Essay On Australian Tax Law: Residency Tests And Income Taxation.

Residency Test for Australian Tax Law

Question:

Discuss about the Californian Copper Syndicate Ltd.

In the given case, Kit is a permanent resident of Australia. Apart from living in Australia Kit holds the citizenship of Chile. Kit was working in Indonesia for a United States company where he has signed a contract with the company. Kit purchased a house in Australia where his wife with his two children stays. Kit and his wife have a joint account where all his salary has been credited during the period. Apart from his salary all his dividend income and other investment lies in Chile. Kit because of his nature of work gets one month break after every three months of service where he spends time with his family either in Australia or in Chile where his parents stays.

As per the provision of Australian tax law, if a person is a resident in the country, all the income that he has earned during the period i.e. either in the country or outside will be taxed as per the provision of Australian tax law. In order to prove that the person is a resident in the country, two types of test are been carried out. The first test is called as the resident test. In that case if the person resides in Australia, then in that case he would be considered as the resident of the country and will be said to have been passed the resident test. In that case, the person will not be asked to pass any other resident test.

If the person fails to pass the first test then in that case, he would be considered to be a resident of the country if he passes any of the three tests which are as follows:

The first test is called as the domicile test. In this test, a person is called as the resident of Australia, if the person is domiciled in Australia. Domiciled in this case will mean that the person has a permanent resident in the country. This test gets failed if the person proves that he has a permanent resident in some other country as well.

• The second test is called as the 183 days test. If the person stays in the country for more than 183 days in the country whether in continuation or in parts, then in that case he would be eligible to get the residentancy of the country. The person in this case will be said to have a constructive residence in Australia. This test will fail if the person’s usual place of residence is somewhere outside the country and he has no intention of taking the resident status in Australia.
• The third test is called as the superannuation test. As per this test, if a person has been employed by the Australian government at some location outside the country, then in that case the person will be treated as an Australian resident.

Considering the above provision of tax laws in the given case study we came to the following conclusions:

As per the resident test, a person will pass the test if he resides in Australia. As per the given case, Kit has been working in Indonesia for a United States company where he has signed a contract with the company. Kit purchased a house in Australia where his wife with his two children stays. In this test, being he is not staying in the country, the test will be failed.

If the person fails to pass the first test then in that case, he would be considered to be a resident of the country if he passes any of the three tests which are as follows:

• The first test is called as the domicile test. In this test, a person is called as the resident of Australia, if the person is domiciled in Australia. Domiciled in this case will mean that the person has a permanent resident in the country. In case of Kit, he has a permanent resident in Australia where his wife with his two children stays. Thus as per the provision of tax law, Kit has successfully passed this test.
• The second test is called as the 183 days test. If the person stays in the country for more than 183 days in the country whether in continuation or in parts, then in that case he would be eligible to get the residentancy of the country. In the given case, Kit because of his nature of work gets one month break after every three months of service where he spends time with his family either in Australia or in Chile where his parents stays. In this case, being the total number of stay by Kit during the year is less than 183 days i.e. approx 6 months, this test will get failed.
• The third test is called as the superannuation test. As per this test, if a person has been employed by the Australian government at some location outside the country, then in that case the person will be treated as an Australian resident. In the given case, being Kit has been working for a United States based company, he would not be eligible for this test. Hence the third test gets failed.

Thus considering the test results of all the above tests, Kit being holds a permanent resident in the country, will be treated as a resident and all his income that he has earned while working in Indonesia or from his investment that he has made in Chile in the form of dividend will be taxable as per the provision of Australian tax laws.

Taxation of Income Earned from Exchange of Mining Property

As per the provision of the Australian tax laws, in the case “Californian Copper Syndicate Ltd v Harris (Surveyor of Taxes) (1904) 5 TC 159”, it has been decided that any income that has been earned in by the person will be taxed at the time when the same has been earned rather than waiting for the period when the same has actually been received. In the given case, the taxpayer has sold a mining property in consideration of exchange of shares. Thus in that case, the profit that has been earned in by the person from the exchange of the mining property in exchange of shares will be taxed irrespective to the fact whether the same has actually being realized.

As per the provision of the Australian tax law, any income that has been earned by the person from sale of land will not be assessable for tax. In the case, “Scottish Australian Mining Co Ltd v FC of T (1950) 81 CLR 188”,  the taxpayer holds 1771 acres of land that is being used by him for the purpose of mining. In the year 1924, the mining has been exhausted and the tax payer in order to make the land usable subdivided the land and made constructive roads and schools and sold the same. As per the decision that has been taken by the high court, being the land has been subdivided in order to the land more advantageous for the tax payer, thus in that case the profit that has been earned by the tax payer will not be assessable for tax.

