Taxation - Theory and Practice Law

Question: Describe about theTaxation, Theory and Practice Law. Answer: Issue: To analyse Chilean citizen Kit's tax residency status and to guide him to get the suitable taxation treatment from his received income. Rule: The tax residency status of a tax player is discussed through section6 (1) of ITAA, 1936. In the Tax Ruling TR 98/17, many tests are available (August 2013). It significantly helps the taxpayer (ATO, 1995). These four tests are described below: 1) Domicile Test This test is applied to the people, who are having Australian domicile, but staying in any foreign countries to meet the professional or personal satisfactions. This test is mainly used to check the tax residency status of them. The major condition of an individual to satisfy this tax residency status is that under Domicile Act 1982, the particular individual should be domiciled in Australian territory (Woellner et al. 2012). It is also necessary that particular individual should continue to stay in Australian territory as per the verdict of the Federal Commissioner of Taxation v Applegate case argument. The major fact to remember in this test is that after having Australian domicile also if a person has a permanent residence in any foreign country, then also he will not be eligible for this Australian domicile test. As per the discussion of Taxation Ruling IT 2650, The Tax Commissioner added many factors to check the location and interaction of the individual on his/her permanent re sidence (Matsushita et al.2015). Those influencing factors are stated below: The degree of bifurcation between the actual and expected duration of living outside of the Australia for the individual. The willingness of the person to settle down in the foreign country. Certain activities which influence to set up the residences inn the foreign countries. The reason behind the foreign trips The frequency and the duration of those foreign tours 2) Residency Test Residency Test cannot explain the statute. Therefore, the main area to analyse such test is the verdicts (Lang 2014). In tax ruling, many statements in the relevant cases are highlighted because of this test. Certain factors are listed below: Location of the permanent home Duration of stay in Australian land as well as foreign country The frequency of visits outside of the Australia Duration of the stay, especially to the own country. Purpose and intensity of visit (personal and professional commitments) in that situation (Howieson et al. 2014). The judgement of the Levene v IRC [1928] AC 217 case has considered it. 3) Superannuation Test The taxpayer will be treated as a tax resident in the Australian territory until the time that person will not be engaged in both the schemes, which are stated below: Public Sector Superannuation Scheme Commonwealth Superannuation Scheme. If the person meets the above-mentioned factors, then that person has the right to be known as the Australian tax resident. It can also be possible that the concerned person, who is staying outside of the Australia, is also involved in this scheme. This test is applied to the officers, who are shifted to the foreign countries under the orders of the federal government of Australia (Kenyon 2013). 4) 183-day test Under this section, it is necessary for the concerned person to stay in Australian territory for a minimum duration of 183 days, in the present financial year (Ronalds and Raper 2012). This duration of stay can be on either breaks or a continuing basis. Application: This case study shows that Kit has a permanent address in Australian territory, but he carries his Chilean citizenship. In Australia, he signed the employment contract. But due to professional commitment and certain circumferences, he has to move to Indonesian coast. Presently he is working in the Indonesian oilrig. He also has a permanent residence in Australia, where his family stays. The salary of Kit is credited into his Australian bank account, which he made as joined account with his wife. He has no other intension to stay outside of the Australia without this reason. After three months of continuous service, he gets an off for one month in this job. During this off-period, he go back to Australia to spend some quality time with his family or also opt for vacations in South America. Here, the important factor is that Kit is an Australian PR. Considering these all above mention factors, it can be told that domicile test can be applied in Kit's case. In this case, Kit has Australian domicile and carries an Australian permanent resident (PR). This is the main criteria of domicile test (Buchan 2014). Fromm the above case study, it can also be told that Kit has no plan to settle permanently outside of the Australia. In this case, it is also mentioned that he is eager to continue his staying in the Australian Territory. He maintains his joint bank account, where his salary gets credited. Therefore, it can be told that Kit fulfils all the important criteria of Domicile test. Hence, as per the section 6(5) of ITAA, 1997, he will be considered as an Australian tax resident (Maddison and Denniss 2013). According to the rules of the Australian tax law, Kit has to pay the taxes from all this income coming from both foreign and domestic land. The investment and salary income from the foreign countries will be called as ordinary incom e. Therefore, it will be taxed under ITAA provision. Conclusion: Considering all the given facts, it can be concluded that, domicile act justifies the case study of Kit. Hence, as per the Australian tax law, the investment and salary income of Kit from the foreign countries