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Taxation Law

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Analysis of Taxation Law through Case Studies

3519 Downloads I Published: 19 Jan ,2019

Introduction

Taxation law is the legal framework which is framed by the government in order to analyse the taxable value of individual person. In this, calculation has been done for individual person in order to analyse taxable income of individual person. It is the assessment on the property, income, transaction and so on (Atasu and Wassenhove, 2012). This has been collected by the government and individual have to submit tax to the government in the timely manner and equal to amount which is imposed on them. In this legal act income of an every single has been examined. If they are not able to pay them in a timely manner then authority is able to imposed penalty on them.

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Case Study 1 – Residence & Source

As per the provision of Australian permanent resident, it states that the person who are leaving in Australia holding a permanent residency visa but they are not considered as citizens of Australia. A person who is holding a permanent residency visa may remain in Australia for indefinitely year. A permanent residency can be revoked at the direction of the minister. For example, it can be revoked in case of criminal misconduct.

The permanent of resident enjoy so many rights and privileges of citizens which is also related with legal and health care services (Beck and Grande, 2010). But they don't have right to vote in federal or in territory relation unless and until they have been registered in the year of 1984. The permanent residents are not entitled with an Australian passport.

For identification of tax purpose first it is mandatory to understand residency status. For determining the tax situation the person has to analyse the work whether they are Australian or foreign resident. There are some benefits which is related with the permanence resident are as below.

  • There are few limitations on employment in Australia. Such as some job opportunities, require citizenship are opposed as permanent residence.
  • They have also right to apply for the Australian citizenship after accomplishing with some criteria.
  • The children who are born inside Australia will be considered as Australian citizen by the birth.
  • The people also get the right to travel to New Zealand without applying for a new Zealand visa.

In given case, Kit is a permanent resident of Australia. Whether he was born in Chile and having the citizenship of Chilean. As per provision of Australia he is a non ordinary resident. His income would be taxed in the income of Australia.

As income tax provision if any person is generating the revenue from any country then he/she is liable to pay taxes in own country (Bird, 2011). In given case scenario kit spend most of the year in Indonesia for work. Kit is getting the leave of one month from every four month it means that every year 120 every years. According to the provision of tax, if any person resides more than 360 days last in 10 year then he/she will be considered as non ordinary resident.

For determining the status of Kit it is also important to determine that whether he is coming to Australia or leaving. He will be considered as Australian resident if he satisfy one of the following three statutory test.

  • Domicile test – This clearly states that, the place where he has permanent home in Australia. He has to satisfied that the place of abode is outside the Australia.
  • The test of 183 days – The person has to resides in Australia more than the half of the income year. Whether they continuously leaves or take breaks between them. Then he will be constructive as residence in Australia.
  • Superannuation test – This test ensures that, if employees are working at Australian posts overseas will be treated as Australian resident.

Tax residency is also depend upon the whether they are going or coming for having a tax treaty within Australia (Brigham and Ehrhardt, 2013). Following are the things which has also to be checked.

If he leaves Australia for temporarily and not setting the permanent home in any other country Then his income will be calculated as Australian resident for tax
If leaving Australia permanently They will treated as foreign resident for the purpose of tax and it will be calculated from the date of departure
Visiting Australia less than six months either for visiting for holidaying Then there income will be calculated as foreign resident
Visiting Australia for the purpose of working or living in one location and taking steps towards for making Australia home They will be considered as Australian resident for the purpose of tax calculation
Overseas student are enrolled for the purpose of course which is more than 6 months in the institution of Australian Then they will be considered as resident of Australian for calculating the tax amount

Kit is considered as non ordinary resident of Australia and his income will be calculated as below.

Taxable income Tax on Income Effective tax rate
$1 – $ 18200 - 0.00%
Above $ 18200 but equal to $ 37000 19 C for each $1 over the $ 18200 0 – 9.7%
Above $ 37000 but equal to $ 87000 $ 3572 plus 32.2c for each $1 over the $ 37000 907% - 22.8%
Above $ 87000 but equal to $ 180000 $ 19822 plus 37c for each $1 over $87000 22.8 – 30.1%
Above 180000 $ $ 54232 plus 45c for each $1 over $ 180000 30.1 but less than 45%

These above rated will not include;

The rate of 2% on Medicare levy

Temporary budget repair, which is payable @ 2% above the income of $180000

In given case scenario he his earning income from Chile in the form of dividend. Then his income will considered in the tax return. His income will be treated as worldwide income. This means that his income will be declare as foreign source while calculating the tax return (Dafflon, 2015). If he had paid foreign tax in other country then he may be entitled to offset his Australian income from other.

Case Study 2 – Ordinary Income

Californian Copper Syndicate Ltd v Harris (Surveyor of taxes) (1904) 5 TC 159

Capital gain in the context of Australian taxation system it applies when the capital is raised from the disposal of income of any assets. If any person hold the income for the year of at least one year then he/she will be discounted by 50% or by 33% for the superannuation funds. The person can set off his capital loss again the capital gains or it will be forwarded for next eight years.

In given case scenario, this case was related with the issues of realisation of capital assets. Whether the profit from the sale of land to be exploited for minerals. Their income is considered as ordinary and it is of capital in nature.

