Determining Tax Consequences For Salary: Guidelines And Considerations

Residency Status for Tax Purposes

Question:

Discuss About The Determine The Tax Consequences For Salary?

The report explains the treatment of tax of income that have been derived from working in an oversea university as a coordinator. The terms of work for the coordinator is that Can Robyn can continue to works as long as he wished or as long as the course existed in the Calcutta University. The Taxation Ruling IT 2650 provides certain guidelines that is useful in determine whether an individual leaving Australia for working overseas should be determine as resident or nonresident for the purpose of tax for the time of staying outside Australia[1].

The section 6(1) of the Income Tax Assessment Act 1936 provides that an individual whose domicile is in Australia is considered as an Australian resident for the purpose of tax unless the commissioner is satisfied that individual is nonresident for the purpose of tax[2]. The section provides that an individual staying in Australia continuously for more than 6 month is generally regarded as a resident for the purpose of tax. However, if the commissioner is satisfied that the individual does not have the intention of residing in Australia in that case the individual will not be regarded as resident for the purpose of tax.

On evaluating the current case under section, 6(1) of the Income tax Assessment Act 1936 Can Robyn should be regarded as the resident of Australia as she has stayed in Australia for more than 6 months before leaving the country for employment overseas[3]. In addition to this Can Robyn continued to have the place of residence in Australia and did not sell the flat of Melbourne. It is assumed that the flat was mortgaged as she paid the mortgage amount from the income received from employment.  The income from employment was received in Australian bank.

In the case of Henderson v. Henderson [1965] 1 All E.R.179 it was provided that a person is taken to have the domicile of the place of origin unless the individual taken a domicile in any other country. In the current case, it can be seen that Can Robyn has continued to maintain the flat in Melbourne that indicates she has the clear intention to come back to Australia after the employment with Calcutta University is ceased[4].

The Taxation Ruling IT 2650 provides that the income received in an Australian bank for working overseas is taxable.  In applying the ruling, the residence of the taxpayer should be considered. In the case of F.C. of T. v. Applegate (1979) 9 ATR 899 the most important thing that needs to be determined is the residential status of the individual leaving Australia for the tax purpose[5]. In case an individual continues to maintain the domicile is Australia then the individual would be regarded as the resident. That means an individual obtaining domicile of his own choice or through the operation of law is regarded as the non-resident.

Determining Residency Status for Overseas Work

In the present case, Can Robyn maintains her bank account in Australia and continues to receive her income from employment on that account. The mortgage for the flat is paid from the income received on that bank account. Therefore, it can be said that in case of Can Robyn in spite of obtaining working visa for substantial period it can be considered as adequate for considering her a non-resident for the purpose of tax[6].

The salary received in the Australian bank will be regarded from the university of Calcutta will be treated as foreign employment income. The income earned by an Australian resident from an overseas employment is termed as foreign employment income. In Australia, an individual is generally taxed on the income that is derived every quarter from every corner of the world. In this case, Can Robyn has received has salary in her Australian bank account. The income that is received in Australian bank account from source outside Australia will treated as assessable income. It should be noted that even though the payment has been received in Australia and not the person working overseas it should be considered as foreign employment income. Therefore, based on the F.C. of T. v. Jenkins 82 ATC 4098 it can be concluded that the foreign employment income that is received from India is taxable and so it should be included in the assessable income.

According to the subsection 6-5 (2) and (3) of the Income Tax Assessment Act 1997, it is compulsory that each of the taxpayer should take account of their taxable income in the gross income which they generate[7]. As mentioned in subsection 6-5 (2) and (3) any income that is earned during a year but it is received in some other or in another year turns out to be the matter of the taxpayer. It is very important and vital to determine by applying appropriate method the amount of earnings that is generated in an income year for the taxpayer. It is clearly mentioned in taxation rulings of TR 93/11 that it is essential for each person in order to ascertain the assessable income to apply either their receipt process of tax accounting or their earning process[8].

As per TR 93/11 receipt of income fee under subsection 25 (1) will be treated as incomes in compliance with the regular perceptions of the ITAA 1936 for professional whose earning or income is treated for the purpose of assessment under accumulation basis or accrual basis[9]. It is obvious from the situation where Paul received a fee earning from the private lesson of golf from his client. Thus the query relating to the treatment of professional fee is introduced under subsection 25 (1) of the ITAA. From the present study of Paul with reference to the contract entered into by Paul, the following case must be determined. It is also established that following the five years of golf lesson imparted, Paul had received a fee from one of his client named Doreen. As a result of which a recoverable debt was established where it is not required by the professional person to take on any prior action to the debt becoming entitled for payment. If the time to compensate is being approved then the fee shall be recoverable in the applicable sense.

Treatment of Foreign Employment Income

As it is detained in the case of Henderson v. FC of T (1970) earning which is assessable on accumulation or accrual basis, those are derived under subsection 25(1) if the ITAA on creation of a recoverable debt. Alongside this, either on receiving the fee, income in advance by a professional person and by creating some arrangement among the client and the professional the fee income that is produced in the income year become associated partially or fully for which the professional person completes the work[10]. As it is obvious from the present situation that it can be determined that the fee income which Paul had derived is considered as the portion of his computable income and which shall be taken into consideration while ascertaining the tax liability.

