Identification of Residential Status for Tax Liability

The provided case mainly deals with residential status that has to be identified to ascertain tax on salary from an Australian firm. From the case study, it has been observed that Kit is a permanent Australian occupant while born in Chile; however, he does not own citizenship of the nation despite permanent stay in the same. The income that an Australian individual holds for assortment is obtained from global sources in accordance with “IT ruling 2650 under ITAA 1997”.

Hence, based on the provided case, it is necessary to identify Kit’s residential status for ascertainment of real tax liability owed to the Australian government. Thus, in order to ascertain the present status of residence, Kit is required to undergo the following tests:

This test primarily denotes that if an individual stays continually or with breaks above 183 days, the individual would be deemed as an Australian resident. According to the case study, Kit has stayed in Australia for more than 183 days in a year, which fulfils the criteria of being an Australian resident. In addition, Kit has a personal home in the nation, in which his wife and child stay; however, he visits Chile in quarter for a month to meet his family. As both Kit’s wife and child have resided in Australia for above three years, Kit satisfies the criteria of an Australian citizen. In accordance with “F .C. of T. v. Applegate (79 ATC 4307; (1979) 9 ATR 899”, an individual residing in Australia for a greater timeframe is considered as the resident of the nation. Thus, kit has passed this test successfully of being an Australian resident, which necessitates the need of paying all pertinent taxes in compliance with the Australian tax laws.

According to the “Domicile of 1982”, every person has own rights to hold the citizenship of another country. One such instance includes “Henderson v Anderson 1965”, which revealed that the individuals have self-rights in selecting the country for deciding to make their houses indeterminately. As Kit has purchased a new home in Australia, it signifies its intention to acquire the Australian domicile.

In accordance with “Section 6 of the taxation ruling 2650”, the taxes are levied on those individuals that have planned to settle down in Australia for an indefinite period. Based on the taxation law of Australia, when the domicile of an individual is located in the nation, it is mandatory to pay taxes. According to “Section 6(1) of ITAA 1936”, the permanent domicile place of Kit is in Australia. Hence, the tax authorities of Australia could obtain tax from Kit. In addition, as Kit has stayed in the nation without nay break for more than six months, it fulfils the nation’s residency act. Therefore, based on the domicile test, it could be stated that Kit has a domicile of Australia, which urges him to pay tax (Cao, Chapplem & Sadiq, 2014).

Tests for Identifying Residential Status

In case of an ordinary concept, residential test could be used on the part of the taxpayer for identifying feasibility and residential status in Australia. The provided case states that Kit has obtained salary in the bank account of Westpac, which is an Australian bank. This income is definitely taxable as per the taxation laws of Australia. In addition, Kit is engaged in investing from share exposure in Chile. Hence, such income is taxable as well under the prevailing laws of the nation.

This implies that Kit is an Australian occupant, which requires disclosure of his income both in home and overseas nations at the time of income tax return file, in accordance with “Applegate per Franki J 79 ATC’. The income made during the year would be recognised only, as the state of residence might denote Australian citizenship. Hence, the nation’s taxation law intends to avoid any error in taxation and exemptions related to claims in accordance with an agreement between Australia and 40 other nations (Barros, Teo & Hinchliffe, 2016).

The above case clearly signifies that California Copper Syndicate Limited has encountered certain issues related to its disposable property for mineral exploitation. The result of the verdict has significant influence on capital available to the period of test, which was not adjudged as adequate funds. In addition, another court verdict depicts that the profit of an individual could be detected as the provoked income of an individual (Ting, 2014). Furthermore, it is the recommendation of the court to subtract all pertinent expenditure from revenue, which is primarily taxable in case of land sale. Thus, with the help of this verdict, the unfair practices of the mining organisations have been minimised for raising their overall profit margins. The court would ascertain that any modifications related to property and any transactional incomes are considered mainly as disposable income, which needs to be taxed (Abraham, Dempsey & Marsden, 2015).

After evaluation of the above-stated case, appropriate proceeds related to subdivision and business accumulated from sale of any asset could be adjudged as assessable in commodities. Hence, it is clearly inherent that any income accumulated from sale of an asset is to be taxed in compliance with the authorities of Australian tax. In addition, the court has provided a verdict that any money-making activity at the time of land sale could be considered as capital asset recognition. Hence, it could be inferred that an activity related to sale of the land is adjudged as the recognition of capital asset (Dabner, 2015).

