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Research Methodology And Empirical Evidence

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Question:

Discuss about the Research Methodology and Empirical Evidence.
 
 

Answer:

Introduction:

In accordance to 9995-1 ITAA95, basically an Australian resident is considered to be a person who is a resident for the aim of the ITAA36 tin that for individuals it must contain the four characteristics; resident test, 183-day test, domicile and permanent place abide test and Commonwealth superannuation test (Coulton, and Ruddock, 2011). Income tax is considered to be the main revenue source in Australian taxation system as it can be charged from three distinct sources for personal taxpayers that are individual income that includes salaries, income from business and the capital gains. The income taxes are collected by the Australian Taxation Office (ATO), and taxation rates for resident individual taxpayers differ from non-resident taxpayers. In reference to Kit’s case, this aspect will determine and deliberate whether he is an Australian resident and how his investment income and salary should be imposed to tax.

Kit residential status is evaluated for calculating the personal tax liability on his earned income during the financial year (Evans, and Tran-Nam, 2012). For evaluation of the residential status in Australia, the residential test is realized, and consequently, residential status is evaluated for tax purpose. The tests to be used are described below-

If a person is residing in Australia he will be considered as a Resident for the purpose of taxation, and all his or her income will be taxed in Australia only, and no other test is required to be utilized for the same. If a person is not fulfilling the above circumstance, then a second test will be applied. In accordance with this aspect, if any person fulfills any of the three test provided below then he will be deliberated as a resident of Australia.

  • Domicile Test- Under this particular test if you are a permanent resident in Australia then you will be considered as a resident of Australia until it is verified that your permanent residence is outside Australia (Tran-Nam, Evans, Walpole, and Ritchie, 2014).
  • Residing Days test- In this test, any individual living in Australia for more than 183 days, either frequently or with breaks then he or she will be deliberated as a beneficial resident of Australia till it is verified that there is no intent of occupying a house in Australia (Greenville, Pobke, and Rogers, 2012).
  • Superannuation Test- Under this particular test all people who are workers of Australian Government and are sent abroad are treated as a resident of Australia regardless of their place of residence.

Basing on the above tests, Kit is the permanent resident of Australia and Chile as he was hired in Australia and employed off the Indonesian coast. He had procured home in Australia and both his children and wife live there (Norbury, 2011). Kit gets monthly off duty from his work each third month. During his holidays he often meets his family either in Chile or Australia.

 

Determination of Kit’s residential status

  • Residency test: Even though Kit is Australian citizen but he is not physically present or residing in Australia for the period as needed. So for Taxation purpose, Kit will not be deliberated as an Australian resident through this test (Woellner, Barkoczy, Murphy, Evans, and Pinto, 2011). Superannuation test: Under this particular test, if a person is employed by the government of Australia and he is sent to work outside Australia, he will be treated as an Australian resident (Oats, 2012). Even though Kit is employed in Australia but his employer is not the Government of Australia, the basic condition is not fulfilled by Kit and he will be taken as an Australian non-resident.
  • Domicile test: This particular test relates to the permanent residency of a person. If the permanent residency of a person is in Australia then he will be taken as Australian resident (Hall, and Chikritzhs, 2011). In the provided case Kit permanent residency is in Australia that he has procured three years ago and through domicile test he is taken as a Resident.
  • Residing day test: From this test, a person should be a resident for as a minimum of 183 days in Australia. According to this test, Kit does not satisfy this test as he does did not reside for 183 days continuously.

Even though Kit does not fulfill the basic condition of being a resident, he has satisfied domicile test thus making him recognized as an Australian resident (Moretto, Kendall, Whitty, Hills, Gordon, Turkstra, Scuffham, and Comans, 2014). Under this particular test, Kit was born in Chile and hold citizenship of Chile, but there is no information that is available that regards to his permanent residency in Chile. So until there is the basic satisfaction that a person has no intention of residing in Australia permanently, he will be considered as an Australian resident. In this case, Kit is an Australian resident for the purposes of taxation.

