Criteria for Determining Residency Status

An individual residing in Australia temporarily as well as with the foreign residents they are usually taxed for their income derived from Australian source (Woellner et al. 2016). The existing case study is deals with the issue of residential status of Kit together with the assessment of his employment remuneration and investment income for the purpose of taxation. The present case study depicts that Kit permanently resides in Australia despite being born in Chile. Furthermore, Kit maintains his Chilean citizen even though he is a permanent resident of Australia. An individual residing in Australia are generally taxed for their income generated from all the sources such as salary received from working in Australia (Morgan, Mortimer and Pinto 2016). It is worth mentioning that to assess the residential status of Kit, it is essential to determine the status of occupancy in Australia for the purpose of taxation.

As mentioned in the present study that, Kit resides in Australia permanently however he cannot be treated as Australian citizen because of the fact that he holds the citizenship of Chile. To further determine the tax circumstances of Kit it is vital to assess the occupancy status stated under the “Resides Test”. The first test in working out the residential status of Kit is the domicile test. Below listed are the criteria for working out the domicile of Kit;

The term domicile represents the conception of assessing the residential status of an individual stated under the “Domicile Act 1982”. According to the common law, a person obtains the place of birth as the place of abode of his or her own origin (Barkoczy et al. 2016). There are few exceptions to this rule as well. A person shall retain his or her place of birth as their origin except the person chooses to obtain the place of abode of their own choice in other nation or state.

Reference made under the case of “Henderson v. Henderson [1965] 1 All E.R.179” the original objective of an individual must be in order to acquire the place of abode depending upon their own choice in a nation where the person intends to make their home indeterminately. As evident from the following case study, that Kit also purchased a house in Australia three years back in order to reside with his wife and children. This ultimately meets the purpose of obtaining the domicile of his own choice to obtain residency in Australia with the purpose of making his home indeterminately there in Australia.

Domicile Test

“Section 6 (1) of the taxation rulings 2650”  defines that at the time of assessing the domicile of a person it is noteworthy to consider the purpose of that person where he or she intends to make their home permanently (Robin and Barkoczy, Woellner 2016). A person having his or her domicile in Australia but residing out of Australia will be able to maintain that place of abode upon his return to Australia on evidently foreseen reason. Kit is employed with an Australian company and works in the coast of Indonesia. He regularly returns during holidays so that he could meet his wife and children. Kit will be able to retain the Australian domicile because he regularly returns from his employment despite residing out of his domicile. Based on “section 6 (1) of the ITAA 1936” following assumptions are made;

1. Kit domicile is Australian and meets the criteria that his permanent domicile is in Australia
2. Kit stayed in Australia uninterruptedly and in breaks for more than half of the income year in Australia before making his visit to an Indonesian oil rig for employment purpose and fulfils the criteria that his usual place of residence is in Australia.

According to 183 days test if a person is residing in Australia for more than 183 days of the income year either uninterruptedly and in breaks the person will be considered as the Australian resident (Barkoczy 2016). From the following case study it is understood that Kit was employed in Indonesian Oil rig and used to return once in every three months so that he could meet family. His tenure of stay merely stands 120 days of his stay in Australia however, it cannot be ignored that Kit is an Australian resident. Kit will be treated as the Australian occupant because his permanent place of domicile was in Australia because he had purchase a house to live with his wife and children.

In reference to “F .C. of T. v. Applegate (79 ATC 4307; (1979) 9 ATR 899” Kit in spite being absent from Australia cannot be ruled out that his permanent place of abode was in Australia (Jones, Passant and McLaren 2016). The intention of Kit staying in Australia is in conformity with the 183 days test and he will be treated as an Australian resident.

The tax liability of a person arises with the questions of assessment of residency of the taxpayer together with the facts that is applicable in the income year taken for considerations (Awasthi 2017). According to the ordinary concept if the taxpayer meets the residential test, then he or she will be held for assessment based on their residential status. The employment income received by Kit into his bank accounts amounts to Australian source income because he is employed with Australian based company. Kit also have other source of income such as shares portfolio, which is subjected to double taxation. Kit in spite of having Australian residency it is obligatory for him to declare his foreign income at the time of lodging tax return.

183 Days Test

As reference made under “Applegate per Franki J 79 ATC” the tax liability of Kit arises based on his Australian residential status (Thampapillai 2016). Nevertheless, Kit can avoid the instances of double taxation on his share portfolio by claiming exemption since Australia has signed treaties with numerous countries. Kit is under obligation to declare income from shares while filing tax return together with his remuneration and his income will be liable for taxation.               

The current case law lays down the issues relating to the determination of whether the revenue derived from the isolated transactions would be regarded as the income and hence taxable under “subsection 25 (1)” of the “Income Tax Assessment Act 1936”. The court in its verdict stated that the taxpayer will be held for assessment for the profit generated from the sale of land will be considered as income (Chang 2016). The sum of capital, which the taxpayer had, was not sufficient to commence the mining activities on land. The profits generated from the disposal of land will not be considered as the substitution of one investment from other because selling of land constituted trading transactions.

The case study deals with the issue of business proceeds and whether or not the selling of subdivision of land that was used for mining will be regarded as assessable income or simply the realization of capital asset. The taxpayer arguably stated that the extensive work done on land was to get the best price and his profits should not be held for assessment. The court in its decision stated that realization of assets was enterprising on the capital account of the taxpayer (Becker, Reimer and Rust 2015). The court in its verdict stated that commercial exercise must be treated as the mere realization of asset capital in nature.

