Case study 1: Residence and source
The provided case study intends to identify Kit’s current residential status tax-related payments in accordance with the “IT ruling 2650 under ITAA 1997”. In compliance with the mentioned law, the income gathered from a resident of Australia must be taxed, if the individual has resided in the nation for more than 183 days. Kit is a permanent Australian occupant, although his birthplace is Chile. This is because Kit has been working in an Australian firm, which compels him to travel foreign nations. The Australian government is required to create a capable system, which would restrict the double tax payments for the residents through exercise of stringent control on the policy of taxation (Avi-Yonah 2015).
Along with this, the authority of Australia has mentioned that the tax payments of the Australian residents are made according to the rules laid out in the Australian taxation system. Therefore, for complying with the Australian regulations, the incomes generated within the nation are required to be taxed. However, the non-residents of Australia are not liable to pay any sort of tax, in case; they do not meet the minimal desired criteria. As per the case study, Kit is employed in an Australian firm, due to which he lives with his wife and children in the nation. Hence, it helps in identifying the residential status of Kit for determination of tax liability (Bell and Hindmoor 2014). Moreover, Kit is compelled to pay in his home country due to Chilean citizenship that would result in double tax payments. This has caused the Australian authority to form an efficient residential test model for identifying the actual status of Kit. The test has been carried out through the following three steps:
The individual status could be identified with the help of this test in accordance with the method of the Australian authority. According to the “Domicile Act 1982”, this test is utilised to identify and assist the accurate residential status of an individual. Hence, this act enables to evaluate the individuals’ residential status to ascertain their residence (Boll 2014). In addition, “Section 6 of the Taxation Ruling 2650” depicts that the individuals desiring to acquire the Australian citizenship are compelled to make tax payments. In accordance with the case, “Henderson v Anderson 1965”, an individual has the right in choosing the domicile country of his choice.
As per the Henderson case, the individuals handle their decisions in choosing their residence indeterminately. This implies that identification of the domicile nation could assist in collecting tax levied on certain citizens. Thus, identifying the residential status of an individual is critical to determine the tax imposed on income. However, Burkhauser, Hahn and Wilkins (2013) argued that various loopholes to value the tax situation might free the individuals from tax pay.
Case study 2: Ordinary income
The evaluation of “Section 6(1) of ITAA 1936” and the test of domicile help in providing an overview of the residential status of Kit. Initially, Kit has been working in an Australian organisation due to his stay in the nation. Along with this, Kit has a house in Australia where he lives with his wife and children. Thus, according to Kit’s desire, Australia could be identified as the domicile country. Thus, it could be depicted that this test identifies an Australian resident for compelling them towards the taxation rules of the nation (Dowling 2014).
According to this test, if a person stays in Australia over 183 days, the individual is deemed as an Australian resident. By assessing the provided case, it has been identified that for more than 183 days, Kit has stayed in Australia; however, he is required to visit Indonesia for job purpose. In addition, since Kit has a house in Australia where his wife and children are staying as well; thus, making them an Australian citizen. The bank account of Kit is in Westpac, which is related to the wife of Kit and thus, she could be deemed as an Australian resident. In conformance to “F .C. of T. v. Applegate (79 ATC 4307; (1979) 9 ATR 899”, the individuals are called Australian citizens, if they have stayed in the nation for greater duration. This test denotes that Kit is an Australian citizen, which urges him to pay taxes according to the prevailing laws of the nation (Eichfelder and Vaillancourt 2014).
According to this test, the reality expectation is relevant to the residential conditions. According to the provided case, the salary account of Kit is in Westpac, which is an Australian bank and Kit works in an Australian organisation as well. In order to pay the salary of Kit, the bank account of Westpac has been used; however, the payment has been made in terms of AUD. The exposures of stock market are carried out in the Chilean market and this is required to be assessed under the Australian laws.
According to “Applegate per Franki J 79 ATC”, it is necessary for Kit to adhere to the taxation regulations of the nation for being an Australian citizen. In this regard, income tax act has been formed to tax the income generated within Australia. Along with this, the share market income is to be taxed as well to adhere to the taxation system of Australia. Since new rule has been designed for double taxation purpose, it aims to reduce the pressure from the residents of the nation for adhering to the other nation’s regulations (Hallsworth 2014).
From this provided study, “Californian Copper Syndicate Limited” has sold its property previously used for mineral exploration. In addition, from the sale of such property, net income has been realised. According to the initial statement of the organisation, there is absence of tax conveyance, since fund receipts from sale of the mineral-composed property are because of the overall resource exploitation. In accordance with the court statement, income generated from land sale is taxable regardless of the capability of generating income. The case denoted that the mining firms have utilised unethical measures for considerable tax reduction (Harris 2013). Finally, as per the court verdict, disposable income tax is applicable to all those income obtained from selling of properties in accordance with the legislations of the nation.
As per the above case, the subdivided business land, which is sold separately, is deemed as an assessable amount for taxation. In accordance with the taxation law of the nation, assets sold for fulfilling the income needs would be taxed under the capital gains section. On the other hand, the court has stated against the Scottish Australia mining organisation, which denoted that any commercial activity at the time of land sale is adjudged as the realisation of capital asset. Such realisation is to be deemed under the capital gains section that is required to be taxed (James, Sawyer and Wallschutzky 2015).
