Tax Implications Of Starting A Shipping Business And Asset Sales

Part 1- Starting a new business

In order to test the residential status for taxation of a company, three methods can be applied under section 6(1) of the Income Tax Assessment Act. These methods are territory of operation, central management and control system, and the influence of the shareholders. If the entity manages to fulfil one of these requirements, the tax residency of the company will obliged to Australia. Apart from that, as it stated under the Corporation Act 2001, the tax residency of the company will be obliged to Australia if the company is regarded as incorporated and no other factors need to be considered (Braithwaite 2017). The place of operation of the company should be occurring in Australia, and the central management and control should be exercised in Australia in order to declare the company as a resident of Australia. In order to decide the operational activities of central administration of the company, facts need to be considered such as where the key decisions of the company regarding the business is made or where the decisions made by the management is being implemented in reality. It is described in the case ofBy water Investments Ltd &Ors V Commissioner of Taxation, 2016 (Burkhauseret al. 2015).

In the given segment, the venture of Elwood Blues is carried on in Australia, but the company is based in Singapore. The primary business of the company is to ship the goods from Sydney to Africa. The meetings of the directors are being held in Singapore, and the annual general meeting is held in Monaco. Now specific issues that can arise from this scenario is, the operational territory of the company is situated in Australia, but all the major decisions of the company are taken from Singapore (Saad 2014). The directors are the only shareholders, and the majority of shares are distributed outside of Australia. In this scenario, as the company is carrying on business in Australia, the company is liable to pay tax to the Australian Government. Apart from this, the decisions made by the directions are being implemented for the operations in Australia. The contracts are being signed in Sydney on behalf of the company. Thus as the case law stated in similar circumstances in the case of Bywater investment Ltd &Ors V Commissioner of Taxation (2016), the company will be liable to pay the taxes in Australia for carrying on business and all the operational activities in Australia (Susantiet al. 2017).

In the given case, the sales proceeds that are recovered by the assessee will be taxable after the deduction of the Index Cost of acquisition. The net proceeds are the amount of total sales value after deducting the loss (bad debt).  If the assets are acquired for more than three years and one year for shares from the date of purchase, then such amount will be regarded as a long-term capital gain asset (Lignieret al. 2015). At the time of sale, the capital gain taxation will be derived after taking the index values of the purchasing year and the index price of the selling year. The difference of the purchased year index price and the selling year index price is regarded as the indexing factor (Jameset al. 2015). The index price is calculated by multiplying the index factor and the purchase cost. If the resulting amount is less than the sales proceeds, then the assets has incurred capital loss that will be carried forward to deduct from the capital gains incomes.

Part 2 – Sale of assets

1.As per the section 8-2 of the ITAA 97, the personal useable assets are not treated as CGT assets. Therefore, no tax is chargeable.

2.In the given case the land is acquired on 21/3/1984 for $20,000 and sold on June 2018 for $200,000. The bad debt amounting in the given situation is two installment of $ 20000, which will be deducted from the total proceeds the taxable amount is as follows:

3.In case of the share if the holding period is more than one year, then the share is regarded as the CGT assets in accordance with section 186-5 of the income tax act. In the given case, the shares are bought in December 1994 at a total cost of $80,000.  This are sold for $175,000 in February 2017.

4.The asset is purchased on 31 December 1989 at the cost of $5,000. It is sold on 1 May 2018 at a price of $5,000. The asset is regarded as long-term capital assets.

5.In the given case, Jewellery sold in July 2017 for $5,000. The jewelrywas purchased for 29/09/09 for $20,000. The asset is regarded as long-term CGT assets. The tax liability as follows.

6.Shares in XYZ Ltd were sold on 1/10/2017 for $45000. These shares were purchased for long-term investment purposes on 31/10/1998 for $41500. The tax liabilities are as follows

7.As it is stated in the Income Tax Assessment Act, 1997 transfer of license will be regarded as a transfer of CGT assets. In the given case, the assessee transfers his right to import from the Protective clothing. Nevertheless, even if this is a CGT asset, the indexation is not allowable, therefore; the tax liability will be as follows. The cost or renew will not be deducted (Lawet al. 2016).

In the given case both the amounts of interest and the media campaign charges will be deducted from the income in accordance with the section 8-1 of the income tax assessment act 1997. Apart from that, the cost of the campaign is not relating to the business or helping the assesse to generate income (Mumford 2017). However, the expense has substantial cause for the existence of the business, as, without the marketing campaign, the business will not have existed today. Therefore, the cost must be a peripheral part of the deductible expense.

References

Braithwaite, V., 2017. Taxing democracy: Understanding tax avoidance and evasion. Routledge.

Burkhauser, R.V., Hahn, M.H. and Wilkins, R., 2015. Measuring top incomes using tax record data: A cautionary tale from Australia. The Journal of Economic Inequality, 13(2), pp.181-205.

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).

Law, C.K., Kõlves, K. and De Leo, D., 2016. Influences of population?level factors on suicides in older adults: a national ecological study from Australia. International journal of geriatric psychiatry, 31(4), pp.384-391.

Lignier, P., Evans, C. and Tran-Nam, B., 2015. Measuring tax compliance costs: Evidence from Australia.

Mumford, A., 2017. Taxing culture: towards a theory of tax collection law. Routledge.

Saad, N., 2014. Tax knowledge, tax complexity and tax compliance: Taxpayers’ view. Procedia-Social and Behavioral Sciences, 109, pp.1069-1075.

Susanti, I., Nasir, L.A. and Sukardianti, V.P., 2017. IMPLEMENTATION OF TAX REGULATIONS ON INTERNET-BASED BUSINESS ACTIVITY CASE STUDY: GOOGLE’S TAX AVOIDANCE IN INDONESIA.

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