Taxation And Residential Status In Australia

Discuss About The Taxpayersprocedia-Social And Behavioral Sciences.

 

An individual that are resident of Australia are assessed based on the “Resides Test” for the purpose of taxation and no other test are required to determine residential status of a person (Barkoczy 2014). The case study takes into the residential status of Nida for tax purpose. Furthermore, the present study will place emphasis on the domiciliary standing effecting the taxation liability of earnings generated from the Vietnam business operations and earnings from Australian investment.

The situation provides that Nida was a Vietnamese born and carried on the business successfully. In the later part of the year 2017 Nida was permitted on visa to work in Australia and reached with her family with the probable purpose of perhaps migrating and beginning the business in Australia. Furthermore, it was found that Nida acquired a house in Melbourne to reside with her family.

According to “section 6-5 (2) of the ITAA 1997” an Australian resident are usually held liable for tax depending upon the ordinary and statutory income generated from all the sources (Coleman & Sadiq 2013). As per “section 6-5 (3) (a) of ITAA 1997”, an overseas individual or an individual who is non-resident of Australia will be considered assessable for their ordinary and statutory income obtained from the Australian sources.

An explanation has been provided under “section 995-1 of the ITAA 1997” or in “section 6-(1) of the ITAA 1997” an occupant of Australia for the purpose of assessment constitute persons that are living in Australia and includes those that have their domicile in Australia (Grange et al., 2014). As per “Section 6 (1) of the ITAA 1936” a resident of Australia means an individual that has been actually present in Australia, either constantly with breaks for more than six months in an income year. However, an exception is that an individual would not be regarded as Australian resident unless the federal commissioner is content that an individual’s normal place of house is outside of Australia and the person has not intended to take up an Australian residency. To assess the residential status of Minh residential tests are conducted to determine whether Nida is an Australian resident for assessment purpose;

• Resides Test
• Domcile Test
• 183 days Test

The term reside constitutes to dwell permanently or for a considerable period of time in Australia (James 2014). Resides test forms the primary test in determining the residential status for Nida. If an individual resides in Australia, he or she will be considered as the Australian resident for assessment purpose and no other residential test is necessary to determine the residency.

The court of law in “Miller v Federal Commissioner of Taxation (1946)” determined the question of fact and degree (Jover-Ledesma 2014). The commissioner stated that an individual’s behaviour while present in Australia is an important element in determining the residential status. The taxation ruling of 98/17 provides that the intention of taxpayer or purpose of existence is necessary factor. The ruling also provides that it is necessary to look into the taxpayer’s family and employment or business ties along with the location where the taxpayers maintains their assets. The physical presence of an individual’s presence in Australian is necessary factor.

Evidences obtained from situation of Nida states that she migrated to Australia ultimately with the intent or purpose of migrating and starting the business. Nida also purchase a house in Melbourne to live with her children and partner (Kenny 2013). Citing the reference of “Macrea v Macrea (1949)” an overseas individual migrating to Australia with their family and partner to settle in Australia would be held as residing in Australia from the time when the person migrated to Australia. Regardless of whether an individual’s business or personal interest may require the person to remain absent from Australia for considerable time period. For example, a person migrating to Australia with their partner or children and consequently purchases house in Australia (Morgan et al. 2013). A person retaining their business activities in their nation of origin and frequently returning to nation where he or she is born for executing business activities for two or three months during the year. Customarily, an individual would be viewed to be residing in Australia despite their abroad absence.

Ideally, in the current situation of Nida she migrated from Vietnam to Australia and bought a house in Melbourne to live with her family. She returns to Hanoi to conduct her business activities in Hanoi. Nida was also present in Australia for 120 days and did not take up the residence permanently. The residency status of Nida and her family is considered to be independent and will be viewed as a separate matter.     

Domicile is considered as the legal concept of determining the domicile of an individual under the “Domicile Act 1982” and in respect of common law procedures that is identified by the court have developed in the areas of private international law (Sadiq et al. 2014). According to the common law rule is that a person acquires the domicile by birth the domicile of their origin being the nation of their father’s permanent home. However, there are exceptions where a person takes the domicile of their mother by the operation of law of their own choice.

The situation obtained from the case study suggest that Nida’s permanent place of abode is outside of Australia in Vietnam nevertheless she migrated to Australia from Vietnam with the intent of living here until further notice and starting the business activities. Nida bought home in Melbourne and her existence in Australia was discontinuously broken. Referring to “Applegate v FCT (1979)” Nida did not abandoned any of her residence or place of residence in Australia and often comes back to Australia to perform her business activities in Hanoi (Woellner 2013).