The above case states that any type of recognition where there is subdivision of property should not be deemed under the Australian taxation law. In addition, it is represented that the subdivided asset has been sold on separate occasions, which would be tax-free. However, the court has depicted that the fully or subdivided asset sale would be taxed, in case; net income is gathered from the transactions. In this case, the income pertaining to subdivided asset jas to be accumulated from the earnings to identify the overall gain. The section 25(1) states that the income accumulated from asset is the taxable amount regardless of its nature (Lignier, Evans and Tran-Nam 2014).
From the above case, it has been identified that the land has been bought for business use; however, due to some reasons, the objective was not fulfilled. The land has been unutilised for business and it has been sold due to unforeseen circumstances. According to the verdict of the case along with “Section 25(1) or 26(a)”, a transaction conducted through sale of property irrespective of its use is not liable for taxation. The income collected from the sale of property is entirely taxable; however, the capital gain for the company needs to be provided regardless of its utilisation. Moreover, the represented amount was capital gain, which needs to be deemed in accordance with the Australian taxation law (McKerchar, Bloomquist and Pope 2013).
This case has relied on a farmer earning low wages, which has compelled him for selling his property in portions. Such situation has caused the farmer to dispose off his asset for coping p with such low income. Therefore, the property sale has resulted in earnings, which is not taxable. However, the court has given a verdict that tax payment is applicable for the farmer since prpoert sale has resulted in net income. The tax could be acquired with the help of capital gain. The verdict of the curt states that the unethical measures of the individuals could be reduced to avoid tax pay through substantial resources (Pickhardt and Prinz 2014).
The above case denotes that the organisation does not have any motive for making profit from investment. However, the organisation was forced to sell the land because of particular conditions leading to net gain. With special adherence to “FC of T v The Emporium Ltd 87 ATC 4363”, tax payment is applicable for the overall net income, which is collected from property sale. Furthermore, according to the “sections 25(1) or 26(a)” tax is to be imposed on the propert that is sold from selling any asset. Furthermore, according to the court verdict, the transaction or sale is not intentional for making profit Thus, any profit obtained from the transactions are taxable under capital gain segment (Richardson, Taylor and Lanis 2013).
The farmer’s land activity has been denoted in this case through subdivision of various parts. The farmer has used a systematic method for subdivision of the overall land into different parts to be sold with simplicity. Moreover, according to the court statement, taxation is applied for any sale of property within the nation under the section related to capital gain (Tran?Nam and Evans 2014). However, taxation could not be applied, if there is any capital loss. The court utilises this method to prevent the unethical individuals for making higher incomes in businesses (Saad 2014).
According to the given case, a residential area has been purchased on the part of two brothers, and they planned to sell the same for the generation of capital gain. However, the brothers are forced to reside with their family, which has prevented them to sell their residential plot. After 18 months, net gain has been realised due to selling of the property that is subject to capital gain. This issue has taken place, since the brothers have not made tax payments from land sale in difficult times. The court has opposed that the land has been used for commercial purpose. Thus, any income generated from land is taxable, as the sale of land has lead to net gain falling under the taxation rules of Australia (Schenk, Thuronyi and Cui 2015).
References:
Avi-Yonah, R.S., 2015. Advanced introduction to international tax law. Edward Elgar Publishing.
Bell, S. and Hindmoor, A., 2014. The structural power of business and the power of ideas: The strange case of the Australian mining tax. New Political Economy, 19(3), pp.470-486.
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., 2013. Measuring top incomes using tax record data: A cautionary tale from Australia (No. w19121). National Bureau of Economic Research.
Dowling, G.R., 2014. The curious case of corporate tax avoidance: Is it socially irresponsible?. Journal of Business Ethics, 124(1), pp.173-184.
Eichfelder, S. and Vaillancourt, F., 2014. Tax compliance costs: A review of cost burdens and cost structures.
Hallsworth, M., 2014. The use of field experiments to increase tax compliance. Oxford Review of Economic Policy, 30(4), pp.658-679.
Harris, P., 2013. Corporate tax law: Structure, policy and practice. Cambridge University Press.
James, S., Sawyer, A. and Wallschutzky, I., 2015. Tax simplification: A review of initiatives in Australia, New Zealand and the United Kingdom. eJournal of Tax Research, 13(1), p.280.
Lignier, P., Evans, C. and Tran-Nam, B., 2014. Tangled up in tape: The continuing tax compliance plight of the small and medium enterprise business sector.
McKerchar, M., Bloomquist, K. and Pope, J., 2013. Indicators of tax morale: an exploratory study. eJournal of Tax Research, 11(1), p.5.
Pickhardt, M. and Prinz, A., 2014. Behavioral dynamics of tax evasion–A survey. Journal of Economic Psychology, 40, pp.1-19.
Richardson, G., Taylor, G. and Lanis, R., 2013. The impact of board of director oversight characteristics on corporate tax aggressiveness: An empirical analysis. Journal of Accounting and Public Policy, 32(3), pp.68-88.
Saad, N., 2014. Tax knowledge, tax complexity and tax compliance: Taxpayers’ view. Procedia-Social and Behavioral Sciences, 109, pp.1069-1075.
Schenk, A., Thuronyi, V. and Cui, W., 2015. Value Added Tax. Cambridge University Press.
Tran?Nam, B. and Evans, C., 2014. Towards the development of a tax system complexity index. Fiscal Studies, 35(3), pp.341-370.
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