The decision of court is that the tax payer was assessable on the profits which are arising from the sale of land and it will be considered as capital in nature.

Scottish Australian Mining Co Ltd v FC of T (1950) 81 CLR 188

This case is considered with the issue of business income and the sale of land will be used mining company and was assessable as the ordinary income and realisation of capital assets.

The decision of the court has been cited for a long period and authority for the proposition has mere realization on the assets in enterprising on capital account. The report of commonwealth show that the case took two years to hear the decision and appeal was determined with in seven weeks after the judgement. This case was also explain that there has been a substantial commercial which was treated as realisation of capital assets.

FC of T v Whitfords Beach Pty Ltd (1982) 150 CLR

This case is related with the issue of business income and the subdivision and sale of land of income will be considered as ordinary income or was in capital nature. This will cover in wither in section in 25 (1) or 26 (a).

In 25(1) it determines 5that whether the profits from the isolated transaction are income therefore it will be assessable as under subsection 25(1) of income tax assessment act 1936. isolated refers to the those transaction which are done outside the ordinary course of business and taxpayers is carrying a business. Whereas the transaction which are entered by the non-business taxpayers.

The judgement was given by court is that, it is important for the taxpayer was non-exempt from the sale of land under subsection 25(1) and it had been realizing the capital assets and constituting the business for the land development.

As per section 25(1) in this case profits of taxpayer are included as gross income and section 26 (a) will not be applicable.

Statham & Anor v FC of T 89 ATC 4070

This case law is related with the whether the net proceed received from the sale of land will be constituted as assessable income under subsection 25(1) or 26 (a).

It was establish from the report that mere realization on the assets to render profit is nor necessary for taxable. The profits which has been arises for carrying the business will be considered as taxable income.

Casimaty v FC of T 97 ATC 5135

The sale of property of land will be assessable either in section 25(1) or 25A.

Assessable income, it is related with sale of land or acquired for using as farming. The carrying of business are mere realization of capital assets.

In this case the taxpayer argued that the sale of parts of property will be represented as the realization of capital assets rather to conduct the business.

The deicison was held that the profit form the sale of parts of property will not be considered as under section wither in 25(1) or 25A.

The profits which was not derive from the conduct of business are not capital assets for tax payer. But the profits which has been derived from the mere realization of capital assets will be the assets of taxpayer.

Moana Sand Pty Ltd v FC of T 88 ATC 4897

This case is related with the for the year ending 30th June, 1980, section 25(1) or 26 (a) will be apply to include in the assessable of taxpayer income, the amount was received by the taxpayer is $ 3,70,000 which are less relevant cost which has been arising from the sale of land.

The decision of court was held that the profit will be assessable under the sun section of 26 (a) it carry the result of the carrying out the profit making. It is not necessary that the profit making by the taxpayer is for the dominant purpose which will apply in the sub section of 26(a).

Crow v FC of T 88 ATC 4620

In this case law, the question were raised that whether the subsection 25(1) or 26(a) will be operated into the assessable income of the taxpayer profits which is derived by him from the sale of property near Hobart.

The decision was that, it had been distinguish from the basis in the Scottish Australian Mining. The property can be used as for a long purpose for farming the business.

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McCurry & Anor v FC of T 98 ATC 4487

Was the profit related with the sale of land will be assessable under section 25(1)?

The decision of court was held that taxpayer has entered into the profit making scheme which was the part of the commercial dealing. In this case the taxpayers were not carrying out thr business and the profits which has been raised will be considered as commercial dealing. Profit making undertaking is such a dealing in this case.

Conclusion

On the basis of above report it has been concluded that, tax is the legal term on the law which is imposed on each and every person. This the calculation of income of every person and calculated amount have to be submitted to the government in a timely manner.

References

  • Atasu, A. and Wassenhove, L. N., 2012. An Operations Perspective on Product Take‐Back Legislation for E‐Waste: Theory, Practice, and Research Needs.Production and Operations Management.
  • Beck, U. and Grande, E., 2010. Varieties of second modernity: the cosmopolitan turn in social and political theory and research.The British journal of sociology.61(3). pp.409-443.
  • Bird, R. M., 2011. Subnational taxation in developing countries: a review of the literature.Journal of International Commerce, Economics and Policy.2(01). pp.139-161.
  • Brigham, E. F. and Ehrhardt, M. C., 2013.Financial management: Theory & practice. Cengage Learning.
  • Dafflon, B., 2015. The assignment of functions to decentralized government: from theory to practice.Handbook of multilevel finance, Edward Elgar, Cheltenham. pp.163-199.
  • Martinez-Vazquez, J., Vulovic, V. and Liu, Y., 2011. Direct versus indirect taxation: Trends, theory and economic significance.The Elgar Guide to Tax Systems, Edward Elgar Publishing. pp.37-92.
  • McGee, R. W. ed., 2011. The ethics of tax evasion: Perspectives in theory and practice. Springer Science & Business Media.
  • Meyer, J. W., 2010. World society, institutional theories, and the actor.Annual review of sociology.36. pp.1-20.
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