In another instance of “Henderson v Henderson (1965)”, a person usually holds the residence of their origin nation unless the person obtains the domicile in another nation (Woellner et al. 2013). Taking account of the Nida situation she would not be regarded as Australian occupant for the purpose of assessment under “Domicile Act 1982”. Notably, it may be apparent that they are Australian resident but the Nida and her family residency status will be held independent for the income year 2017-18.

Under the 183 days test the business migrant who is existent in Australia for greater than 183 days in an income year is considered to be an Australian resident under 183 days’ test (Pinto 2014). However, a person will not be considered resident of Australia unless officer is content that the person has their place of residence outside of Australia and intends not to take up the house in Australia under section 6 (1)(a).

Evidently in the situation of Nida, she was present in Australia for only 120 days in an income during her stay in Australia. A business migrant is only held resident if the person has stated in Australia for greater than 183 days’ test (Tan et al. 2016). Nida being a business migrant was not present in Australia for more than 183 days. Therefore, under the 183 days Nida is not an Australian resident for the income year ended 2017/18. Conclusively, it is worth mentioning that Nida’s residential status would be held as an independent matter. She will not be held as Australian resident as the criteria of business migrant was not met by Nida.

According to “section 6-5 of the ITAA 1997” ordinary income constitutes most of the income that comes to the taxpayers. As held in “Scott v Federal Commissioner of Taxation (1935)” the expression income under the judicial concept constitutes receipts that are held as income and should be assessed in respect of ordinary concept (Cao et al. 2015). The commissioner in the case of “United Aircraft Corp (1943)”, passed the verdict by stating that the business income represents income where the corporate activities are handled or the place where the possessions are sold.

Citing the case of Nida, it is understood that she cannot be held as Australian resident for assessment purpose for the income year 2017/18. Nida is viewed as the foreign resident as her behaviour and time spend in Australia fails to reflect the degree of endurance, routine and habit that is consistent to be held as an Australian resident (Braithwaite, 2017). The income that is derived by Nida from her business in Vietnamese shall not be included for assessment while her investment income from Australian sources will be held for taxation under “section 6-5 of the ITAA 1997”.

There are several instances where the landowners are provided with the occasion of subdividing the land and selling the land that have been possessed for an extended time. This generally happens where the primary producers own the land on the suburbs of the town centres and residential development represents that the best usage of land is for residential purpose instead of farming (Davis et al. 2015). In certain cases, such development of property can be held as substantial with the prospect of deriving large amount of profit from the project.

The present situation of Hassan is based on ascertaining the alternatives that originates on the sale of townhouse and the same will be considered liable for taxation under the provision of ITAA. As evident from the circumstances of Hassan, he inherited a small family land which was situated in Melbourne (Saad, 2014). Following this, Hassan decided to retire from the activities of farming business and decided to sell the farm land. With no further interest in the business of farming Hassan with his children engaged in a discussion with accountant to provide Hassan with the advice relating to the sale of farm to the property developer.

After meeting with the property developer Hassan was given advice to cease the farming activities on his land and subdivide the land for sale. Hassan upon receiving the advice from the property developer indulged with the real estate agent Hassan decided to subdivide the land and begin the building of houses that can be sold (Kerin and Findlay 2015). On completing the construction of building Hassan engaged with agent of real estate and vended the houses to make profit of $300,000 from every one unit of houses.

Noteworthy emphasis must be paid to take account of situations where a small to medium subdivision of land may be held as the mere realisation and when the project turns out to be a profit deriving business or undertaking. In situations where it is appropriate for the land owners having land that is proper for construction or would make certain that the profit generated from such activities is held as the capital account (Miller and Oats 2016). The landowners in this situation can decide to sell the entire property to the land developer. The federal commissioner in “Commissioner of Taxation v Westfield Limited (1991)” held that a single sale of asset which has not been acquired with the objective of resale at the profit and development would quality as the capital receipt.

Evident in the existing condition of Hassan, the subdivision of land which was used for the purpose of farming and creation of houses for the purpose of sale can be said as having substantial association of generating large sum of profit from the project (Graetz and Warren 2016). The provision of ITAA provides the substitutes where the profits obtained from the sale of houses would be held liable for assessment. This raises question in the present situation of Hassan as how the profits must be characterised. In the present situation of Hassan, the alternatives of assessing the proceeds originating from the deal of town houses under the provision of ITAA are stated below;

1. A mere realisation of the capital asset occurs when the land is subdivided and sold.
2. The development might move further than the mere realisation of land but may fall short of the criteria of executing the business, in such cases the profits derived would be held as the profit deriving scheme (Robin and Barkoczy 2018).
3. The extent of development may be in such a way that it comprises of performing the business of property

Preceding from the explanation of the above stated alternatives in the present situation of Hassan, the alternatives would be used to ascertain the taxation of proceeds derived from the sale of town house under the ITAA. In relation to the substitutes defined above mere realisation of capital asset is applied in the situation of Hassan as the land was subdivided and sold in 20 units.