Kit salary and investment income

Kit received his salary from an Australian Company in his bank account directly. He is also having a joint account with his wife. Secondly, he has made some investment in Chile, and he earns dividend and interest income from the same. So for the purpose of taxation, the two types of income are considered

  • Salary
  • Investment Income
 


In this case, being a resident of Australia, all the earned income during the year in any place of the world will be needed to be declared in the tax return from Australia (Norbury, 2011). Being also an Australian resident, threshold limit is allowed on the income that was earned during the financial year which implies that an individual gets the benefit of threshold limit that is permitted under the Australian tax laws. In this case, he is not required to pay up to the limit. Basing on this particular rule, as per the residency test, Kit is considered to be an Australian resident for tax purpose. For this case, being a resident of Australia, he is liable to be taxed in Australia. The salary income is received by him from an Australian employee is liable to be taxed in Australia regardless of the aspect that it is gained directly in the bank account.

Kit is getting the investment income both from Chile and Australia and basing on this aspect being an Australian resident; his global income is liable to be taxed in Australia regardless of the fact of the place it is earned or located. In this case, all his investment income is considered to be taxed as per the law of Australian.

Californian Copper Syndicate Ltd v Harris (Surveyor of Taxes) (1904) 5 TC 159: In this particular case, a firm’s main purpose was to acquire a parcel of land that basically contained copper. Conversely, the company had not extracted any copper (Norbury, 2011). In consequence, the corporation basically sold the land to another corporation and was paid with the share as the considerations. In this case, the commissioner contented that the selling of the parcel was profit in nature since the firm’s intent was to make revenue from the land sale. Moreover, this aspect was an ordinary case of the taxpayer’s trading and revenues in nature.

Scottish Australian Mining Co Ltd v FC of T (1950) 81 CLR 188: In the incident, a corporation conducted a business transaction of extracting coal on a piece of land that it held (Whiteford, 2010). After a long period of time, the entire coal was mined out, and the firm resolute to sell the bare plot. In order to increase its salability, the firm partitioned and constructed roads and other diverse infrastructure inside it. The court of law held that the revenue from land sale was not quantifiable since the corporation was not engaging in the trade of land peddling and the firm realized the capital property to its greatest gain. In this case, the revenue was nature of capital. 

FC of T v Whitfords Beach Pty Ltd (1982) 150 CLR: The taxpayers was a corporation registered for the aim of obtaining a region of an undeveloped parcel at Whiteford's Beach. The parcel initially access to the beach, and some people created the firm so as to obtain the property and access the beach for fishing activities. Over some time, because of a good offer that was hard to decline, all the offered capital of the buyer’s corporation was peddled. The new investors purchased the stakes only to gain control of the property with the intent that the owner would subdivide, improve and peddle residential plots at income (Wilkins, 2015). When the partitioned property was sold, the taxpayer contended that the revenue was not an ordinary revenue but investment in nature since it was the simple realization of the capital investment. The commissioner argued that the taxpayers were conducting a business transaction of developing land and income from land sale was assessable as an ordinary revenue. The commissioner held that during the transfer of ownership, the intention of the land changed to subdividing, developing, and land selling rather than non-commercial venture purpose.

 


Statham & Anor v FC of T 89 ATC 4070:?In this situation, the taxpayers were considered to be trustees of a dead man estate. The dead man had obtained the land for farming several years ago with the intent of raising his family members and using the land for farming. After some time, the dead man sold part of his to a firm that it was controlled by members of the family (Wilkins, 2014). At this particular period, there was no purpose to resell the land at an income, and the new shareholders came in into a partnership in order keep cattle. The new enterprise did not do well, and they agree to partition and vend the property. The original owner died during the period the partitioned land was sold, and other parts were being vended after his death. The court reasoned that the sale of land was not in nature of capital and thus not assessable for ordinary revenue.

Casimaty v FC of T 97 ATC 5135: In this situation, the taxpayer purchased a farming land from his dad and conducted a production industry for the subsequent twenty years. Conversely, because of the ill health and debt, the taxpayers then agree to partition and sell the larger part of the land. There were about eighteen partitions over the period of eighteen months, and the taxpayer builds water, and sewerage amenities and provided fence as part of the partition (Lanis, and Richardson, 2012). The high court argued that the revenue from the land sale of each portion of land were regular revenue and thus quantifiable on the aspect that the taxpayer was conducting a land division business. Conversely, on said, the commissioner held that the revenue from partition was a mere realization of the capital asset and not conducting land sale business as there was no evidence that the intention had changed.

