Tax Treatment for Foreign Residents
The general principles of “section 6-5 of the ITAA 1997” states that a resident of Australia for taxation purpose will held liable for taxation from all the sources. A foreign resident on the other hand can be defined as the residents of other nations (Barkoczy 2014). According to the “section 6-5 (3) of the ITAA 1997” the foreign residents are usually taxed on the income from the Australian sources. The individual tax rates differs based on the fact whether the person is the resident of Australia for taxation purpose or foreign resident.
The foreign residents does not have the access to several personal tax offset facilities. Furthermore the foreign residents are not liable for Medicare levy. The present essay is based on addressing the different tax treatment and implications for the foreign residents including the foreign business in Australia (Brokelind 2014). To further facilitate the discussion the essay would accompany the identification of the tax treatment for both the foreigners as well as the resident’s taxation purpose. The essay would highlight the implications that are identified in the treatment made to the foreign residents with appropriate recommendations for future reformations of the law.
A foreign resident can be defined as the resident that lives in the foreign country during the entire tax year and hence qualifies for the foreign income that is earned. According to the “section 6-5 (3)(a)”, a foreign resident for the tax purpose are either those that are holidaying in Australia or individuals that enter Australia for less than six months (Coleman and Sadiq 2013). As the foreign resident an individual taxpayer is required to lodge the tax return in Australia. An individual taxpayer is required to pay taxes on all the income that are Australian sourced, excluding the circumstances where the income is correctly taxed such as the un-franked dividend, royalties and interest. The Australian taxation office on the other hand states that a foreign company that is doing business in Australia the tax obligations will be impacted by the tax treaties amid Australia and other nations along with the nature and scale of the business.
In light of the tax treatment relating to the foreigners and Australian resident for taxation purpose, “section 6-5 (2) of the ITAA 1997” states that residents are usually taxed for their ordinary income and statutory income from all the sources. While “section 6-5(3)(a) of the ITAA 1997” a non-resident or the foreign residents are levied upon their ordinary income and statutory income from the Australian sources only (Grange, Jover-Ledesma and Maydew 2014). The foreign residents are required include in their taxable income the Australian pension and the annuities. The foreign residents are required to declare the Australian pension and the annuities that is received in their tax Australian tax return, unless the foreign taxpayers are provided with the exemption that are available under the tax law or the applicable treaty.
Tax Treatment for Australian Residents
The tax treatment for the Australian resident are different from that of the foreign resident. According to the “section 6-5 of the ITAA 1997” the assessable includes the income under the ordinary concepts. The judicial approach of income under the ordinary concepts is explained in “Scott v Commissioner of Taxation (1935)” where the receipts should be treated as income under the ordinary concepts and use of mankind (Jover-Ledesma 2014). An individual that are the Australian resident, their taxable income comprises of the ordinary income that is derived directly or indirectly from all the sources irrespective of the fact whether the person is inside or outside of Australia during the relevant income year.
The liability to tax arises based on the resident status of an individual. The high court in “Applegate v FCT (1979)” held that the term permanent does not signifies everlasting while the same is assessed objectively every year (Kenny 2013). According to the general jurisdiction rule residents are liable to Medicare levy and Medicare Levy Surcharge. Whereas no Medicare levy and Medicare Levy Surcharge is applicable for the foreign residents. The Australian residents are subjected to majority of the tax offset while the foreign residents are not subjected to higher tax offsets.
For the foreign residents withholding tax is withheld by the payer and the same is required by the foreign residents to report in their Australian tax return. The foreign residents are required to disregard the capital gains and capital losses relating to the CGT assets which is non-taxable Australian property (Krever 2013). Similarly for the residents a capital gains tax liability would originate on the sale of assets which is considered as the assessable Australian property. The resident taxpayers are usually taxed based on their worldwide income however a foreign tax offset is paid on the double taxed income till the amount of the Australian tax that is payable on that income.
In principle, the resident Australian company on the other hand are liable for company income tax based upon their worldwide income while the foreign business is only required to pay the taxes for the income that are derived from the Australian sources (Morgan, Mortimer and Pinto 2013). The rate of tax and the treatment of tax are usually same for all the companies together with the foreign companies even though there are certain exceptions for the special forms of business. The taxable income for the foreign companies includes the net amount of capital gains that is derived by the at the income tax rate of 30% or the 27.5%. Capital gains or losses on selling of shares by the Australian company in the foreign company might be reduced up to a certain degree where the assets of the foreign company are used in the active business.