As held the by the commissioner in “Allied Pastoral Holdings v FC of T (1983)” the commissioner defined situations of mere realisation of asset (Blakelock and King 2017). Numerous tax authorities have provided that the taxpayers that has land institute a capital asset and developing the land in a resourceful way may consider treating profit from the realisation of land as the capital if the expansion is no less than the mere realisation of the capital asset.

Before boarding on the thorough examination of what is needed to establish that the development of land represents mere realisation of asset it is necessary to take account that if the land was actually obtained for resale at the profit (Robin 2017). The profit from the sale of the developed land would be held as the taxable as the ordinary income irrespective of the sale of project. While advising Hassan from the issues identified above it is necessary to define whether there was any evidence of making profit when the acquisition of land was made.

The commissioner in the case of “Reiger v Commissioner of taxation” confronted the similar difficulty of mere realisation of capital asset. The taxpayer argued that the acquisition of land was for carrying out the plantation of plant (Ismer and Jescheck 2017). As a result, the taxpayer imbedded few palm trees on the land but didn’t performed in a business way. The intent of subdividing the land was considered as the important element in the argument bought forward by the taxpayer where it is defined that the objective of the taxpayer was to begin the business on the land.

According to the “taxation ruling of 92/3” views regarding the Australian taxation office has been stated relating to the issues of determining whether the taxpayer that as decided to start the activities of land development in constituting a mere realisation of asset or alternatively boarded on profit deriving scheme. The federal commissioner in the case of “Californian Cooper Syndicates v Harris (1904)” have succinctly stated regarding the mere realisation of asset (Kerin and Findlay 2015). Well settled principles in dealing with the queries of assessment of income tax has been stated where the owners of the ordinary investment decide to realise it and derives a greater price for the asset than the taxpayer has originally acquired. The improved price does not constitute profit under the Schedule SD of the Income tax act of 1982.

The court of law in the case of “Commissioner of Taxation v Westfield Limited (1991)” stated that once it is understood that the activities of purchase and sale that led to profit was not based on the activities of the ordinary business course, the profit that is in question would become the part of the taxable income of the appellant (Blakelock and King 2017). The profit by virtue of ordinary business course would be the income in compliance with the ordinary concepts if the taxpayer has the objective of making profit while acquiring property. The commissioner further stated that despite the purpose of making profit lacked gravity, means of obtaining the profit may be viewed as the alternative through which the profit will be held realisable.

The “taxation ruling of 92/3” defines that assessable profits arises if the taxpayer enters into the transaction with the motive of deriving profit through one exact means but derives revenue with the help of other means. The present issue of Hassan is based on determining whether the land development undertaken by the land owner has the character of business or possess the profitable transaction (Miller and Oats 2016). According to the “Taxation ruling of TR 92/3” the Australian Taxation Office is dependent on the viewpoints defined under “Miscellaneous Taxation Ruling of MT 2006/1”.

The Australian taxation office has defined that there is no solitary factor is considered to be decisive given that there is prevalence of other relevant factors. Opinions might differ that the subdividing the land in small units establish mere realisation of land. Nevertheless, in the current situation of Hassan opinions may not differ (Woellner et al. 2013). It is necessary to take into the consideration the decision of court in some of the cases where the commissioner has stated that the land development into numerous small lots would means a mere realisation of asset. Referring to the case of “Federal Commissioner of Taxation v Casamity (1997)” where the subdividing the land into 80 lots is held as the mere realisation of farmland. The verdict of court was that the land was employed for farming for numerous years and choice of subdividing the land was completely because of rising debt and declining health of the taxpayer.

In another illustration of “Federal Commissioner of Taxation v McCorkell” the federal court defined that the subdivision of land which was previously used as orchard would be regarded as the mere realisation of property (Robin and Barkoczy 2018). Similarly, in the case of “Federal Commissioner of Taxation v Statham (1989)” the development of lots further than the four stages was no less than the mere realisation of the capital asset. As obvious in the present state of Hassan, the land that he inherited and sold after the subdivision of land into twenty townhouses would be held as the mere realisation of the asset. The proceeds that are generated from the sale of town houses is based on capital account and not under the revenue account.

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