them from conducting any venture investment that is capital in nature thus tempting them to involve themselves in this activity contrary to the expectation of the regulation leading to non-compliance and tax evasion thus affecting diplomacy rapport between Australia and other states.

Question 4;

The aspect of double taxation is an aspect that has affected foreign investment in Australia just because there are no legally binding agreements that govern how the tax is to be handled between two states whose citizens for tax purpose are doing business.

Therefore, it is required to do a surgery reform on all tax treaties regulation among states to curb double-taxation¹³. These tax treaties should see into it that all factors  related to tax  addresses to suit both parties to create a good business environment for growth and sustainability. These reforms (Loeprick, 2009.Pg.12) in the signed agreement should see into it that, all states that do business with Australia are involved and have a common concern of dealing with tax and thus not having special treatment to only those states that are listed, thus causing unbalance foreign globe investment whereby  people venture can be greatly found in particular countries.

The Australian Tax Office on Federal Tax legislation  on international income as illustrated in rates should be revisited in a sober mind so as to be progressive, considerate and with equity when it comes to this tax rate 47% for foreign corporate business is so high hence it is recommend an amend¹¹ on this to be done to see into it that foreign corporate incomes are taxed at 37% thus a difference for 7.5% from that imposed on resident companies at 30%. This will, therefore, have the corporate part tax done at 35% and 2% for levy (Taylor and Richardson, 2012. Pg. 490)

Let it be known that it is even fair and prudent enough to impose capital gain on capital venture to foreigners and reduce corporate tax since this will solve two things, i.e., minimize tax rate and likewise introduce interest ownership of the foreigners in Australian market thus creation of good diplomatic relations and also generating revenue from their interest in Australian market.¹⁴

Foreign individual incomes should be adjusted and considered to have minimum base in favor of individuals who earns less income by introducing a minimum income base so that an income is exempted from tax up to a certain level. For instance as the bracket for resident start point is at 0-18200 and let the bracket cover the range for foreign residents be at 0$-13000$ and then spread the other bracket range evenly¹⁵. This will create equity for the low earner’s foreigners who might even be immigrants from other neighboring .Therefore; we suggest an amendment will be introduced to amend these tax rates to create the excellent business environment as well as the creation of equity and equality value of taxation.

References

Arndt, H.W., 2013. Measuring trade in financial services. PSL Quarterly Review, 37(149).

Deegan, C., 2012. Australian financial accounting. McGraw-Hill Education Australia

Devos, K. and Zackrisson, M., 2015. Tax compliance and the public disclosure of tax information: An Australia/Norway comparison. eJournal of Tax Research, 13(1)

Loeprick, J., 2009. Small business taxation: Reform to encourage formality and firm growth.

Maisto, G. ed., 2010. Residence of individuals under tax treaties and EC law (Vol. 6). IBFD

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.

Sarei v. Rio Tinto, PLC, 550 F.3d 822 (9th Cir. 2008).

Morrison v. National Australia Bank Ltd., 130 S. Ct. 2869, 561 U.S. 247, 177 L. Ed. 2d 535 (2010).

SCHENTAG v. NEBGEN, No. 1: 17-cv-8734-GHW (S.D.N.Y. June 21, 2018).

Gabor v. Deshler, No. 17-CV-01524-LHK (N.D. Cal. June 7, 2018).

Stein v. US Department of Justice, Civil Action No. 13-cv-00571 (TSC) (D.C. Sept. 30, 2015).

Powers v. Stanley Black & Decker, Inc., 137 F. Supp. 3d 358 (S.D.N.Y. 2015).Estate of Sanders v. COMMISSIONER OF INTERNAL REVENUE, 2018 T.C. Memo 104 (T.C. 2018).

Institute of Cetacean Research v. SEA SHEPHERD, 774 F.3d 935 (9th Cir. 2014).

CGC HOLDING CO., LLC v. Broad and Cassel, 773 F.3d 1076 (10th Cir. 2014).

DeBoer v. Snyder, 772 F.3d 388 (6th Cir. 2014).