Income Tax Assessment Of Mick Remaes, Mary-Anne Mayfield, And Ms Adder

Mick Remaes – Allowable deductions for land expenses

The given case study will highlights the provisions of Income Tax Australia. It is a case study of Mick Remaes who is a resident tax payer of Australia. He was employed as a lecturer at the University of Newcastle. He purchased a vacant land in 2016 and decided to build commercial building there. Regarding this land, he had spent several expenses and we need to check that whether these expenses are allowed as per income tax Australia or not. All the expenses would be discussed for the year ending 30^th June 2017. The discussion of all the expenses are given below in detail:

1. Mick had taken loan amounting to $32,000,000 from CBC Bank to acquire the land. He took this land for the development of the land. Now since the land was taken for development, income tax will allow deduction on the interest amount of the loan. But this deduction will only be available from September 2018. The building project can only be commenced until September 2018, so interest deduction will only be allowed from the year 2018. Hence the interest paid amount was not allowable in income tax for the year ending 30^th June 2017. This was similar to the case of The Chevron Case Study.
2. Apart from the above mentioned expense Mick also incurred three other expenses which were annual interest, council rates and insurance of the land. The total amount spend by him on all these three expenses were $335,000. We have already discussed above that annual interest amount would not be deductible since the construction would only commence in 2018. Other two expenses, council rates and insurance would be allowed in income tax Australia. As per Section 2 of the Income Tax Assessment Act 1997, any amount which is incurred in relation to the purchase of land would be a deductible expenditure subject to the land purchased for personal use. Mick purchased the land for commercial purpose, which would in return give huge income to hi, hence both the expense would be deductible under Income Tax Assessment Act, 1997.
3. Apart from the above mentioned expenses, Mick had also incurred an expense amounting to $29,000. This amount was mainly paid to a firm of architects so that they can build plans to build the proposed building. The given expense incurred by Mick would also be allowed in income tax in the same way the expense was allowed in the case of A. Blue Gum Project 2017.

In this case we need to identify that whether Mary-Anne would be regarded as the resident of Australia for the year ended 30^th June 2017 or not. To answer this one needs to understand the residency provisions of Australia.

As per Australian Taxation Office, the primary tests of an Australian resident is resides test. If a person resides in Australia then he would be considered as an Australian citizen for income tax purposes. But if a person fails the resides test then he needs to pass any of the three tests given below:

1. Domicile Test: under this test, a person would be regarded as an Australian citizen if his permanent home is in Australia.
2. 183 day Test: under this test, if a person is present in Australia for more than half a year then he would be regarded as an Australian citizen.
3. Superannuation Test: under this test, a person would be regarded as an Australian citizen if he is an Australian government employee working at different Australian posts oversees.

In the same was Mary-Anne also has to pass these tests to prove that she is an Australian citizen. She was an Australian citizen since she was born and brought up in Australia. She used to live in New South Wales with her parents. In the financial year 30^th June 2017 she was not in Australia for most of the time. She was working in England for six months and then her contract was also getting extended to another twelve months. Then she left to Australia on 1^st March 2017 to commence her contract on 1^st April 2017.  In the given financial year Mary-Anne fails the resides test she was not currently residing in Australia. Now whether she had cleared the other three tests or not is discussed below:

1. She clearly passes the Domicile test since she has a permanent home in Australia. He parents used to live in Australia so he has a permanent home in Australia.
2. She could not pass the 183 day test since un the given financial year most of time she was in England.
3. She fails the superannuation test as well since she was not a government employee.

For being considered an Australian citizen, one needs to pass any one of the tests given above, Mary-Anne has passed the Domicile test and so she would be considered as an Australian citizen. This was also in the case of Backpacker.

Now since she is an Australian citizen, all incomes earned by her in Australia or outside Australia has to be taxed under income tax. If she was a non-resident Australian then all incomes earned by her in Australia has to be taxed in Australia and income earned by her in England and Australia both needs to be taxed in England. Now since double taxation incidence has to be ignored, she has to pay double taxation on the income earned by her in England when she is not an Australian citizen. (AustralianGovernment, ato.gov.au, 2017)

Calculation of Ms Adder Taxable income for the year ended 30^th June 2017 is given below:

1. Computer: $1,850 of which 80% used for business purpose. Hence only 80% depreciation would be allowed. Life of the asset was 5 years. $1,850/5*80% = $296
2. Briefcase: $280 of which 100% is used for business purpose. Depreciation would be $280/4 *100% = $70

Gross total income as computed above was $49,698

1. For first $18,200: Income Tax = 0
2. For next $18,800: Income Tax = $3,572
3. For Balance $30,898: Income Tax = 32.5% of $30,898 = $10,042 (AustralianGovernment, 2017)

Total Income Tax Liability = $13,613 out of which $995 was already paid to the US Government as tax. Hence Tax liability of Ms Addy would come to $12,618.

References

AustralianGovernment. (2017, May 5th). ato.gov.au. Retrieved from ato.gov.au: https://www.ato.gov.au/rates/individual-income-tax-rates/

AustralianGovernment. (2017, May 5th). ato.gov.au. Retrieved from ato.gov.au: https://www.ato.gov.au/business/imputation/receiving-dividends-and-other-distributions/

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