Taxation Laws British Reaident in Australia

Question: Discuss about the Taxation Laws for British Reaident in Australia. Answer: Case study 1 Residence and Source: The learning under this case study provides an in depth overview regarding the residential status of an individual. The individual involved in this case is Fred who is a British resident has moved to Australia for a period of eleven month before returning to England. It is worth mentioning that Fred will be held liable for tax as he stayed in Australia for eleven months. Fred also earned an income before staying in France at the time of his employment in England will be taken into the account in the computation of taxable income for his stay in Australia (PATEL 2016). It is important to denote that at the time of assessment of residential status, which is matter of complex affair and is widely dependent on the individual personal state of affairs. In addition to this, an individual cannot exert pressure at the time of computation of residential status (Kirsch 2013). As stated by the Australian tax laws under the domicile test an individual who has lived for a period of 183 days will be held liable for a tax. Therefore, as per the case study Fred will be considered for tax since he has stayed in Australia for a period of 11 months (Chang 2016). A migrant in relation to the terms of visa living in Australia for 183 days is intermittently considered for taxation purpose. The learning has also reflected that Fred has purchased a land on lease for a period of 12 months and has also stayed in Australia with his wife before deciding to return to Australia on account of poor health (Kirsch 2013). As stated by the Australian agency of tax, an individual is pardoned on the condition when he proves the commissioner of tax agency that he or she does not have the plan of rolling himself or herself under the Australian residency. The income tax rulings in compliance with the domicile test gives an account of the country where a person is born before an individual decides to move to other country and choose his domicile as per the personal criteria. As the case study highlights that Fred is understood to be a British Resident and is looking forward to set up his trade in Australia (Woellner et al. 2016). The case study provides the truth of the residential status conducted on the assessor in order to consider the regularity period of the trips done by Fred. It should be noted that the learning did not provides an in depth information regarding his tenure of stay in Australia but it can be predicted that his stay will be longer than his previous stay (Deutsch 2014). The tenure of stay has been predicted to be longer since Fred has also brought up a house on lease. The residential status of Fred is considered based on his stay and he is liable to be taxed under the ITAA 97 for his business relations and family i n Australia. Case study 2 Ordinary Income I. Californian Copper Syndicate Ltd v Harris (Surveyor of Taxes) (1904) 5 TC 159 The following case undertakes the problems regarding the realization of capital assets and either or not the profits generated from the sale of a particular property could be exploited as the sale of minerals was assessable under the heads of ordinary income or considered as capital. Law: The rulings concerning the laws provides the guidance in determining the weather revenue generated from Isolated transactions can be considered as incomes and therefore assessable under subsection 25 (1) of the Income Tax Assessment Act 1936 (Clark 2014). Under this ruling isolated transaction is defined as those transactions, which occurs outside the ordinary course of business. Arguments: Under this case, the taxpayer spends the majority of its income in the acquisition of copper-bearing land and he did not have any sufficient amount of capital left with him to start work on the land. The taxpayer had to sell off the land in consideration of shares and realized substantial amount of profit (Krever and Mellor 2016). The taxpayer also contended that he substituted one capital asset with another capital assets and he had not realized any profit, which would be considered for assessment. Decisions: The court ruled that the taxpayer was assessable for tax on the account of profit arising from the sale of land and it will be treated as income. It was evident that the original intentions of the taxpayer were to make profit from the sale of land. Therefore, the capital, which was available with the taxpayer, was never sufficient to start mining activities on land. It was ruled