Describe about the Taxation Law of Australia for Business Entities.
The current study focuses on the assessment of the income tax that can help in calculation of the residential standing of Juliette. The first question in the current study deals with the residential status of Juliette and it suggests that the Juliette will be held as the resident of Australia enumerated from the perspectives of the income taxes between the period 2014 and 2016. The present study also takes into account different years for addressing the year in which the income was earned. The following year have the need for preparation of financial statements for building up taxable income generating out of particular rental property. In the subsequent section, the current study elucidates in detail the components of rented property along with appropriate justification.
As per the section 3 to 5 under the Income Tax Act during the year 1997, each individual along with other business entities as well as other companies need to make payments for the income taxes for each financial year. In accordance with the Australian Law, the Income tax Assessment Act starts from the 1st July till 30th June of the subsequent year (Inheriting a dwelling | Australian Taxation Office., 2016). As such, the residential status of Juliette primarily affects the liability tax of different individuals of different individual entities that in turn determine the residential status of different individuals. As per section 6 stipulated under the Income Tax Assessment Act, the tax payer can be classified as a resident of Australia and the foreign resident from the perspective of tax (Investment income | Australian Taxation Office., 2016). According to the present Act, the resident of Australia is referred to as an individual who can be considered as a resident of Australia mainly for the purpose of tax. As mentioned in the section 6-5 (2) along with section 10(5), the individuals who cannot be considered as residents as per the Income tax Act can be regarded as foreign residents (Investment income | Australian Taxation Office., 2016). In other words, it can be said that an individual can be considered as a resident of Australia in case if the specific individual can satisfy at least one out of the four evaluation tests according to the Income Assessment Act under the section 6 (1).
The tests include the following:
Primary test regarding residency or in other words Ordinary Residency Test
Ordinary Residency Test primarily suggests that the residential status of a specific individual is founded on simple ideas and concepts. The guiding principle mentions that a particular individual will remain a resident in case when the taxpayer resides in and out of the Australia. The status of residency can be primarily determined on a yearly basis and the taxpayer might possibly be the resident for the remaining part of the year. Under the regulations stated under the Australia Tax Offices Tax rule 98/17, there are certain factors that can act as a guide for determination of status of ordinary residency Residency (the resides test | Australian Taxation Office., 2016). This includes certain important factors such the nationality of the individual, social and at the same time, the family tie up, rules as well as regulations regarding the physical presence both in as well as out of Australia. Another significant factor of the ordinary residency test comprises of the assessment of the nature of the travel to abroad and evaluation of the permanent or else the temporary nature of stay. In addition to this, the important factors include the regularity, duration, and frequency of the visits. Furthermore, the stratagems for maintenance of the place of residence both in as well as around Australia are an important factor that needs to be taken into consideration for the purpose of evaluation of the ordinary residency test Residency ( the resides test | Australian Taxation Office., 2016).
Domicile Test
The domicile test primarily provides essential facts concerning a particular individual for taking into account the particular person as resident for the purpose of tax in case if the payer of the tax is residing in Australia as conditioned under section 6(2) (a)(i) Residency (the domicile test | Australian Taxation Office., 2016). Again, the particular regulation mentions that a particular citizen of Australia can be mechanically regarded as the resident of Australia from the perspective of tax.
183- day test
The 183 day test can be considered to be one of the secondary statutory tests. Again, the particular process of scrutiny suggests that a payer of tax can be regarded as resident if and only if the residents actually reside in Australia for more than the specified 183 days according to the conditions stated under the section 6(1) (a) (i). Again, if the payer of the tax generally resides both in and outside the Australia and there can be individuals who do not intend to stay in the Australia for more than 183 days Residency (the 183 day test | Australian Taxation Office., 2016). In both the above-mentioned case, if the individual inhabits in Australia for more than 183 days, the payers of the tax can be regarded as the resident from the point of view of taxation. In particular, the present test is applicable in Australia for greater than one income year. The present test can also be regarded as a statutory test that has the need for the maintenance of abode both in as well as outside Australia. The test also calls for the need of staying as a permanent resident in a specific income year for more than 183 days. However, the duration of the stay of the resident might not be continuous and it does not require continuous stay for 183 days Residency (the 183 day test | Australian Taxation Office., 2016). In all the 183 days, the individual needs to be physically present in Australia during the specific income year. Therefore, it is imperative to understand the process of application of the 183-day test for assessing the nature of residency during a particular income year.
Superannuation test is a statutory test that can review the statutory test for assessment of the residency status of individual in the nation Australia (Sharkey, 2015). The specific test needs to cover different current Commonwealth Government members of the staff Work out your (tax residency | Australian Taxation Office., 2016). The rule also states that in case if payer of tax is not a member of the superannuation fund, then in that case the particular person fails in meeting the requirements of the superannuation test.
Residential Status of Juliette during the year 2014 and 2015:
Juliette entered into an agreement with the American theatre company with the intention and purpose of offering her service in Australia for 2 years that essentially starts from 15-03-2015 to 15-03-2017.