The current study of Paul states that Doreen’s receipt of fee income would be considered as the portion of assessable income. The amount of fee that Paul received would be treated as income in the year of revenue and such kind of incomes would be treated as assessable income due to the reason that the receipt of fee would be treated as recoverable debt for the lesson that is provided to his client[11]. While Paul’s assessable income is ascertained, receipt of $6,000 and $28,000 would be considered as taxable income out of the golf lesson taught. As believed in the Barratt v. FC of T 92 ATC the Australian federal court had taken into consideration the statutory impairment during commencement of the proceedings of recoverable bad debt. However this does not delay the time of deriving the fee income under subsection 25 (1) by the professional individual whose income is intended to be treated for the purpose of tax under the basis of accumulation or accrual[12].

Conclusion:

In order to settle with the current study, Paul’s following situation has reflected the outcomes or magnitudes of income tax which is derived during the progress of the business. The income of Paul from his golf lesson will be considered as assessable income with reference to sub-section 25 (1) of the Income Tax Assessment Act 1936 it will also be taken into consideration in the assessable income.

Reference

Braithwaite, Valerie, ed. Taxing democracy: Understanding tax avoidance and evasion. Routledge, 2017.

Cheshire, Lynda, Jo-Anne Everingham, and Geoffrey Lawrence. "Governing the impacts of mining and the impacts of mining governance: Challenges for rural and regional local governments in Australia." Journal of Rural Studies36 (2014): 330-339.

Assessing Taxable Income for Professionals

Davis, Angela K., David A. Guenther, Linda K. Krull, and Brian M. Williams. "Do socially responsible firms pay more taxes?." The Accounting Review 91, no. 1 (2015): 47-68.

England, Phillipa. "Between Regulation and Markets: Ironies and Anomalies in the Regulatory Governance of Biodiversity Conservation in Australia." 1 Australian Journal of Environmental Law (2016): 44.

Forsyth, Peter, Larry Dwyer, Ray Spurr, and Tien Pham. "The impacts of Australia's departure tax: Tourism versus the economy?." Tourism Management 40 (2014): 126-136.

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.

Kucukvar, Murat, Gokhan Egilmez, and Omer Tatari. "Sustainability assessment of US final consumption and investments: triple-bottom-line input–output analysis." Journal of cleaner production 81 (2014): 234-243.

Lal, A., Mantilla-Herrera, A. M., Veerman, L., Backholer, K., Sacks, G., Moodie, M., ... & Peeters, A. (2017). Modelled health benefits of a sugar-sweetened beverage tax across different socioeconomic groups in Australia: A cost-effectiveness and equity analysis. PLoS Medicine, 14(6), e1002326.

Picciotto, Sol. "Indeterminacy, complexity, technocracy and the reform of international corporate taxation." Social & Legal Studies 24, no. 2 (2015): 165-184.

Richardson, Grant, Grantley Taylor, and Roman Lanis. "The impact of board of director oversight characteristics on corporate tax aggressiveness: An empirical analysis." Journal of Accounting and Public Policy 32, no. 3 (2013): 68-88.

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

Taylor, Grantley, and Grant Richardson. "The determinants of thinly capitalized tax avoidance structures: Evidence from Australian firms." Journal of International Accounting, Auditing and Taxation 22, no. 1 (2013): 12-25

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

[2 Braithwaite, Valerie, ed. Taxing democracy: Understanding tax avoidance and evasion. Routledge, 2017.

[3] Davis, Angela K., David A. Guenther, Linda K. Krull, and Brian M. Williams. "Do socially responsible firms pay more taxes?." The Accounting Review 91, no. 1 (2015): 47-68.

[4] 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.

[5] Lal, A., Mantilla-Herrera, A. M., Veerman, L., Backholer, K., Sacks, G., Moodie, M., ... & Peeters, A. (2017). Modelled health benefits of a sugar-sweetened beverage tax across different socioeconomic groups in Australia: A cost-effectiveness and equity analysis. PLoS Medicine, 14(6), e1002326.

[6] Forsyth, Peter, Larry Dwyer, Ray Spurr, and Tien Pham. "The impacts of Australia's departure tax: Tourism versus the economy?." Tourism Management 40 (2014): 126-136.

[7] Cheshire, Lynda, Jo-Anne Everingham, and Geoffrey Lawrence. "Governing the impacts of mining and the impacts of mining governance: Challenges for rural and regional local governments in Australia." Journal of Rural Studies36 (2014): 330-339.

[8] Taylor, Grantley, and Grant Richardson. "The determinants of thinly capitalized tax avoidance structures: Evidence from Australian firms." Journal of International Accounting, Auditing and Taxation 22, no. 1 (2013): 12-25.

[9] Richardson, Grant, Grantley Taylor, and Roman Lanis. "The impact of board of director oversight characteristics on corporate tax aggressiveness: An empirical analysis." Journal of Accounting and Public Policy 32, no. 3 (2013): 68-88.

[10] England, Phillipa. "Between Regulation and Markets: Ironies and Anomalies in the Regulatory Governance of Biodiversity Conservation in Australia." 1 Australian Journal of Environmental Law (2016): 44.

[11] Kucukvar, Murat, Gokhan Egilmez, and Omer Tatari. "Sustainability assessment of US final consumption and investments: triple-bottom-line input–output analysis." Journal of cleaner production 81 (2014): 234-243.

[12] Picciotto, Sol. "Indeterminacy, complexity, technocracy and the reform of international corporate taxation." Social & Legal Studies 24, no. 2 (2015): 165-184.