Factors for determining residency status in Australia
We would like to draw your kind towards the residential status based on the information furnished by you. We would like to inform you that the “Taxation ruling TR 98/17” provides the interpretation of the ordinary meaning of the term resides inside the definition of stated under “subsection 6 (1) of the ITAA 1936”. The ruling is applicable on individuals that enters Australia with the employment contracts or those that are migrating under the status of business residence. The status of residency forms the matter of fact and central element in determining a taxpayer’s liability to taxation. According to the “section 995-1 of the ITAA 1936” the Australian resident represents a person who is the occupant of Australia.
According to the information furnished, you were transferred to Australia on 1st July with your wife and children for a minimum of three years. You bought the house in Australia and you moved in immediately. You also registered the telephone and electricity in your name. The “taxation ruling of TR 98/17” lay down the factors such as behaviour while present in Australia is an important aspect in determining residential status. This includes the character and quality of an individual’s behaviour explains the way in which a person arranges their domestic as well as economic affairs as an element of daily order of their lives. The commissioner in “Reid v The Commissioner of Inland Revenue (1926)” held that nature of presence and time must be considered while determining whether a person lives in a place or where they spend a portion of their life.
An individual’s intention or the purpose of presence in Australia helps in understanding whether the person lives here. A well-settled purpose such as employment might assist the intention of residing in Australia. Another factor that coincides with your residency status your maintenance and location of assets. The purchase of house with registration of telephone and electricity bill by you suggest the establishment of home in Australia.
A factor that may indicate you and your wife Inda is resident of Australia is your presence of family and employment ties. The court’s opinion in “Peel v The Commissioners of Inland Revenue (1927)” held that a person that comes to Australia with an employment contract and maintains the behaviour which might reflect that the person is residing here. You bought a home and also registered the telephone bill in your name. Your behaviour coincides with residing in Australia.
Taxable income advice
The ruling further provides that the social and living arrangements represents the way an individual interacts with the surroundings while their stay in Australia and might reflect that they are residing in Australia. This includes joining sports or community functions and enrolling children to school. The information furnished by you represents that you bought joined the local gym and chess club. Your children also enrolled into the local school with your wife working as part-time sales manager. The extent of your social and living arrangement indicates that you are residing in Australia. Elwood, with reference to “section 995-1 of the ITAA 1936” you and your wife Inda will be held as Australian resident.
We hope that the advice provided above has helped you in serving your purpose. As you and your wife Inda is an Australian residents within the ordinary meaning of “subsection 6 (1) of the ITAA 1936”, both you and your wife would be held taxable for the incomes generated from salary and rental property.
To Jake
From Tax Consultant
Date – 9th September 2018
We would like to draw your kind towards the taxable income based on the transactions furnished by you.
As per “section 6 of the ITAA 1936”income derived from the personal exertion includes the salaries, wages, allowances and gratuities that obtained in capacity of services rendered by employee. “Section 6-5 of the ITAA 1997” states that most of the receipts by taxpayer constitutes ordinary income. The court in “Scott v CT (1935)” held that receipts should be treated in ordinary sense and use of mankind. The receipt of gross salary received by you will be included in your tax return as income from ordinary concepts.
According to the ATO an individual that receives the reimbursement of car expense, it would be held as the income and the reimbursement must be included into the tax return. The amount of reimbursement received by you will be held as the income and would be included in your tax return for assessment purpose.
An element of an income character is earned when it comes to the taxpayer. The receipt of interest derived by you from the bank account would be treated as income under the ordinary concepts under section 6-5 of the ITAA 1997. Hence the bank interest would be included for assessment in your tax return as ordinary income.
“Section 6(1) of the ITAA 1936”states an Australian resident company might pay or credit you with the un-franked dividend. These un-franked dividend does not has any franking credit attached to it. Therefore, “under section 44 (1) of the ITAA 1936” the un-franked dividend received by you should be declared in your tax statement for assessment.
Negative gearing
“A CGT event G1”happens when capital gains is reported from the sale of shares. The cost base of the shares would also include the brokerage costs incurred by you. As evident you reported capital gains from the sale of shares. The capital gains from the sale of shares would be included in your tax return for assessment purpose as ordinary income.
According to “subdivision 108-C”personal use assets is treated as the non-collectable assets that is mainly used for the personal enjoyment. According to “section 118-10(3)” any capital gains or loss made from the personal use asset should be disregarded that has the cost base of $10,000. Loss made from the sale of autographed cricket bats yielded a loss for you and hence the same should be disregarded.
According to the ATO an individual is allowed to claim motor vehicle expenses for the portion of the use that is in the direction of business use. You reported a total travel of 7,420 kilometres out of which 95% were dedicated towards business purpose. As you have failed to maintain a log book your deductions would be limited to 5000 kilometres based on standard rate of 66 cents per kilometre.
According to the “section 8-1 of the ITAA 1997”allows a taxpayer to claim deductions for expenses incurred for work purpose. As you have reported a telephone cost costs of $1,400 you will entitled to claim deductions for 60% of the telephone bill since the proportion of 60% was related to your work purpose.
According to the “section 25-5” you can claim specific deductions for the expenses incurred in managing your tax affairs. You paid an invoice received from the previous tax agent for preparing and lodging your tax return. Therefore, you shall be allowed to claim deduction under “section 25-5 of the ITAA 1997”.
As you are not married and you do not have the health cover you shall be liable for Medicare levy surcharge of 1.0% from your taxable income as your income falls under the Tier 1 earner.
Your total tax liability for the income is attached in the advice. We hope that the letter has served your purpose and we look forward to serve your again in future.
Negative gearing can be defined as the strategy of producing the short to medium term losses originating from the tax deductible expenses that are greater than the investment income. This provides the taxpayer with the exposure of potential gains and losses (Pawson 2018). The strategy can be held as popular among the taxpayer because the tax losses that originates can be usually reduced by the investors other assessable income. This would ultimately benefit the investors in lower annual income tax bill.
A recent reformations in the negative gearing may provide the investors with the tax concession. The proposed changes that may take place is the tax breaks that would cut the negative gearing deductions by 57.3% (Eccleston et al. 2018). Such changes in the model proposes that those investors that are under the 50% of the income distribution or those that have modest income would continue to receive 100% deduction.
The future changes would allow the investors in claiming deductions for any expenditure including the interest on loan as this would help them in creating an income. Potential changes in the negative could witness a progressive rental deductions for the investors and less wealthy investors may experience a significant fall in tax savings (Cho, Li and Uren 2017). Future changes that may take place in the negative gearing policy is that CGT tax discount could be halved from the present 50% to 25% and limiting the negative gearing to new rental dwellings.
There are also potential tax benefits for an investors whose taxable income is 100k during an income year. The taxpayer at the 30% marginal tax rate can gain the benefit of 2.5% allowance under the division 43 (Gribbin 2017). This would provide the taxpayer with proportionate reduction in cost base resulting in larger assessable capital gains or smaller capital losses
References:
Cho, Y., Li, S.M. and Uren, L., 2017. Negative Gearing Tax And Welfare: A Quantitative Study For The Australian Housing Market.
Eccleston, R., Verdouw, J. and Flanagan, K., 2018. Gradual reform to capital gains, negative gearing and stamp duty will make housing more affordable.
Gribbin, C., 2017. Negative gearing: An update ahead of the 2017-18 federal budget. Taxation in Australia, 51(10), p.554.
Pawson, I., 2018. Reframing Australia’s housing affordability problem: The politics and economics of negative gearing. Journal of Australian Political Economy, The, (81), p.121.
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