Residence and source of an individual

Describe about the Taxation for Immigration in Ordinary Income.

Residential status of an individual is important to determine its tax liability for the assessment year. According to Australian Law if a person resides in the country for more than a period of six months than he/she is eligible to pay tax. The person has certain benefits to enjoy i.e. he can freely subsidized to legal services of the country (Brown, Handley and O’Day, 2015). However, in case of Federal Commissioner of Taxation v. Miller (1946) it was found that the court has made certain amendments in the residential status of an individual. The residential status of migrants has been withdrawn from the act on 25^th November 1998 because it does not provide much detail on the residency of an individual. It is difficult to calculate the residential status in between six months to two years (TR 98/17 Para 7). According to Australian, law the ruling for taxation based on certain categories:

A person should be the permanent resident of another country.

The person visited Australia under working visa issued by the Department of Immigration.

The person visits the country with an intention to work for a certain period.

The person stays in a temporary accommodation.

The person receives calls from his family from his original country.

The person receives a contract for work.

The person has opened a bank account in Australia.

The main issues to examine in this case are:

The period of physical presence in the country.

The behavior of the person during his stay in the country

The purpose of his presence

His family and employment ties.

As per Para 17 of TR 98/17, if an individual arrives in Australia without any intention to stay in the country permanently than all the evidence about his stay is to be included while calculating his residential status (Grubert and Altshuler 2016).

As in the given case, Fred who resides in UK visited Australia for a period of eleven months. The main purpose of his visit was to establish a branch of his business in Australia. Furthermore, he leased a house in Melbourne for the period of one year. His wife accompanied with him during his visit. His daily behavior was similar as before entering to Australia. According to the law he is a resident of Australia. Para 49 of TR 98/17 states that if a person stays in the country for a short period he cannot be termed as resident of the country but in case of Fred, the stay was more than a period of six months. During his stay, he was continuously in touch with his kids who reside in UK for their educational purpose. Moreover, he has leased one house in Melbourne, which means that he visited the country for business purpose only. The income, which he earned during his stay, is liable for tax (Ato.gov.au 2016). 

Categories for taxation based on residential status

Ordinary income includes all the assessable income of an individual, which is derived from various sources during the year.

In case of Californian Copper Syndicate Ltd v Harris (Surveyor of Taxes) (1904) 5 TC 159 it was found that the owner of the property chooses his investment to realize it and obtains a greater price for it but he actually acquires the asset. In the sense of assessable income the enhanced price realized by an individual will not be considered as profit .In the similar case of FCT v Myer Emporium Ltd (1987) the court directed that the receipt from an isolated transaction will be considered as an income if the transaction was made with the intention of profit. The court further directs that everything, which a person derives, is not an income; it depends on the nature of the business. Another example of the rule is found in the case of Rangatira Ltd v CIR. The decisions of this case are important to satisfy the factual test of income for taxation purpose. The taxpayer carried on an investment business. The board of directors of the company was independent businesspersons with no shareholdings in the company. The policy of the members of the company was to maintain the capital funds of the taxpayers only. They ensure that there was a regular income only which was derived by dividend yield method.

In case of Scottish Australian Mining Co Ltd v FC of T (1950) 81 CLR 188  it was found that the taxpayer has purchased some of his land in between 1863 and 1865 for his coal mining business. In the year 1924 his mine exhausted and the person decided to dispose off his land. The court directed that the company has taken advantageous steps to incur the value of land. Hence, the value they incur is not a profit and the amount should not be included in assessable income. However, the judiciary has altered the decision of the court in case of Whitford’s Beach case.