As per the provision of the Australian tax law, any income that has been earned by the person from the business of carrying out sale and purchase of property, then the profit so earned will be taxable in the hands of the assessee. In the given case, FC of T v Whit fords beach Pty Ltd (1982) 150 CLR, it was decided that if a person enters into an isolated transaction for sale or purchase of property, then an income that has been earned by him by virtue of this transaction will be assessed to tax in his hands.

As per the provision of the Australian tax law, any income that has been earned by the person from the business of carrying out sale and purchase of property, then the profit so earned will be treated as ordinary income and thus the same will be taxable in the hands of the assessee. In the case “Stathum & Anor V FC of T 89 ATC 4070”, the assessee was carrying out the business of farming but the business didn’t work so the assessee subdivided the land and sold the land. In this case being the subdivision was carried out by the assesee to make the land more profitable for the assessee. As per the decision that has been taken by the high court, being the land has been subdivided in order to the land more advantageous for the tax payer, thus in that case the profit that has been earned by the tax payer will not be assessable for tax.

Tax Exemption for Income Earned from Sale of Land

As per the provision of the Australian tax law, any income that has been earned by the person from the business of carrying out sale and purchase of property, then the profit so earned will be treated as ordinary income and thus the same will be taxable in the hands of the assessee. In the given case, “Casimaty v FC of T 97 ATC 5135”, the assessee was carrying out the business of farming but due to uncertainty in the market the business didn’t worked and the asessee subdivided the land into portions and constructed roads, water and sewerage facilities in the divisions. In this case, the action that has been taken by the assessee was with an intention to make profit from the land. Later on as per the decision of the tax authorities, being the land has been subdivided in order to the land more advantageous for the tax payer, thus in that case the profit that has been earned by the tax payer will not be assessable for tax.

In the given case, any income that has been earned by the person at times of compulsory acquisition will be taxed in his hands treating it as ordinary income and will be taxed accordingly. In this case law, the importance of the intention that was there at time with the assessee when the transaction was taken place.

As per the provision of the Australian tax law, any income that has been earned by the person from the business of carrying out sale and purchase of property, then the profit so earned will be treated as ordinary income and thus the same will be taxable in the hands of the assessee. In the given case, the assessee was purchasing parcels of land and was subdividing them and selling. Being this the business of the assessee, thus the same will be treated as business income and will be eligible to tax. The assessee in this case cannot apply the provisions of the case law that was applicable in “Casimaty v FC of T 97 ATC 5135”

This case law highlights the importance of the state of mind and the intention with which the transaction has been entered into by the tax payer.  This helps in determining whether the transaction that has been entered into is a business transaction or not.

References

Ato.gov.au, Investment Income, viewed on 16^th April 2017, retrieved from _https://www.ato.gov.au/Individuals/Income-and-deductions/Income-you-must-declare/Investment-income/

Ato.gov.au_ working out tax residency, viewed on 16^th April 2017, retrieved from

https://www.ato.gov.au/individuals/international-tax-for-individuals/work-out-your-tax-residency/residency-tests/

Academic.edu, Californian Copper Syndicate Ltd v Harris (Surveyor of Taxes) (1904) 5 TC 159, viewed on 16^st April 2017, retrieved from https://www.academia.edu/10062938/Tax_NZ_Income_Tax_Law_and_Practice

Jade, Scottish Australian Mining Co Ltd v FC of T (1950) 81 CLR 188, viewed on 16^st April 2017, retrieved from https://jade.io/article/64663

ATO. Gov. au, FC of T v Whit fords beach Pty Ltd (1982) 150 CLR, viewed on 16^st April 2017, retrieved from https://law.ato.gov.au/atolaw/view.htm?DocID=TXR/TR923/NAT/ATO/00001

ATO. Gov. au, Stathum & Anor V FC of T 89 ATC 4070, viewed on 16^st April 2017, retrieved from https://law.ato.gov.au/atolaw/view.htm?docid=AID/AID2002483/00001

ATO. Gov. au, Casimaty v FC of T 97 ATC 5135, viewed on 16^st April 2017, retrieved from https://law.ato.gov.au/atolaw/view.htm?docid=AID/AID2002273/00001

ATO. Gov. au, Moana Sand Pty Ltd v FC of T 88 ATC 4897, viewed on 16^st April 2017, retrieved from https://law.ato.gov.au/atolaw/view.htm?DocID=TXR/TR923/NAT/ATO/00001

Wolters Kluwer, Crow v FC of T 88 ATC 4620, viewed on 16^st April 2017, retrieved from https://www.iknow.cch.com.au/#!/document/atagUio545564sl16800674/crow-v-federal-commissioner-of-taxation-federal-court-of-australia-17-august-1988

AUS TAX  PBR, McCurry & Anor v FC of T 98 ATC 4487, viewed on 16^st April 2017, retrieved from https://austaxpbr.com.au/document/PBR_1011607555723