Questions:
Case Study 1: Verification process of Kit, a Chilean citizen and consultation for required taxation system for his income.
Case Study 2: Analysis of verdicts came for sale of land under Australian rules and regulation.
Verification process of Kit, a Chilean citizen and consultation for required taxation system for his income
The tax for residency status for a taxpayer is given in by section 6(1) of ITAA, 1936. There are numbers of tax system in tax ruling TR 98/17, which can help to apply the tax regulation of tax payers (ATO, 1995). This is the following details for the above stated problem-
Test of domicile is relevant to those Australian citizens who is having Australian domicile and living in another countries for their purpose of profession or any personal reason. The regulation about this kind of condition is that individual should be domiciled in Australian territory under Domicile Act 1982. In spite of this condition there is also one rule in which they should reside in Australian territory verdict of case the Federal Commissioner of Taxation v Applegate case. The main pint in this case is that if any Australian citizen residing permanently outside of countries then such kind of citizens is not listed in this test system.
To verify the personal Tax commissioner of Australian countries uses some factors for examining the purpose and location of the individual which is related with permanent residence as per verdict of case of Taxation Ruling IT 2650.
These are the following factors which is working on this
Any taxpayer in Australian residency comes under the Australian territory if he/ she would be involved either of the two schemes which are discussed below-
If any individual satisfy the above stated regulation, then that person would be recognized as the Australian tax resident. Although, it may be possible that the concerned person was involved in this scheme but stayed outside of Australia. This test generally involves the officers who are posted on the foreign territory on the instruction of the federal government of Australia (Deutsch et. al, 2015).
Residency does means that he would bind with regulation, so the main purpose of this research is to find out verdict related to cases happened in history, especially the cases of tax ruling. This is the factor which contributes in this.
Time spent in foreign land (For personal or professional commitments) for this there is a verdict the judgments of the Levene v IRC [1928] AC 217 case is taken into account.
There is rule in Australia for individual that he must stay a minimum period of 183 days in a given financial years. But there is a relaxation of continuation or intermittent stay in the countries i.e. he can live with break also.
As given in case study, Kit is permanently residing in Australian country, but he has not left the citizenship of Chili. He come here for professional purpose and in a contract with Australia and obliged to rules and regulation for what he has written in contract. During his professional carrier he has to visit Indonesian coast. At the present scenario he is working with an Indonesian company’s oil rig and he is the owner of a house in Australia, where his family residing in Australia. He has a bank account in Australia along with his wife as joint account holder scheme. He gets his salary through this joint account which is credited every month. In spite of all above stated thing he is planning to settle down in Australia i.e. not intention to go to chili after retirement. During their duty time he gets there month of service and one month off this is as per Indonesian regulation. During the off duty time period he is coming to Australia and sometime goes to South America. The one of the important factor is that Kit is an Australian PR.
After reading all the case scenario and getting all the details related to citizenship regulation it can be concluded that test of domicile is the main regulating which can be applicable in this case. Since, Kit has permanent residents (PR) and having domicile of Australia. This main significant factor for test of domicile, and the second important factor is as per the case study Kit has no intention to get settled outside of Australia. It is also mentioned in the case, that Kit wants to continue to reside in Australian territory. He also maintains a bank account in Australia, where he receiving his salary and giving expense to their family. On the basis of above information, it can be decided that Kit has given satisfactory result for both of the test of domicile and therefore, Kit has right to get Australian tax resident as per the section 6(5) of ITAA, 1997. Hence, all the income coming from domestic and foreign land is viable for tax as per Australian tax code. The investment income are coming from outside of Australia will be termed as ordinary income and hence tax under the provision of ITAA.
If I am in the jurisdiction in Australia then it can be concluded that according to the test of domicile Kit is definitely an Australia resident. Therefore, all his income and also investment coming from foreign lands would be taxed as per the Australian tax law.
Californian Copper Syndicate Ltd v Harris (Surveyor of Taxes) (1904) 5 TC 159
As given in the case study A land is being purchased by Californian copper company for the purpose of mining the copper, further problem is that the income gained from this mining is being considered as a capital income and tax is not viable for this income. As the scenario presentation, the company sold the lad to third party in order to gain huge profit from it. On this basis profit received by selling the land will be considered as an ordinary income. Therefore, tax is viable under the tax Law.