Domicile of 1982 and Australian Taxation Law

From the case depiction, it has been observed that it is critical to ascertain the amount of cash generated from sale of land and its nature. The money of the taxpayer represented that any recognition of profit on property is not helpful in evaluating value. In accordance with section 25 (1), the popular case of Morphy, Mason and Wilson primarily represents that income substantiated from property sale is required to be hold on the part of sufficient person. From the verdict of the court, it could be stated that income needs to be assessed as the assessable income of the taxpayer to conform to the principles of general accounting (Grubert & Altshuler, 2016).

The above case primarily states that the income accumulated from selling any subdivided party has to be assessed as per sections 25 and 26.  In other words, the income obtained from selling any property due to loss suffered in business is taxable. In addition, as the above-stated parties incur loss in their farming business, it has resulted in asset sale. This implies that the offer of realisation is taxable and hence, realisation scale is based on the nature of the proceedings of land (James, Sawyer & Wallschutzky, 2015).

According to the court verdict, offices from selling the individual blocks are adjudged as ordinary income, which is assessable depending on subdivision of land. The case denotes that the land was purchased primarily for farming; however, it has been utilised for private purpose due to encounter of loss in business (McGregor-Lowndes, 2016). Therefore, this type of asset sale would not come under capital gains.

In accordance with the case, the motive of purchasing land might not be solely for making profits. The court has stated that providing requisite purpose is necessary, whereas, in opposition; it would be termed as ordinary income. This implies that the individuals purchasing assets only for masking profits are required to incur additional taxes based on the profits from sale proceeds. Hence, income constitution is necessary, which would be taxed (Pinto, 2017).

According to the above-stated case, the land purchased in the past for farming has been subdivided into various blocks after two years at a profit. An effective way has been followed to increase the income of the owner (Saad, 2014). Hence, the court has given verdict that profit from property sale would be adjudged as income and assessable on profits.

According to this specific case, the individuals are liable to change old home into new home for raising the gains from sale proceeds. The court primarily depicted that the taxpayers have given tax on all pertinent proceeds from sale of new properties after the development of old ones (Santucci, 2014). The old asset was not held only for profit-making purpose and in profit views from sale proceeds. The intent of the taxpayer enters into commercial undertakings through final development of the property and selling the same to the other individuals (Smith, 2013).

References:

Abraham, M., Dempsey, M., & Marsden, A. (2015). Dividend reinvestment plans: a tax-based incentive under the Australian imputation tax system.

Barros, C., Teo, E. J., & Hinchliffe, S. (2016). Clash of the deeming provisions: Pre-CGT concessions, tax consolidation and policy in the federal court. In Australian Tax Forum (Vol. 31, No. 3, p. 509). Tax Institute.

Cao, R., Chapple, L. J., & Sadiq, K. (2014). Taxation determinations as de facto regulation: private equity exits in Australia. Australian Tax Review, 43(2), 118-141.

Dabner, J. H. (2015). Resolving Australian tax controversies: does the tax jurisprudence under the European Convention on Human Rights suggest a better way?.

Grubert, H., & Altshuler, R. (2016). Shifting the Burden of Taxation from the Corporate to the Personal Level and Getting the Corporate Tax Rate Down to 15 Percent.

James, S., Sawyer, A., & Wallschutzky, I. (2015). Tax simplification: A review of initiatives in Australia, New Zealand and the United Kingdom. eJournal of Tax Research, 13(1), 280.

McGregor-Lowndes, M. (2016). Lawyers, reform and regulation in the Australian third sector. Third Sector Review, 22(2), 33.

Pinto, D. (2017). Tax simplification [Book Review]. In Australian Tax Forum (Vol. 32, No. 1, p. 247). Tax Institute.

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

Santucci, G. (2014). Understanding taxation law and Australian tax law [Book Review]. Ethos: Official Publication of the Law Society of the Australian Capital Territory, (233), 42.

Smith, G. (2013). Australian tax reform: post-Henry.

Ting, A. (2014). iTax-Apple’s International Tax Structure and the Double Non-Taxation Issue.