Residential Status of Juliette for 2015-16:-
The residential tests that can be conducted for the purpose of determination of residential status of Juliette during the particular financial year 2015-16 include the following:
For the duration of the taxation year (2014-15), Juliette had the purpose and intent to reside in Australia for around 2 years primarily. However, after the marriage the Juliette intends to stay in Australia for her remaining life (Rental properties – claiming capital works deductions | Australian Taxation Office., 2016)
Juliette’s mother has her family member who expired during the present year. Right after her mother, the closest family member of Juliette is Juliette’s husband, who has taken birth in and resides in Australia Residency (the resides test | Australian Taxation Office., 2016).
Juliette had different business tie ups in the nation Australia during the period of travel in the year 2014 and 2015.
Juliette had a flat in lease to reside for the duration of two years in Australia and thereafter Juliette acquired the home for permanent stay (Rental properties – claiming repairs and maintenance expenses | Australian Taxation Office. 2016).
During her stay in Australia in 2015-16, she used to maintain a routine life. Juliette used to maintain a good life during Juliette’s stay in Australia during the period 2015 and 2016 (Rental property expenses | Australian Taxation Office., 2016).
Juliette has taken birth in Britain. Therefore, Juliette can be considered British By birth Residency (the domicile test | Australian Taxation Office. 2016).
By her own intention and choice, Juliette intends to reside in Australia permanently (Work out your tax residency | Australian Taxation Office., 2016).
Again, by the guidelines of the tax law, Juliette can be considered to be married to a resident of Australia (Rental property expenses | Australian Taxation Office., 2016).
183 Days Test:-
The usual place of residence of Juliette is England. However, she had purchased the residence in Australia Residency (the 183 day test | Australian Taxation Office. 2016).
Enumeration of the total number of days Juliette stay in Australia
|
Period |
No. of Days in Australia |
No. of Days in England |
|
1st July’15 – 15th October’15 |
107 |
0 |
|
16th October’15 – 14th April’16 |
0 |
181 |
|
15th April’16 – 30th June’16 |
76 |
0 |
|
TOTAL No. of DAYS |
183 |
181 |
Superannuation Test:-
The employers of Juliette are citizens of America, for that reason, Juliette can be considered under the system of superannuation.
As mentioned in the current case study, Juliette and her husband can be considered under the superannuation system.
According to the results of the above test, it is apparent that Juliette has successfully qualified in different test including the Superannuation test. As a result, consistent with the subsection 6(1) of The Income Tax Assessment Act, 1936 Juliette can be regarded as a resident of Australia in the year 2015-16.
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Taxpayee : Mr.George |
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|
Statement of Taxable Income from Rental Property:- |
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|
For the period ending on 30th June,2016 |
||
|
Particulars |
Amount |
Amount |
|
Assessable Income: |
||
|
Rent from Property |
13900 |
|
|
Total Income from Rental Property |
|
13900 |
|
Deductible Expenses: |
||
|
Commission to Agent |
695 |
|
|
General Repairs & Maintenance |
6000 |
|
|
Repainting of Front Fence |
2500 |
|
|
Fixing of broken front door |
1000 |
|
|
Capital Work Deduction : |
||
|
Replacing of Damaged Roofs |
15000 |
|
|
15000 |
||
|
Deduction Rate |
2.5% p.a. |
|
|
Deduction for Capital Work |
219 |
|
|
Depreciation on Assets |
1019 |
|
|
Total Deductible Expenses |
|
11433 |
|
Net Income from Rental Property |
|
2467 |
Working:
|
Calculation of Depreciation:- |
|||||
|
Items |
Cost |
Effective Life |
Depreciation Rate p.a. |
Useful Days |
Depreciation |
|
Hot Water Service |
2000 |
12 |
100% |
365 |
167 |
|
Carpets |
3500 |
10 |
100% |
365 |
350 |
|
Existing Furniture & Fittings |
5000 |
13.33 |
100% |
365 |
375 |
|
New Furniture & Fittings |
1200 |
13.33 |
100% |
213 |
53 |
|
Stove |
900 |
12 |
100% |
365 |
75 |
|
Total Depreciation |
|
|
|
|
1019 |
The enumeration of the rental income of George for the purpose of taxation is primarily founded on different guiding principles and suppositions of tax:
George is regarded to be a resident of Australia for the purpose of taxation during the financial year 2015-16.
George also had received the property at birth. George started utilization of the property after the inheritance of the property that has led to the generation of incomes for a period greater than 2 years. For that reason, George cannot assert for any kind of exemption regarding the rental income (Saad, 2014).
The income generated from the rent of a specific property needs to be located in Australia. Therefore, the rental income is arising out of the property located in Australia. In that case the rental income from the property is completely taxable under the tax laws (“Investment income | Australian Taxation Office”, 2016).
The agents are well paid for the purpose of generation of the rental income arising out of the property. Therefore, consistent with the Sect 8.1 of ITAA 1997, this can be regarded as a deductible expenditure from the rental income (“Rental property expenses | Australian Taxation Office”, 2016).
