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Salary Derived By Can Robyn From India

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Questions:

1.Can Robyn be taxed on any part of her salary, from Victoria University, in Australia for the 2016/17 tax year and any other years she acts as coordinator in Calcutta.

2.Determine what amounts will form part of Paul’s assessable income for the 2016/17 taxation year.

 

Answers:

Issues:

The following issue is concerned with the evaluation of consequences of tax for salary or wages derived by an Australian resident working overseas and leaving Australia for taxation purpose.

Legislation:

  1. C. of T. v. Jenkins 82 ATC 4098
  2. C. of T. v. Applegate (1979) 9 ATR 899
  3. Henderson v. Henderson [1965] 1 All E.R.179
  4. Subsection 6 (1) of income tax assessment act 1936
  5. Taxation rulings of IT 2650

Application:

The study considers the tax treatment of salary derived by Can Robyn from India as an overseas employment for working as a coordinator in Calcutta University. The criterion to work as a co-ordinator was as long Can Robyn wished to work or as long the course existed in Calcutta University.  As per the taxation rulings of IT 2650 it aims to lay down the guidelines in determining whether the individual leaves Australia to stay in overseas country on temporary basis for work assignment cease to be resident of Australia for the purpose of income tax at the time of their stay out of Australia[1].

 


With reference to the subsection 6 (1) of income tax assessment act 1936 whose domicile is in Australia given the commissioner is satisfied that their permanent place of abode is outside of Australia[2]. As stated under subsection 6 (1) a person living in Australia either continuously or intermittently for more than half of the income year will be regarded as Australian resident unless the commissioner is content that the person does not have any purpose of taking up residence in Australia.

With reference to subsection 6 (1) of the ITAA 1936 Can Robyn will be considered as an Australian resident since she has resided in Australia for no less than half of the income year before leaving Australia[3]. As evident Can Robyn owned a flat in Melbourne and did not abandoned her place of residence where she lived. Perhaps the flat that was owned by Can Robyn in Melbourne was mortgaged and paid the mortgage amount from her employment income received in her Australian bank account.

As stated in Henderson v. Henderson [1965] 1 All E.R.179 a person maintains the domicile of their own origin unless an individual acquires the domicile of their own choice in another state or by the operation of law[4]. It can be ascertained from the present study that Can Robyn has retained her flat in Melbourne and intends to come back to Australia on an evidently clearly foreseen and reasonably expected contingency following the end of her employment in Calcutta university.

Considering the tax liability for the part of the assessable income received in her Australian bank account, the liability to tax originates in compliance with the taxation ruling of IT 2650 the taxpayers residence must be considered in applying the above rulings[5]. Citing the reference of F.C. of T. v. Applegate (1979) 9 ATR 899 the most important question that has originated is the residential status of an individual temporary leaving Australia for the purpose of tax[6]. Generally, an individual leaving Australia not on permanent basis would be regarded to upheld their Australian domicile except the individual obtains a different residence of their own choice or by the operation of law.

 


From the present scenario, Can Robyn will be regarded to have retained her Australian citizen since she maintained her bank account in Australia so that she can pay for her mortgage flat from the portion of remuneration paid in her Australian bank account. Therefore, a working visa even for the substantial period would not be considered as the adequate evidence of acquiring a new domicile for Can Robyn.

Determining the tax consequences of her salary received in her Australian bank account would be regarded as the foreign employment income. Foreign employment income can be defined as income by an Australian resident that are working overseas as employee. An Australian resident are generally taxed based on their income derived every quarter of the world. In relation to the current situation Can Robyn received in her bank account of Australia will be considered as an assessable income. It is worth mentioning that a payment can yet qualify as foreign income even though it was paid in Australia and not derived by the person working overseas. With reference to F.C. of T. v. Jenkins 82 ATC 4098 the foreign employment received from India would attract tax liability and will form the part of the assessable income as the overseas employment income[7].    

