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Question:

Discuss about the Taxation Law of Australia.
 
 

Answer:

Introduction

Taxation law is the very source of income of a government to enhance the assets through imposing duties and tariffs upon the civilians. The rules of taxation law are designed based on the valuation of property, cash transactions between the shareholders, grating right of licenses and formidable duty charges on imported goods, the government imposes the taxation law upon the society to build a contributing spectrum of economy that is utilized in the advancement of public services. The Australian government has the authority to enforce the civilians to pay the taxes in return of the provided services by the government to share the total costing of administration and public services. The taxation system in Australia is more like reorganization and repositioning of economic assets with individual guidelines by local, state and federal governments. Australian federal government collects excise tax, income tax and property tax from the civilians through the offices of taxation.

The burden of taxation in Australia is relatively lower than other countries with developed economy with a fixed rate of 25.6% of the GDP of the country. In this assignment, the provided scenarios will be evaluated through the context of the taxation law of Australia to figure out impact and role of taxation laws in the cases of Juliette and George (Barry, 2007).

Issues- The ultimate issue in this question is about the Australian citizenship of Juliette that has a great role to play in the determination of her tax returns. Due to unorganised stay of Juliette in Australia, there are concerns about her ideal citizenship that is important in Australian taxation law. It is important to figure out the amount of tax returns of a financial year. In order to figure out the estimated tax returns of Juliette, her residential durations and evidences can be evaluated. This will help in revealing the total amount of tax return based on the property statement and income certificate of Juliette in Australia for both the income year of 2014-15 and 2015-16. This scenario of Juliette needs brief analysis to unravel the issue of this case of the relevance of Juliette as an Australian resident in the purpose of income tax and property tax (Braithwaite, 2003).

 

Fact

Juliette came to Australia with a contract with a United States based private theatre management company for a period of 15th March 2015 to 15th March 2017. Juliette got a payment of AUD$70000 on the first day of contract whereas the rest AUD$70000 will be deposited in the account of Swiss bank in every six month until the completion of contract period. Juliette arrives at Sydney on 1st February 2015 and commences a bus trip around the country that accidentally interrupts, as she needs to return of England to aid her ill mother on 28th February in the year 2015. She returns to Australia on 1st May of 2015 and hires a flat with some purchased furniture. Later in August, she buys a house as a preparation for marriage with Romeo that will going to be help on 1st September 2015. On 15th October, she returns to her mother after getting the news of severe illness of her mother who is on the verge of demise and needs 24-hour assistance. Juliette eventually stays at England in order to honour the very wishes of the dying mother. In this timespan in England, Juliette eventually gets the AUD$70000 in every six months according to the contract with the theatre management company as she continues to provide instruction for the shows through the transmission of dance notes with the help of Romeo. After the demise of Juliette’s mother, she returns to Sydney on the 15th of April in the year 2016 and involves in her work again. This scenario implies that Juliette has a fluctuating stay in Australia as sometimes she stays for only 1 month in the first phase and the later phase account almost six months that creates a serious complexity to determine her legal citizenship of Australia. In the income year of 2014-15, she spent only eighty-nine days in the Australia and on the other hand, she spent one hundred and eighty two days in the income year of 2015-16. This will define the clauses and laws for non-residential Australian in order to determine the amount of tax return in one income year.

Law Application

2014-15 income years:

According to Parsons (2011), Income Tax Assessments 1997 states that any resident of Australia with an annual income between AUD$37001to AUD$80000 is obliged to pay the fixed rate of tax return in provided time for avoiding the chances of penalty and punishment. This suggests that Juliette needs to pay an amount of approximately AUD$6800 in both the financial years with an adjustable effective tax rate of 19.7%. According to Devos (2012), the Income Tax Act 1902 of the federal government of Australia provides systematic guidelines for the Australian citizens and non-residential Australians in order to procure different rules for tax return. Juliette can be an Australian citizen through an application that will be verified with the provided guidelines of schedule (4) of Australian Citizenship Act 1972 (Eccleston & Smith, 2015). According to the guidelines of FIRB (The Foreign Investment Review Board), Juliette only needs to pay taxes based on her incomes in Australia as she is a non-resident. The Foreign Acquisition and Takeover Act 1975 reveal the requirement for Juliette to pay the property tax for her flat in Sydney.

