The first issue, which has been raised in this context, is about the rental property issue that is being faced by Tom. While working for the company in Brunei, he rented his house in Sydney for two years. Hence, the first issue emphasizes residential rental properties. The second issue, which is being faced by Tom, is tax liability from bank interest earning. Additionally, Tom was also facing problems relating to the tax liability of a salary account in Australia. Tom while residing in two years in Brunei used his Australian credit card for the salary purpose and for the rental earning purpose he used his Australian bank account. The third issue which has been highlighted in the context of Tom after returning to Sydney after two years is that he started his own business of accounting practice and worked as a sole practitioner. Therefore, the issue here is that Tom provided service to the client and billed a fee of $8,000 on June 27, 2018. However, in lieu of the same he did not obtain the cash based payment for these services from his client until July 2018.
The rule of Residential rental properties under the taxation law includes that when a person rents out his property, he needs to show up all his income and report on the tax return. Contextually, in the tax return, the visibility of the rental income is considered to be essential, as it proves that the owner of the house has a good intention and wants to make money legally from the property. However, if the owner does not show up the income earned from the rental house, then the earning would be considered to be illegal. This rule is based on the case of property rental income;. A gross income of an individual is perceived to be legal and is valued after making up various kind of remuneration into it. If the resident of Australia resides anywhere, he is liable to pay all the taxes from the income that he generates every time.The income is based on earning made from each source and none of them can be exempted. If it happens that it can be called as tax evasion. Therefore, the employment income is included in the tax proceedings and a person having any source of income must have to report for it in the tax return. As per 183-day test rule with respect to residency in Australia, it can be stated that an individual has to be either continuously or occasionally in the country for being perceived as a constructive residence. This is unless an individual can prove that his/her residing place is outside Australia. Additionally, it may also be in the case if the individual has no plan to settle in the country. It must be noted with respect to this particular rule that an individual must be satisfied that his or her residing place is outside Australia, however, the first statutory test of domicile needs to assure that the individual is a permanent resident outside Australia. In this context, a domicile is referred as the place, which on the basis of law is considered to be the permanent home or something that is perceived to be more than a residing property. Hence, an individual may not have a fixed residence, but based on the Australian law, he/she is always observed to be domicile. This allows an individual to reside in two places.
An individual may be even earning the interest income. The main concept in the context is that a person needs to show up all the income of his/her earnings. The Australian taxation office refers that if they find any such person, stating the interest income and interest earned reported by the financial institution differs, then a notice is to be served to the individuals. Therefore, the taxation rule infers about reporting the sources of income from everywhere in the tax return.
When a person establishes any kind of firm in Australia, there are some laws and regulations, which are to be followed. Moreover, on the basis of the Division 207 and Subdivision 210?H of the Income Tax Assessment Act 1997, a company is liable to pay off all the corporate taxes against its income. Proper registration of the firm and the lodge of it in tax returns make the firm valid and legal. The firm prior to settling up the firm must have to understand the laws, which comply with the tax. A business or a firm is registered only when it is proven that it has followed all the procedures in a legal way. In addition, there are various legal registrations, which are important to accept prior to establishing a business entity. Hence, to make all the important registration of the firm, the owner needs to consult with the tax advisers, who can make them understand the legal processes involved in registration of the company. Additionally, as the firm hires new employees in the organization, it is essential to record the entire payroll related to each and every employee, who has been paid;;. Therefore, these are the following rules as well as the regulations that are considered in the taxation process and a firm to maintain its legality needs for maintaining all the important processes. It is clear from the Australian Taxation Office if a person is found to be avoiding any kind of tax rules and regulation then he/she is liable to be charged with penalties. This may lead the business to be at risk. Payments that have been made to a taxpayer in the form of inducement to return to work or to provide services comprise statutory income under the section 15-3 of the Statutory income.