2.Issues:

The current issue is based on determining the taxable income of the taxpayer that has the personal business of Golf Teacher.

Legislation:

  1. Barratt v. FC of T92 ATC
  2. Henderson v. FC of T (1970)
  3. Taxation Rulings TR 93/11
  4. Subsection 6-5 (2) and (3) of the Income Tax Assessment Act 1997
  5. Subsection 25 (1)

Application:

In compliance with subsection 6-5 (2) and (3) of the Income Tax Assessment Act 1997 it is mandatory for each of the taxpayer to take account of the taxable income in the gross income that is generated by them[8]. As stated in subsections 6-5 (2) and (3) an income derived during the income year but received in another income year turns out to be the subject of the taxpayers. It is vital for the taxpayer to apply the appropriate method of determining the earnings that is applied in an income year[9]. As defined in taxation rulings of TR 93/11 it is necessary for each individual to apply either earning process or the receipt process of tax accounting for ascertaining the assessable income.

 


According to TR 93/11 receipt of fee income under subsection 25 (1) will be treated as earnings in accordance with ordinary concepts of the ITAA 1936 for professional or experts whose income is treated for assessment under the accrual basis[10]. As evident from the following scenario that Paul received a fee earnings from the private lesson of golf from his clients. This introduces the query regarding the treatment of professional fee produced under subsection 25 (1) of the ITAA[11]. This must be determined in terms of the facts from the present study of Paul with reference to the contract entered into by Paul. It is also found that Paul received a fee from one of his client, Doreen following five years of golf lesson imparted. This results in establishment of recoverable debt where the professional person will not be required to undertake any actions prior to the debt becoming entitled for payment. The fee shall be recoverable in the applicable sense if the time to reimburse has been sanctioned.

As held in the case of Henderson v. FC of T (1970) income which is assessable in terms of accrual basis is derived under subsection 25 (1) of the ITAA when a recoverable debt is created[12]. Along with this, a professional individual on receiving the fee income in advance and an arrangement has been created between the professional and client the fee income that is generated in the income year becomes related either entirely or partially for which the professional person completes the work. As evident from the current scenario, it can be ascertained that the fee income derived by Paul is considered as the part of his assessable income and will be taken into the consideration at the time of determining the tax liability.

 


From the present study of Paul, the receipt of fee income by Doreen would be regarded as the part of assessable income. The fee received by Paul would be treated as income in the revenue year and such kind of earnings would considered as the assessable income because the receipt of fee would be considered as recoverable debt for the lesson provided to his client[13]. At the time of determining the assessable income of Paul, receipt of sum $6,000 and $28,000 from the golf lesson taught would be treated as taxable income.  As held in the case of Barratt v. FC of T 92 ATC the federal court of Australia had taken into the consideration of statutory impediment in beginning the proceedings of recoverable bad debt[14]. Nevertheless, this does not put off the time during which the fee income was derived under subsection 25 (1) by the professional individual whose income shall be treated for the purpose of tax under the accrual basis.

Conclusion:

To conclude with the present case study, the following scenario of Paul has considered the consequences of income tax derived during the course of business. With reference to sub-section 25 (1) of the Income Tax Assessment Act 1936 the earnings of Paul from his golf lesson will be treated as assessable income and will be taken into the consideration in the assessable income[15]

 

Reference List:

Anderson, Colin, Jennifer Dickfos, and Catherine Brown. "The Australian Taxation Office-what role does it play in anti-phoenix activity?." INSOLVENCY LAW JOURNAL 24.2 (2016): 127-140.

Barkoczy, Stephen. "Foundations of Taxation Law 2016." OUP Catalogue(2016).

Blakelock, Sarah, and Peter King. "Taxation law: The advance of ATO data matching." Proctor, The 37.6 (2017): 18.

Braithwaite, Valerie. "Responsive regulation and taxation: Introduction." Law & Policy 29.1 (2013): 3-10.