This problem is almost similar as Californian copper company, in this scenario it was presented that there is plan to purchase the land for the purpose of mining coal. After sometime the owner of this company decided to sell the land for a business activity especially for residential purpose. They have added value to the land by subdividing it into plot and sold with premium rate. The verdict from court ordered that company cannot use this land for any business or residential purpose because the main purpose of purchasing this land was to mining the coal under this land. Therefore, income received from selling the land is an ordinary income and viable for tax under the Australian Tax code of conduct, but while giving decision to this verdict court had not accepted the factor of selling the land and announced that the company is not liable to sell the land. Therefore, Income is not of ordinary nature and cannot be taxed.
In this case there is clear intension of the land owner to sell the land for making big profit. The owner also very clearly ware that the cost of this land is much higher than what he has expected from buyer. The factor is that company does not want to carry-over the business but wants to sell the land to make big profit. Therefore, income coming from selling the land is of ordinary nature and would be taxed as per Australian law section 15-15, ITAA 1997.
As per given scenario, the landowner is a farmer and traditionally involved in farming. But as the time spends he sold some part of their land and earned profit, the intention of owner is not carry the farming or any profit making activity. Therefore, the income made by selling some part of land is not comes under ordinary nature rather it’s a capital income. Because the selling the land is basically realization of valuable asset, so under Australian tax law, the income would not be considered for tax.
The father of Casimaty gifted as land to their daughter. There is no intention of selling the land, and in the meantime he has done fencing to the land, But after sometime when financial crisis was occurred and also there is an health issue, he use the land to make some income by selling the land. The portion he has sold is two third of the whole land. The simple point of view this comes as per normal tax rule and income could be taxed, but especially in this case of Casimaty, there is no intention of selling the land for making profit, hence, court has given ruling of this verdict is that, the income would be the income would be termed as capital income and would liable for taxed purpose and the intention of selling the land is to get rid of financial crisis and health issue. The nature of profit is capital and cannot consider for tax purpose. Therefore, Income is not of ordinary nature and cannot be taxed
The main purpose of Moana Company is to recover sand from their own land .After sometime, when sand is reduced; the owner divided this land into subparts and start selling. With this fact, it can be concluded that the objective of the company is to earn a profit by selling the land; hence, the income termed as ordinary income and would be considered for tax purpose. On this basis profit received by selling the land will be considered as an ordinary income. Therefore, tax is viable under the tax Law.
The main purpose of buying the land is agriculture, for this; the farmer borrowed money from third party and used to buy this land. After a certain period of time, the farmer subdivided the land into 51 subsections and sold them at a very high pay with different time intervals. Thus, this activity is repetitive in nature, hence, as per the judgments of the Court, the farmer is completely involved in profit making activities, hence, and the profit considered as ordinary income and would be taxed under tax law. On this basis profit received by selling the land will be considered as an ordinary income. Therefore, tax is viable under the tax Law.
The main purpose of owning this house is investment. He reconstructed the old house and turned into three townhouses for selling intention. But due to market structure, he was not able to sell this townhouse. Therefore, he started using the townhouse for his own living. After a year of living, he sold all three townhouses at a very high rate. After considering all the factors Federal government decided that the intention of the owner is to make an investment to earn a profit for which is basically a business activity, Hence, the income received by selling the townhouse would be considered as ordinary income and would be taxed under Australian law. On this basis profit received by selling the land will be considered as an ordinary income. Therefore, tax is viable under the tax Law.
References
Gilders, F, Taylor, J, Walpole, M, Burton, M. &Ciro, T 2015.Understanding taxation law 2015 (8th edition).LexisNexis/Butterworths.
Sadiq, K, Coleman, C, Hanegbi, R, Jogarajan, S, Krever, R, Obst, W, and Ting, A 2015, Principles of Taxation Law 2015, (8th edition), Thomson Reuters, Pymont
Barkoczy, S 2015. Foundation of Taxation Law 2015, (7th edition), CCH Publications, North Ryde
Deutsch, R, Freizer, M, Fullerton, I, Hanley, P, &Snape, T 2015.Australian tax handbook (8th edition).Thomson Reuters, Pymont
Federal Commissioner of Taxation v Applegate (1978) 8 ATR 372
Levene v. I.R.C.(1928) A.C.217
Taxation Ruling TR 98/17
Taxation Ruling IT 2650
Taxation Ruling TR 97/11
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