that the profit on sale of land was not a mere substitution of one investment for another but the selling of land is considered as trending transactions. II. Scottish Australian Mining Co Ltd v FC of T (1950) 81 CLR 188 The case takes into the account the account the issues related to business proceeds and whether or not the subdivision and sale of land has been used by a mining organization will be considered as assessable income or it can be considered as a mere realization of capital asset. Law: Capital Gains Tax: According to Section 108-5 (1) of the Income Tax Assessment Act 1997 demonstrates that a capital gains assets is any sort of property or a legal right and any gain or capital loss may be derived if any CGT transactions happens to those assets. Arguments: The case states the taxpayer of the company executed the business of mining of 1771 acre of land near Newcastle, which it had purchased during late 1860s. The taxpayer continued its mining activities until 1924 and finally sold off the land when coal had been exhausted from that land. To attract heavy price the taxpayer incurred huge expenditure to subdivide the land by constructing roads, railways station (Boll 2014). Hence, the taxpayer derived huge amount of profit from sale of land and the commissioner assessed the taxpayer on the profit generated from such sales. The commissioner assessed that that taxpayer was assessable under Section 26 (a) either for profit arising from carrying on or carrying or profit from undertaking or Scheme. Decisions: The taxpayer argued he merely realized the capital in an advantageous manner and had not carried on a business that his profits were not assessable. He asserted that extensive work performed on the land was to fetch a best possible price. The court passed the decision that realization of assets was enterprising on the capital account (Tiley and Loutzenhiser 2012). The commonwealth law report shows that the outcome of the case took two long days. The decisions passed by the court stated the fact commercial exercise was treated as the mere realization of the capital asset. III. FC of T v Whitfords Beach Pty Ltd (1982) 150 CLR The above stated case takes into the considerations of issues related to business incomes in order to determine whether the subdivision and sale of land was of capital in nature. Law: The rulings under this case study offers guidance in assessing either the profits from Isolated transactions are treated as income and therefore, assessable under Section 25 (1) of the Income Tax Assessment Act 1936. Arguments: The taxpayer was considered as company, which was formed in the year 1954 by the group of fisherman. On 20 December 1967 three development companies subdivided the land and sold out the land along with this they purchased the shares of fisherman in the taxpayer shares of $1.6 million. The commissioner assessed the taxpayer for the profits derived from land and asserted that the taxpayer was assessable under section 25 (1) or under 26 (a) as profits arising from any business undertakings. Decisions: The taxpayer argued that its activities did not result in realization of capital and its profits are not assessable. As per Gibbs CJ, Mason, Murphy and Wilson JJ the taxpayer was assessable under section 25 (1) for the profits derived from the sale of land (Faccio and Xu 2015). The declared that the taxpayer activities consisted of carrying on a business of land development. The court ruled that the taxpayer was company and its objectives were to determine purpose of those controlling the business. The outcomes of this case states that the profits should be assessed as taxpayer assessable income in accordance with the general accounting principles. The profits will be calculated by subtracting the gross proceeds from the value of sale of land. IV. Statham Anor v FC of T 89 ATC 4070 The above stated case raises the questions of net proceeds received from the sale of subdivided sale of land that can be assessable as income either under section 25 (1) or 26 (a) (Kania 2013). Law: Assessable income: It should be noted that sale of land which is originally acquired and used for farming and proceeds derived from carrying out the business activities represented the mere realization of capital assets. Arguments: The taxpayers were trustees of the estate of Charles Ademan who died in 1980 who had acquired a large farm in 1970 to raise his family and engage in some desultory farming. In the year 1976, the deceased decided to sell of the land to his brother in law and enter into the partnership with the intention