Tax Treatment for Australian Companies
Foreign business on the other hand are held liable for the capital gains tax on the assets that comprises of the Australian taxation property (Sadiq 2014). While for the Australian resident company majority of the income tax offset rules enables the taxpayers to claim the tax offset on the foreign tax which is paid in relation to the sum that is used in obtaining the taxable income. The foreign companies that are considered as the tax resident in Australia or that carries on the business through the permanent establishment in Australia might be held eligible for the research and development incentive. On the other hand, an Australian company or the permanent establishment can conduct the research and development activates on behalf of the foreign parent company given that specific conditions are met.
After a number of recent legislative change relating to the taxation of foreigners, the implications relating to the Australian taxation are related with the arrangement of foreign employees that relocate internationally are extremely complex (Woellner 2013). For a foreign residents the taxes are applicable on the Australian employment income. The employers would ask the foreign residents to fill up the tax file number that helps in understanding whether the person is an Australian resident or foreign resident for the taxation purpose.
The tax implications are determined by working out the amount of tax to be withheld from the wages. The taxation system is such that the foreign tax residents are provided with the superannuation fund so that they can accept the appropriate superannuation fund and pay the correct sum of tax (Woellner et al. 2014). Whether the person is the temporary resident or foreign resident, the taxation system of Australia is such that the employers provide the superannuation contributions for the foreign residents just as it is done for the employees that are Australian resident.
The tax implications for the foreign residents are most probably subjected to taxation on any sum of income that is earned in Australia. A foreign resident receiving income through an Australian sourced may be required to pay the taxes on that income or simultaneously their tax return (Pinto 2014). The tax implications for the foreign residents is such that they are not required to lodge tax return only on the circumstances if the income is received that comprises of interest or royalties from which the withholding tax is withheld by the payer. The tax implications for the foreign residents are such that they may be eligible for the tax exemptions given that the foreign resident’s country have a treaty of tax with Australia.
Tax Implications for Foreign Employees
The taxation law in Australia is such that that residents and the foreigners are treated differently. The Australian residents are usually levied for the worldwide source of earnings. The tax implications for the foreign residents are such that they are only levied for the earnings that are sourced in Australia (Robin 2017). The rate of margin taxes are also different for the income which is below $37,000 while the effective tax rates for the foreigners or non-residents are much higher. The tax implications for the foreign residents are such that they are only allowed to earn an interest of 10% in the Australian bank account. The rate of interest for the foreign residents are not taken into the considerations while computing the taxable income. However, the tax system is such that the foreign residents are required to provide the overseas address or else the taxes will be withheld at a very high rate.
According to the Roe (2017) there is a clear need for tax reformations in the current Australian taxation system. The right way represents that increasing those taxes that have at least created an impact on the investment and employment. At the same time lowering the dependence on the taxes that distorts the incentive to work and investment. The present system of payroll taxes exempt around half of the wages. It is recommended that an all-inclusive payroll tax with the lower tax rate would help in removing the distortions in the business and would also help in ending the arbitrary threshold limit that keeps on increasing.
As stated by Woellner et al. (2013) the government must fix the higher effective tax rates. The contribution would help in reducing the economic independence, retirement savings and lifetime wellbeing of the taxpayers. Further recommendations can be made by stating that it would be better that the workers are taxed on the worker’s marginal tax rate and should exempt the earnings and pay-outs. Therefore, reforming the current tax system would help in making tax more generous.
Conclusion:
On a conclusive note, the foreign individuals might be employed either temporarily or may be nominated by the permanent migration to Australia. However, the taxation system should be generous and should be levied in respect of the abilities of taxpayer. The taxes should be levied in a way which is most likely to be convenient for the contributors that pays. The tax such system should be clear and should be plain for the contributors.
References:
Baldassar, L., Pyke, J. and Ben-Moshe, D., 2017. The Vietnamese in Australia: diaspora identity, intra-group tensions, transnational ties and ‘victim’status. Journal of Ethnic and Migration Studies, 43(6), pp.937-955.
Barkoczy, S. 2014. Foundations of taxation law.
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Jover-Ledesma, G. 2014. Principles of business taxation 2015. [Place of publication not identified]: Cch Incorporated.
Kenny, P. 2013. Australian tax 2013. Chatswood, N.S.W.: LexisNexis Butterworths.
Krever, R. 2013. Australian taxation law cases 2013. Pyrmont, N.S.W.: Thomson Reuters.
Morgan, A., Mortimer, C. and Pinto, D. 2013. A practical introduction to Australian taxation law. North Ryde [N.S.W.]: CCH Australia.
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Robin, H., 2017. Australian taxation law 2017. Oxford University Press.
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Woellner, R., Barkoczy, S., Murphy, S., Evans, C. and Pinto, D. 2014. Australian taxation law select
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