Cao, Liangyue, et al. "Understanding the economy-wide efficiency and incidence of major Australian taxes." Treasury WP 1 (2015).

Davis, Angela K., et al. "Do socially responsible firms pay more taxes?." The Accounting Review 91.1 (2015): 47-68.

Fry, Martin. "Australian taxation of offshore hubs: an examination of the law on the ability of Australia to tax economic activity in offshore hubs and the position of the Australian Taxation Office." The APPEA Journal 57.1 (2017): 49-63.

Pinto, Dale. "State taxes." Australian Taxation Law. CCH Australia Limited, 2011. 1763-1762.

ROBIN, H. AUSTRALIAN TAXATION LAW 2017. OXFORD University Press, 2017.

Ross, Monique, Jarrod Walker, and John Walker. "Multinationals targeted down under." Taxation in Australia 52.1 (2017): 22.

Smith, Fiona, et al. "Reforms required to the Australian tax system to improve biodiversity conservation on private land." Environmental and planning law journal 33.5 (2016): 443-450.

Snape, John, and Jeremy De Souza. Environmental taxation law: policy, contexts and practice. Routledge, 2016.

Tan, Lin Mei, Valerie Braithwaite, and Monika Reinhart. "Why do small business taxpayers stay with their practitioners? Trust, competence and aggressive advice." International Small Business Journal 34.3 (2016): 329-344.

Taylor, Grantley, and Grant Richardson. "The determinants of thinly capitalized tax avoidance structures: Evidence from Australian firms." Journal of International Accounting, Auditing and Taxation 22.1 (2013): 12-25.

Vann, Richard J. "Hybrid Entities in Australia: Resource Capital Fund III LP Case." (2016).

Woellner, R. H., et al. Australian Taxation Law Select: Legislation and Commentary 2016. Oxford University Press, 2016.

Pinto, Dale. "State taxes." Australian Taxation Law. CCH Australia Limited, 2011. 1763-1762.

Woellner, R. H., et al. Australian Taxation Law Select: Legislation and Commentary 2016. Oxford University Press, 2016.

ROBIN, H. AUSTRALIAN TAXATION LAW 2017. OXFORD University Press, 2017.

Blakelock, Sarah, and Peter King. "Taxation law: The advance of ATO data matching." Proctor, The 37.6 (2017): 18.

Braithwaite, Valerie. "Responsive regulation and taxation: Introduction." Law & Policy 29.1 (2013): 3-10.

Barkoczy, Stephen. "Foundations of Taxation Law 2016." OUP Catalogue(2016).

Snape, John, and Jeremy De Souza. Environmental taxation law: policy, contexts and practice. Routledge, 2016.

Cao, Liangyue, et al. "Understanding the economy-wide efficiency and incidence of major Australian taxes." Treasury WP 1 (2015).

Taylor, Grantley, and Grant Richardson. "The determinants of thinly capitalized tax avoidance structures: Evidence from Australian firms." Journal of International Accounting, Auditing and Taxation 22.1 (2013): 12-25

Fry, Martin. "Australian taxation of offshore hubs: an examination of the law on the ability of Australia to tax economic activity in offshore hubs and the position of the Australian Taxation Office." The APPEA Journal 57.1 (2017): 49-63.

Ross, Monique, Jarrod Walker, and John Walker. "Multinationals targeted down under." Taxation in Australia 52.1 (2017): 22.

Anderson, Colin, Jennifer Dickfos, and Catherine Brown. "The Australian Taxation Office-what role does it play in anti-phoenix activity?." INSOLVENCY LAW JOURNAL 24.2 (2016): 127-140.

Davis, Angela K., et al. "Do socially responsible firms pay more taxes?." The Accounting Review 91.1 (2015): 47-68.

Smith, Fiona, et al. "Reforms required to the Australian tax system to improve biodiversity conservation on private land." Environmental and planning law journal 33.5 (2016): 443-450

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