of raising capital, which remained unfulfilled. The co-owners decided to subdivide the land and sell off the property. The subdivision of land was sold off through real estate and agents between 1980 and 1986 (Kania 2013). The commissioner considered the net proceeds as the sale of the subdivided land as the assessable income under section 25 (1) or 25 (a). Decisions: The taxpayer contented that the land was not used for business purpose and the deceased did not enter into any profit-making scheme. The taxpayer asserted that the land was merely realized and the net proceeds should not be treated for assessable income. The court ruled that the manner in which the subdivision of land took place which indicated that the taxpayers were not engaged in business or any profit making scheme (Faccio and Xu 2015.). The outcome of this case states that the degree of realization does not cover any business undertakings however, the scale of realization is a relevant matter which should be taken into the account in determining the nature of realization of such land. V. Casimaty v FC of T 97 ATC 5135 The above stated case study determines the sale of parts of property assessable under section 25 (1) or 25 A. Law: Assessable income: The law states that the sales of subdivided land originally acquired and utilized for farming activities. Revenue generated from carrying on a business represented a meager realization of capital assets. Arguments: The taxpayer originally acquired 988 acre of land to conduct the activities of farming and fencing based on Action view. However, his business could not grow due to drought, increasing debt and poor health. By 1970, it was evident that the taxpayer could not sustain interest on mortgage and had no alternative but to sell of portions of land from time to time to reduce his burden of debt. The commissioner assessed that the payer derived profit from the sale of subdivided block of land under Income Tax Assessment Act 1936. Decisions: The Federal court ruled that the subdivision and sale of parts of land was not assessable under the either Section 25 (1) or 25A. The federal court ruled that the Action View has been acquired by the taxpayer with the objective that no profit is assessable from the sale of land in compliance to the first limb of section 25A (1). Nor did the second Limb of the sub-section have any implication as because sales of land did not took place in the due course of business or from any profit undertakings. VI, Moana Sand Pty Ltd v FC of T 88 ATC 4897 The case study takes into the consideration that whether Section 25 (1) or 26 (a) in applied to assess the taxpayer income in regard to the value received by the taxpayer on subtracting the cost to generate profits which is generated from the sale of land. Law: The law provides the guidance in assessing whether the profits from Isolated Transactions are considered as assessable income under Section 25 (1) of the Income Tax Assessment Act 1936. The rulings does not consider the applicability of the section 25A regarding the capital gains and capital losses under Part IIIA or Division 6A of Part III (Woellner et al. 2016). Arguments: The taxpayer acquired the land with the two-folded objective of working and selling surplus and holding the land until it is appropriate to sell the land on profit. After several years, the land was sold off for $500,000 and the commissioner included the value for assessment by subtracting the cost of land and other expense (Clark 2014). The taxpayer argued that no part of land was assessable under section 25 (1) or 25 (a). The taxpayer argued that the decision in FC of T v The Myer Emporum Ltd did not have any implications. Decision: Sheppard, Wilcox and Lee JJ of federal court held that for the year 30 June 1980 both the section 25 (1) and 26 (a) is applied to consider the taxpayer income for assessment and the amount of $370,000 received by the taxpayer during the year is the profit arising from land (Hayes 2015). The court passed its verdict that the profit was considered as income to ordinary concepts and the decision in FC of T v The Emporium Ltd 87 ATC 4363 is considered as assessable income under section 25 (1). VII. Crow v FC of T 88 ATC 4620 The case raises the question whether under Subsection 25 (1) or sec 26 (a) of the ITAA 1936 functions to include in the assessable income of the taxpayer profit derived from the sale of land near Hobart (Feld et al. 2016). Law: Assessable income: Sale of subdivided land acquired for farming and profits derived are assessable for realization of capital asset. Argument: Under the case the farmer had borrowed five blocks of land over a period of ten years and used for agricultural activities but it was eventually subdivided. After two years the taxpayer sold off the land for a net profit of 388,288. The taxpayer income was assessable for the profits derived by him, as he was carrying business for land development (Golosov et al. 2013). The intention of the taxpayer was to sell of the land as he was financially committed to pay his creditors. Decisions: The federal court held that the land taxpayer was assessable under the ITAA 1936 for profit derived by on execution of business activities of land development. It is evident that the court acknowledged that in the initial stages, the land was used for farming but the amount of debt compelled the taxpayer to sell of the land (Hayes 2015). The court also held that the transactions were of repetitive in nature, which had the characteristics of continuing business of land development. VIII. McCurry Anor v FC of T 98 ATC 4487 The case raises the question of profit generated from the sale of land assessable under Section 25 (1). Law: Assessable income: The taxpayer is assessed under the Section 25 (1) of ITAA 1936 on the earnings generated from the sale of land. Arguments: The taxpayers were brothers in this case and used their funds along with bank loan to construct townhouse on the land. The taxpayers later sold off the land during December 1988 which resulted in net profit of $75,811 to each of the tax payers (Hayes 2015). The tax payers denied that they engaged in any profit making activities by arguing that the sold the units due to financial difficulties. Decisions: The court ruled that the taxpayers income was assessable under the section 25 (1) in the form of profit making scheme from commercial undertakings. The outcomes of the court stated that the venture was in the form of trading venture and derived the anticipated profits (Harding 2013). Therefore, the taxpayer entered into commercial venture and eventually engaged in the development of land. Reference List: Boll, K., 2014. Mapping tax compliance: Assemblages, distributed action and practices: A new way of doing tax research.Critical Perspectives on Accounting,25(4), pp.293-303. Burkhauser, R.V., Hahn, M.H. and Wilkins, R., 2015. Measuring top incomes using tax record data: A cautionary tale from Australia.The Journal of Economic Inequality,13(2), pp.181-205. Chang, J., 2016. Foreign resident CGT withholding.Taxation in Australia,50(11), p.664. Clark, J., 2014. Capital gains tax: historical trends and forecasting frameworks.Economic Round-up, (2), p.35. Deutsch, R.L., 2014. Australian Tax Handbook 2006. Faccio, M. and Xu, J., 2015. Taxes and capital structure.Journal of Financial and Quantitative Analysis,50(03), pp.277-300. Feld, L.P., Ruf, M., Schreiber, U., Todtenhaupt, M. and Voget, J., 2016. Taxing away MA: The effect of corporate capital gains taxes on acquisition activity.Available at SSRN. Golosov, M., Troshkin, M., Tsyvinski, A. and Weinzierl, M., 2013. Preference heterogeneity and optimal capital income taxation.Journal of Public Economics,97, pp.160-175. Gordon, R.H. and Kopczuk, W., 2014. The choice of the personal income tax base.Journal of Public Economics,118, pp.97-110. Harding, M., 2013. Taxation of Dividend, Interest, and Capital Gain Income. Hayes, D.J., 2015. Changes in Iowa's Capital Gains Tax.Iowa Ag Review,4(1), p.4. Kania, B., 2013. Capital Gains Tax. InSteuerstandort Grobritannien(pp. 128-156). Springer Fachmedien Wiesbaden. Keuschnigg, C. and Nielsen, S.B., 2014. Start-ups, venture capitalists, and the capital gains tax.Journal of Public Economics,88(5), pp.1011-1042. Kirsch, M.S., 2013. Revisiting the Tax treatment of citizens abroad: reconciling principle and practice. Krever, R. and Mellor, P., 2016. Australia, GAARsA Key Element of Tax Systems in the Post-BEPS Tax World.GAARsA Key Element of Tax Systems in the Post-BEPS Tax World (Amsterdam: IBFD, 2016), pp.45-64. Marian, O., 2013. Jurisdiction to Tax Corporations.BCL Rev.,54, p.1613. PATEL, D.J.I., 2016. Residential Status and Tax Incidence Under The Income Tax Act, FEMA and Companies Act.International Journal of Scientific Research,4(5). Tanzi, V., 2014. Inflation, indexation and interest income taxation.PSL Quarterly Review,29(116). Tiley, J. and Loutzenhiser, G., 2012.Revenue Law: Introduction to UK Tax Law; Income Tax; Capital Gains Tax; Inheritance Tax. Bloomsbury Publishing. Woellner, R., Barkoczy, S., Murphy, S., Evans, C. and Pinto, D., 2016.Australian Taxation Law 2016. Oxford University Press.