In case of FC of T v Whitfords Beach Pty Ltd (1982) 150 CLR the company bought a piece of land to carry on the fishing business on it. On December 20, 1967 the shareholders of the company decided to sell the land by sub-dividing it so that they can earn some profit from the land. The articles of the company were amended on the same day of disposal of the land. The court in this case directed that the income derived from this transaction is to be termed as profit and hence is chargeable under the head for taxation purpose. According to Gibbs CJ if a taxpayer only, realize an asset than it is not included in the profit but in the given case, the taxpayer continued his business with the motive of earning profit. The activities continued by him are of commercial nature only. Hence, the income is to be treated as a profit and is liable for tax (Ato.gov.au 2016). .

Factors to consider in determining residential status

In case of Statham & Anor v FC of T 89 ATC 4070 the taxpayers of this case were the trustees of an estate. The person has obtained the land with an intention of farming. After some years the person sold his land to the company which is controlled by his family members only. The deal did not perform well for the company. Later on, they decided to sell the land. The original owner of the property was dead at that time to sell the land. The court in this case decided that the income derived from disposing off the land is an assessable income for the person but the owners of the property argued that the sale of land does not form an ordinary income under the act. The court gave its verdict on the basis that the agricultural business was failed and the members of the company decided to sell the property. Hence, the property is liable for taxation (Ato.gov.au 2016).

. Similar case of McCORKELL v FC of T, Administrative Appeals Tribunal of Australia (Victoria), 28 July 1998

In case of Casimaty v FC of T 97 ATC 5135 the person bought a land for farming purpose from his father and continued his business for more than two decades. Due to his illness, the person decided to sell some portion of his land. The taxpayer has made certain changes to the property by constructing road and developing irrigation facilities on it. The commissioner directed that the activities carried on by the taxpayer are an assessable income whereas the court directed that the profit made by him is the part of realization of capital asset. He purchased the land for agricultural purpose only. Hence the profit which he earned is not an assessable income. Similar case Allied Pastoral Holdingsv FCT 83 ATC 4015,

In case of Moana Sand Pty Ltd v FC of T 88 ATC 4897 the company purchase a piece of land in Adelaide to continue its business. The company bought a piece of land with an intention to sell it in the future if they receive a good amount for it. According to the law the value received by redemption of property after deducting the cost of the acquisition is to be treated as assessable income. Hence, the profit earned by the company is an assessable income. Similar case Marbut Gunnersen Industries Pty Ltd v FC of T 82 ATC 4182 .

Example of determining residential status

In case of Crow v FC of T 88 ATC 4620 a person purchased five blocks of land within a period of ten years. The farmer used the land for farming purchase but later on he dispose it by making a profit of $388,288. The court directed that the person is liable for tax for this income. Earlier he used this land for farming purpose but later on he sold it. The person knew that the debt which he incurs can be cleared by disposing the property only. Therefore, he sold some parts of the land to incur money. Hence, chargeable to tax. Similar case  Estates Ltd v FC of T (1 941) 64 CLR 241

In case of McCurry & Anor v FC of T 98 ATC 4487 the person bought a land. An old house was there already. The person constructed three new houses on that land. The person acquired two houses for his own purpose and occupied it for a period of one year. He made profit of $150,000 by disposing the entire houses within that period. After sometime he again purchased a block of land, constructed a house on it, and later on sold it. The commissioner directed that the money, which he earned from selling, is of commercial purpose and is to be treated as assessable income (Ato.gov.au 2016). 

However, the person argued that the income which he earned by selling is of capital nature because he sold his property to meet his financial needs. The court held that the activity was of commercial purpose only because he bought a piece of land, constructed houses on it and later on sold it by making profit. Therefore, the activity is to be treated as commercial activity only. His intention was to make profit only. He did not hold the property for investment purpose. Hence, the income is assessable and liable for tax. Similar is the case McClelland v FC of T 70 ATC 4115; (1970) 120 CLR 487.

Conclusion:

From the above analysis, it can be said that the residential status is important for a person to determine his taxable income. To safeguard the assesses from double taxation the government of the country introduce the concept. On the other hand in case of ordinary income the verdict of court varies from case to case because of the nature of the business. It is important to check the nature of transaction before concluding the assessability of it.

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