From the aforementioned context, it can be analyzed that Tom is a resident of Australia and for the purpose of business, he went to Brunei. As he left for Brunei, he leased his house at rent, he was earning rental income from his owned house, which was located in Australia. Therefore, it can be stated that Tom had to show up his rental earning and if he fails to do so, the earning will be considered to be illegal as well as he might be found guilty for it according to the taxation law of Australia. Additionally, the asset of the owner can be in trouble if he fails to pay the tax for it. In this context, a resident of Australia is often observed to be taxed for the income he/she is earning from all sources. Thus, based on the section 6-5(2) Income Tax Assessment Act 1997, Tom is liable to pay tax for the income generated from renting his house. However, according 183-day test, an individual has to be physically present in the country for at least 183 days for being liable to pay tax in Australia. In addition, there are some exceptions. Contextually, the commissioner of taxation authority is found to be fully satiated if the individual resides outside Australia. Another exception is that an individual is not liable to make tax payments, if he/she does not have any intention to purchase residential property in Australia. However, the exception is also that an individual, who is a visa holder and living in Australia for over 183 days, yet not a resident of Australia does have to pay tax for being the resident. Hence, in this context, it can be stated that Tom, not being physically present in Australia, is not liable to pay tax for his income on rent to the Australian government for the year 2018. In addition, as Tom went to Brunei for only business related work and had no intention to stay in the nation, hence he is not liable to pay any tax therein.
Moreover, from the second issue, as can be analyzed that gross income is valued for the individual. Hence, the earning of Tom from his salary as well as the interest is important to be disclosed, which must be reported in the tax return file. There are different types of income such as salary, which is to be considered only after making deductions. In addition, in the third case, it can be analyzed that while setting up a new firm or business, the owner requires following different procedures. Furthermore, it is essential that Tom needs to make a business entity registered that can make it legal. Hence, Tom can face the problem if his firm is not registered properly and along with that he is liable to pay off the tax of the business firm. Thus, by doing this, he can receive the payment due from his client.
Conclusion
Based on the issue and rules considered on the basis of the Australian law, it can be inferred that there are three issues that have been raised in the case of Tom. The issue in the context includes issues regarding the rental property along with his liability of bank interest and income as well as the registration of his business. These issues can trouble his property, which can lead to him to face different problems. Thus, it can be concluded that it is essential to follow taxation law for establishing and operating business in Australia. In addition, it can also be concluded that Tom is a resident of Australia and is liable to pay tax in his income generated for renting his house while working outside the country, however not in Brunei.
References
ATO, Residency – the 183 day test (2018) <https://www.ato.gov.au/Individuals/International-tax-for-individuals/In-detail/Residency/Residency—the-183-day-test/>
Australian Government, Income tax assessment act 1997 (No Date <https://www.legislation.gov.au/Details/C2013C00082>
Australian Taxation Office, Residency – the domicile test (2018) <https://www.ato.gov.au/Individuals/International-tax-for-individuals/In-detail/Residency/Residency—the-domicile-test/>
Bates Cosgrave, Setting up in Australia (2018) <https://www.batescosgrave.com.au/international/inbound_business_in_australia>
Commonwealth of Australia, Apportionment of rental expenses (2017) <https://www.ato.gov.au/Forms/Rental-properties-2017/?page=8>
Commonwealth of Australia, Income and deductions (2018) <https://www.ato.gov.au/Individuals/Income-and-deductions/>
Commonwealth of Australia, Interest income (2016) <https://www.ato.gov.au/Individuals/Data-matching-letters/Types-of-letters/Interest-income/>
Commonwealth of Australia, Interest income (No Date) <https://www.ato.gov.au/Individuals/Data-matching-letters/Types-of-letters/Interest-income/>
Commonwealth of Australia, Key governance steps and processes (No Date a) <https://www.ato.gov.au/Business/Privately-owned-and-wealthy-groups/Tax-governance/Corporate-governance-and-tax-governance/Key-governance-steps-and-processes/>
Commonwealth of Australia, Penalties (2018a) <https://www.ato.gov.au/general/interest-and-penalties/penalties/>
Commonwealth of Australia, Rental income (2017a) <https://www.ato.gov.au/Forms/Rental-properties-2017/?page=3>
Hall & Wilcox, Guide for setting up a business in Australia (2016) <https://hallandwilcox.com.au/guide-for-setting-up-a-business-in-australia/>
PwC, Australia individual – Income determination (2018) <https://taxsummaries.pwc.com/ID/Australia-Individual-Income-determination>
Thompson Reuters, ‘Income from personal services and employment’ (2018) Monash University87
Thompson Reuters, ‘Residence and source’ (2018) Monash University 2-40.
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