The following case considers the issues related to income from business to ascertain whether the subdivision and sale of land with profit generated from Isolated Transactions are treated as earnings and assessable under “Section 25 (1) of the Income Tax Assessment Act 1936”. The decision of the court stated that the taxpayer was company and its purpose was to determine profit from business activities (Yinger, Bloom and Boersch 2016). The outcome of court stated that profit should be considered for assessment as assessable income in conformity with the general accounting principles.

The current case raises the issue whether receipt of net profit will be held for assessment for the disposal of subdivided land either under section 25 (1) or 26 (a). Arguably the taxpayer stated that he had not used the land for business purpose and the deceased had not entered in any profit yielding plan (Auerbach and Hassett 2015). The court verdict stated that the taxpayer did not indulged in any business or any profit making scheme from the manner in which the subdivision of land took place. The outcome of the court defines the degree of realization does not cover any business undertakings and the extent of realization is significant in the evaluating the nature of realization of such land.

Taxation of Income for Australian Residents

The current case determines whether disposal of portion of property will be considered for taxation defined under section 25, (1) or 25 A. Profit yielded from realization of capital asset that was originally acquired for farming will not be treated for taxation purpose because the taxpayer acquired action view (King 2016). The federal court in its outcome has stated its verdict that Action View was obtained by the taxpayer.  In accordance with the first limb of Section 25 A (1) no profit shall be liable for taxation from the disposal of land. Nor under the second limb of the sub-section possess any kind of tax implication because selling of land did not occurred in the ordinary business course or from any profit-making scheme (Russell 2016).

The current case deals with the issue of assessing whether profits generated from the Isolated Transactions” will be held for assessment under “Section 25 (1) of the Income Tax Assessment Act 1936. The federal court applied section 25 (1) and 26 (a) to assess the receipt of $370,000 by the taxpayer during the income year from the profit generated from the sale of land (Jones 2016). With regard to the judgement passed in the case of “FC of T v The Emporium Ltd 87 ATC 4363 is regarded as assessable income under section 25 (1) the profit will be regarded as income under the ordinary concept.

The current issue is concerned with the sale of subdivided land acquired for farming will be assessable under “Subsection 25 (1) or sec 26 (a) of the ITAA 1936”. The federal court passed its judgement by stating that taxpayer will be held for taxation for the profit yielded from the activities of land development (Xynas et al. 2014). The court in the preliminary stages stated that the land was initially used for farming but growing burden of debt obligated the taxpayer to dispose off the land. The court in its judgement stated that the transactions were recurring in nature and presented the character of continuous trade of land development.

This case puts forward the question related to profit yielded from the disposal of land assessable under section 25 (1). The taxpayer in this case is brothers and used their bank loans to build townhouse (Evans, Minas and Lim 2015). The taxpayer in the later stages disposed the land in the month of December in 1988 and generated a profit of $75,811 for each of the taxpayer. The court in its verdict has stated that the taxpayer profit from the sale of land will be held taxable under section 25 (1) as the profit making scheme from commercial undertakings. The court outcome stated that taxpayer entered into business venture and indulged in the development of land for the purpose of profits.

Reference list:

Auerbach, A.J. and Hassett, K., 2015. Capital taxation in the twenty-first century. The American Economic Review, 105(5), pp.38-42.

Awasthi, A., 2017. Transformation of Tax Laws: A Global Perspective. Intertax, 45(2), pp.175-181.

Barkoczy, S., 2016. Foundations of Taxation Law 2016. OUP Catalogue.

Barkoczy, S., Nethercott, L., Devos, K. and Richardson, G., 2016. Foundations Student Tax Pack 3 2016. Oxford University Press Australia & New Zealand.

Becker, J., Reimer, E. and Rust, A., 2015. Klaus Vogel on Double Taxation Conventions. Kluwer Law International.

Chang, J., 2016. Foreign resident CGT withholding. Taxation in Australia, 50(11), p.664.

Evans, C., Minas, J. and Lim, Y., 2015. Taxing personal capital gains in Australia: an alternative way forward.

Jones, D., 2016. Capital gains tax: The rise of market value?. Taxation in Australia, 51(2), p.67.

Jones, D., Passant, J. and McLaren, J., 2016. Doubts about the Central Management and Control Residency Test for Companies. J. Austl. Tax’n, 18, p.121.

Kaldor, N., 2014. Expenditure tax. Routledge.

King, A., 2016. Mid market focus: The new attribution tax regime for MITs: Part 2. Taxation in Australia, 51(1), p.12.

Morgan, A., Mortimer, C. and Pinto, D., 2016. A practical introduction to Australian taxation law 2016.

Robin & Barkoczy Woellner (Stephen & Murphy, Shirley Et Al), 2016. Australian Taxation Law 2016. Oxford University Press.

Russell, T., 2016. Trust beneficiaries and exemptions from CGT: reflections on the Oswal litigation. Taxation in Australia, 51(6), p.296.

Thampapillai, D.J., 2016. Foreign Employment Income and Double Tax Avoidance Agreement: Australia’s Possible Governance Failure. Browser Download This Paper.

Woellner, R., Barkoczy, S., Murphy, S., Evans, C. and Pinto, D., 2016. Australian taxation law. CCH Australia.

Xynas, L., Blissenden, M., Villios, S. and Kenny, P., 2014. Allowable deductions, cost base of CGT assets and the GAAR: a minefiled for taxpayers and their advisers. Australian Tax Law Bulletin, 1(5), p.94.

Yinger, J., Bloom, H.S. and Boersch-Supan, A., 2016. Property taxes and house values: The theory and estimation of intrajurisdictional property tax capitalization. Elsevier.