The common repairs are supposed to be carried out for the purpose of wear and tear as well as other harm from renting out the definite property. The preservation works can be carried out by maintaining the property in a rentable state. Based on the suppositions, the specific expenses for the general repairs as well as maintenance can be regarded as deductible expense (“Rental properties – claiming repairs and maintenance expenses | Australian Taxation Office”, 2016).
The process of replacement of the damaged roof of the particular property can be considered a substantial enhancement of the property. Therefore, the expenses incurred for the improved of the property can be considered as a capital expenditure (Norregaard, 2013). For that reason, the expenditure, 2.5% of the overall expenses can be included in the overall deductible expenditure. Therefore, George can get pleasure from different deductions for the upcoming 40 years in compliance to the Sect 40 (I) of ITAA 1997 (“Rental properties – claiming capital works deductions | Australian Taxation Office”, 2016).
The acquirement of new furniture, fittings cannot be considered as repairs & maintenance expenses as slated under the section 26 of ITAA 1997 (McKerchar et al., 2013). However, the new furniture as well as fittings can be considered as assets and George is normally permitted to deduct the amount of depreciation on different assets generated out of the rental income in the present year ( McKerchar et al., 2013).
The purpose of repainting of fence and fixing of doors can be considered as expenses that can be incurred for maintaining the property in a proper rentable condition. For that reason, the present expense can be regarded as the deductible expense according to rules slated under Sect 40 (G) of ITAA 1997.
As per tax rules and regulations, it can be primarily supposed that the particular assets, barring the new furniture as well as fittings, are acquired after 1st July, 2004. Seeing that George follows prime-cost technique for depreciation, the assets are essentially depreciated at the rate of 100%, counting the new assets in accordance to the rules mentioned under the Sect 40 (B) of ITAA 1997 (“Rental property expenses | Australian Taxation Office”, 2016).
According to different assumptions as well as taxation rules, it can be hereby ascertained that the total rental income is $13900 and the overall deductible expenses amounts to around $11433. Therefore, the net income that can be assessed for the present financial year is $2467.
References
Inheriting a dwelling | Australian Taxation Office. (2016). Ato.gov.au. Retrieved 11 August 2016, from https://www.ato.gov.au/General/Capital-gains-tax/In-detail/Gifts,-inheritances-and-deceased-estates/Inheriting-a-dwelling/
Investment income | Australian Taxation Office. (2016). Ato.gov.au. Retrieved 11 August 2016, from https://www.ato.gov.au/individuals/income-and-deductions/income-you-must-declare/investment-income/#Rent1
Rental properties – claiming capital works deductions | Australian Taxation Office. (2016).Ato.gov.au. Retrieved 11 August 2016, from https://www.ato.gov.au/General/Property/In-detail/Rental-properties/Rental-properties—claiming-capital-works-deductions/
Rental properties – claiming repairs and maintenance expenses | Australian Taxation Office. (2016). Ato.gov.au. Retrieved 11 August 2016, from https://www.ato.gov.au/General/Property/In-detail/Rental-properties/Rental-properties—claiming-repairs-and-maintenance-expenses/
Rental property expenses | Australian Taxation Office. (2016). Ato.gov.au. Retrieved 11 August 2016, from https://www.ato.gov.au/individuals/income-and-deductions/in-detail/investments,-including-rental-properties/rental-property-expenses/
Rental property expenses | Australian Taxation Office. (2016). Ato.gov.au. Retrieved 11 August 2016, from https://www.ato.gov.au/individuals/income-and-deductions/in-detail/investments,-including-rental-properties/rental-property-expenses/?page=3#Deduction_for_decline_in_value_of_depreciating_assets
Residency – the 183 day test | Australian Taxation Office. (2016). Ato.gov.au. Retrieved 11 August 2016, from https://www.ato.gov.au/Individuals/International-tax-for-individuals/In-detail/Residency/Residency—the-183-day-test/
Residency – the domicile test | Australian Taxation Office. (2016). Ato.gov.au. Retrieved 11 August 2016, from https://www.ato.gov.au/Individuals/International-tax-for-individuals/In-detail/Residency/Residency—the-domicile-test/
Residency – the resides test | Australian Taxation Office. (2016). Ato.gov.au. Retrieved 11 August 2016, from https://www.ato.gov.au/individuals/international-tax-for-individuals/in-detail/residency/residency—the-resides-test/
Work out your tax residency | Australian Taxation Office. (2016). Ato.gov.au. Retrieved 11 August 2016, from https://www.ato.gov.au/Individuals/International-tax-for-individuals/Work-out-your-tax-residency/#ExampleAustralianResident
McKerchar, M., Bloomquist, K., & Pope, J. (2013). Indicators of tax morale: an exploratory study. eJournal of Tax Research, 11(1), 5.
Norregaard, M. J. (2013). Taxing Immovable Property Revenue Potential and Implementation Challenges (No. 13-129). International Monetary Fund.
Saad, N. (2014). Tax knowledge, tax complexity and tax compliance: Taxpayers’ view. Procedia-Social and Behavioral Sciences, 109, 1069-1075.
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 1. Brief, 42(10), 10.
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