Crow v FC of T 88 ATC 4620: An agriculturalist rented a large sum of funds so as to buy five portions of land over a time of ten years (Norbury, 2011). The property had been utilized for some period for grazing, growing crops and farming but it was portioned eventually. Immediately after the first two years of purchase, the taxpayer sold about fifty-one plots making a revenue of US$388,288. The commissioner thought that the tax-payer was countable on the income because he was conducting a land development business transaction. In this particular case, the procurement of diverse assets and the consequent portioning and the land sale involved in transactions that were basically repetitive and systematic and had features of continuation of land development.

Moana Sand Pty Ltd v FC of T 88 ATC 4897: In this situation, a parcel of land situated in Adelaide was procured by a corporation with the definite aim of working and selling sands business kind of business. The taxpayer acquired a beachside land for business and then subdivided the parcel and sold to other related parties where the coast protection board permitted it resulting in income (McGee, 2011). The commissioner held that the ordinary income obtained resulted from a distant business operation that is a profit of nature where the land was sold out hence fulfilling the vital purpose of making a profit, hence taxable.

 


McCurry & Anor v FC of T 98 ATC 4487: In this case, the taxpayer procured parcel of land that contained an old house. He demolished the house and built three houses on the same land. The houses were then advertised for sale before completion, and this was unsuccessful. Subsequently, the taxpayer together with his family moved into two houses and lived for about one year resulting in a total net profit of about US$150,000. After some time, the taxpayer bought the second land where he built houses and sold them the court of the law argued that the revenue from the land sale were ordinary quantifiable income because it resulted from commercial profit making activity (Miller, and Oats, 2016). Consequently, the taxpayer contented that the sale of houses was a mere realization of a capital asset and thus not ordinary revenue because the houses were residential that were sold out because of financial difficulties. The commissioner held that the sale of houses was ordinary assessable income because the parcel was obtained with the main intention of making a profit.

 

Bibliography

Coulton, J.J. and Ruddock, C., 2011. Corporate payout policy in Australia and a test of the life?cycle theory. Accounting & Finance, 51(2), pp.381-407.

Evans, C. and Tran-Nam, B., 2012. Managing tax system complexity: Building bridges through pre-filled tax returns.

Greenville, J., Pobke, C. and Rogers, N., 2013. Trends in the Distribution of Income in Australia. Canberra: Productivity Commission.

Hall, W. and Chikritzhs, T., 2011. The Australian alcopops tax revisited. The Lancet, 377(9772), pp.1136-1137.

Lanis, R. and Richardson, G., 2012. Corporate social responsibility and tax aggressiveness: a test of legitimacy theory. Accounting, Auditing & Accountability Journal, 26(1), pp.75-100.

Miller, A. and Oats, L., 2016. Principles of international taxation. Bloomsbury Publishing.

McGee, R.W. ed., 2011. The ethics of tax evasion: Perspectives in theory and practice. Springer Science & Business Media.

Moretto, N., Kendall, E., Whitty, J., Byrnes, J., Hills, A.P., Gordon, L., Turkstra, E., Scuffham, P. and Comans, T., 2014. Yes, the government should tax soft drinks: findings from a citizens’ jury in Australia. International journal of environmental research and public health, 11(3), pp.2456-2471.

Norbury, M., 2011. The taxation of non-resident trustees: A rethink. Taxation in Australia, 46(3), p.111.

Norbury, M., 2014. Freezing in Australia-Is it colder than Switzerland?. Taxation in Australia, 49(4), p.223.

Oats, L. ed., 2012. Taxation: A fieldwork research handbook. Routledge.

Wilkins, R., 2014. Evaluating the Evidence on Income Inequality in Australia in the 2000s. Economic Record, 90(288), pp.63-89.

Tran-Nam, B., Evans, C., Walpole, M. and Ritchie, K., 2000. Tax compliance costs: Research methodology and empirical evidence from Australia. National Tax Journal, pp.229-252.

Wilkins, R., 2015. Measuring income inequality in Australia. Australian Economic Review, 48(1), pp.93-102.

Whiteford, P., 2010. The Australian Tax?Transfer System: Architecture and Outcomes*. Economic Record, 86(275), 528-544.

Woellner, R., Barkoczy, S., Murphy, S., Evans, C. and Pinto, D., 2011. Australian Taxation Law Select: legislation and commentary. CCH Australia.

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