will be taxed. Issue: To analyse the nature of the earned income from selling the lands in these following cases. Californian Copper Syndicate Ltd v Harris (Surveyor of Taxes) (1904) 5 TC 159 In this case, the Californian copper company buys a land for copper mining purpose. Hence, the received income from this mining process will be called das capital income. This income is tax-free. However, in this scenario, it is seen that to get more profit, the company sold this land. Because the owner of this company is after a major profit; this only can be achieved by selling the land. After analysing these given facts, it can be stated that the profit income after selling this land will be taken as ordinary income. Hence, under tax law, this income will be taxed (Oats 2012). Scottish Australian Mining Co Ltd v FC of T (1950) 81 CLR 188- In 1942 The main reason behind purchasing of this land is mining of the coal. After a period, the owner of the company thought of selling the land for residential purpose or further business improvements. He partitioned that property into various sections and sold each section with a premium rate. In this case, the court ordered that the company couldnt utilise this land for any residential, or business or personal purpose. Because the main aim of the company is to mine the coal from this property. Hence, according to the tax law, the income coming from the selling process will be treated as ordinary income (Hattingh et al. 2013). This income will be taxed. But Court didn't accept this fact. The Court also ordered that the company have no right to sell the land. Therefore, the income will not be taxed, as the type of the income is not ordinary. FC of T v Whitfords Beach Pty Ltd (1982) 150 CLR The main aim of the owner is to get a large amount of profit by selling this land. The owner is aware of the fact that he will get huge money from selling than his investment or the land. As the company is not willing to carry this business forward, so they are planning to sell this land. The gained profit from this selling procedure will be termed as ordinary income, and it will be taxed as per Australian law section 15-15, ITAA 1997 (Chalmers et al. 2013). Statham Anor v FC of T 89 ATC 4070 The owner of this lens, as described in this case is traditionally associated with farming. But he sold some parts of the land after a certain period to achieve more profit. As the farmer has no as such idea of profit-making or creative business activity (Langton and Longbottom 2012). Hence, the profit income will be considered as capital income after selling a small amount of that land. When any land is sold, it will be considered as the realization of the valuable property. Hence, under Australian tax law, that income will go for paying tax. Casimaty v FC of T 97 ATC 5135 Casimatys father gifted him this land. He nurtured this land and fenced this land. He did not have any plan to sell that property. However, unfortunately certain crisis came to his family, like financial crisis due to the health problem. Then he was bound to sell a major part of the land, i.e. 2/3rd of the whole area. As per the general tax rule, this received income from selling this land will be taxed. But in this particular scenario, the main intention of Casimaty is not to make the profit out of this activity. This income will be considered as capital income and it will also be liable for tax purposes. Because the main aim behind selling this land is to get rid of health problems and financial loss. This profit tendency is capital and cannot be considered for tax payment (Cogan 2015). Moana Sand Pty Ltd v FC of T 88 ATC 4897 The main aim of the Moana Company is to take sand out of the lands. After spending a long time, the land became the deficit of sand quantity. Therefore, the owner of the land divided into various small parts and stated selling. Form the fact it can be said that intention of the company is to make the profit by selling the land. Therefore, this income will be considered as ordinary income and will be sent for tax payment purpose (Martin and Manwaring 2015). Crow v FC of T 88 ATC 4620 In this case, the objective behind buying this land is farming. By taking a loan, the farmer bought a land. After a time gap, the farmer thought of selling the land. He divided the land into 51 small sections and stated selling at a high rate with different time gaps. This activity is repetitive by nature as he continued through selling. As per the Court's order the farmer is involved under profit making business. Hence, this profit will be granted as ordinary income and it will be taxed under tax law (Boyle 2016). McCurry Anor v FC of T 98 ATC 4487 In this case, it is noted that a person bought an old house for investing on it. He changed it into three townhouses by reconstructing it in a new way. He did this from the selling point of view. But unfortunately, he could not sell the house due to the poor economy structure at that time. So, he started living in that house to use it. After three years gap, he sold all those three townhouses at a very high price. Then Federal Government had analysed this case minutely. The Government stated that the main intention of the owner of he house was t make a profit out of that investment. This intention will come under basic business activity. So, the received payment from selling that townhouse will be granted as ordinary income (Ronalds and Raper 2012). As per the Australian law, this income will be taxed. References: Aust, A., 2013.Modern treaty law and practice. Cambridge University Press. Boyle, L., 2016. 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