2015-16 income years

As opined by James & Wallschutzky (2007). The Foreign ownership legislation of the federal structured government of Australia provides systematic power to FIRB for determining the added tax against the valuation of the property that was bought by Juliette in the 2014-15 income years. According to Cassidy & Sykes (2007), FIRB will evaluate the current valuation of the house and will suggest recommendations to the taxation department of the government to formulate a specific rate of tax. According to the opinion of Kenny (2005), there's been a radical change in the taxable Australian property rules in the year 2012 for the foreign residents with taxable income source from Australian soil. In this regard, Parsons (2011) has opined that the CGT (Capital Gains Tax) will be applicable for Juliette in her tax return of 2015-16. On the other hand, the tax return of the income year of 2014-15 will not be applicable for Juliette. Because she stayed in Australia for only eighty nine days that is below the criteria for a non-resident to pay tax based on the income (McLaren, 2014). In this context, the federal guidelines of Australian governments for citizenship for the purpose of income tax return can be vehement to analyze the situation of Juliette. This will be helpful in order to get a subsequent solution about the amount she has to pay for each of these two income year.

Thus, Juliette can be considered as a resident of Australia in the 2015-16 income years in the aspect of tax return as she had spent one hundred and eighty two days in the country. Under the Income Tax Act of 1902, she needs to pay taxes as she had spent more than six months in Australia. Whereas, in 2014-15 income year, Juliette cannot be termed as a resident as she does not needed to pay taxes on her earnings for this year as much as a person with complete citizenship of Australia. The test of residency of Juliette can be defined with the domicile test of residency that requires a permanent address of a home to stay in Australia. In 2014-15 income years, Juliette did not have any permanent residence in Australia and the 180 days residency test cannot be applied to Juliette as she had stayed for only eighty-nine days in Australia.

 

 

On the other hand, both these residency tests can prove that Juliette is a resident of Australia according to the legislations. In 1st September of 2015, Juliette bought a house that can pass through Domicile test as a permanent residence. Juliette can pass the 180 days test of residency for this income year and this will be the basic aspects of the Taxation House of Australia. It will calculate the exact amount of tax return for Juliette for both these income years.

Features

Amounts

Replacement of damaged fibro roof with colour band

AUD$15000

General maintenance and repairs

AUD$6000

New fittings and new furniture

AUD$1200

Paint of the fencings and wooden pockets

AUD$2500

Repair of broken door in front side

AUD$1000

Total expenditure

AUD$25700

Total Earnings through house renting

AUD$13900 (annual figure)

Commission of real estate agent

AUD$695(annual figure)

Additional Buying (Stove, hot water service, furniture and carpets)

AUD$447.24

Net profit

AUD$13305

Table 1: Taxable Income Statement of the Property of George

(Created by Author)

This yearly income statement of George through renting property shows that he is liable to pay income tax as per the guidelines of The Income Tax Act 1902 of the Australian federal government (Tran-Nam, 2004). This annual statement shows that George needs to pay the taxes based on the specific earning group formulated by the Taxation House of Australia. He needs to pay a minimum amount of AUD$1.547 and 9c for the each one dollar over the primary margin of taxation rate. However, the House Renting Property Act 1998 suggests that few expenditures like general maintenance and repairs are deductible in tax return (Smailes & McDermott, 2013). George needs to pay an amount of based on the taxable income of a financial year. However, the exclusions will be deducted from this amount as per the schedule (7) of Renting Property Taxable Return Act 1963 of Australia. The AUD$6000 of general maintenance and repair will be deducted from the amount of to formulate the exact amount that needs to be paid by George as income tax from renting property (Schenk et al. 2015).

Issue

In this very scenario, the primary issue of this question is to identify every component of income from rental property statement in order to articulate the taxation rate for George according to the guidelines of The Taxation House of Australia. The issue is related with the identification of the inclusions and exclusions of the different components in the rental account of property statement of George. This needs clear and vivid explanation of the components of property statement from renting income that can play pivotal part to determine the exact amount of taxation rate to be paid by George (Woellner, 2011).

 

Fact

The components of the rental property statement include the renovation and additional charges that are considered by the Taxation House of Australia to formulate a specific amount of tax return through evaluating the property statement components through legal perspectives. George became the owner of this property after the death of his relative from Sydney and later on he appointed Christopher Stake as the property manager of the Sydney House. In the December of 2015, George used some capital to repair the house by replacing the roof for making it more stubborn with general maintenance services. He also bought some new furniture for the house and painted the fences in the front of the house by focusing specially on the wooden pickets. He also spent some money to fix the frontal door of the house that was once damaged by notorious vandals. George had cunningly used the prime cost method for procuring depreciation in the total value of his rental property in order to reduce the tax return as much as possible (Saad, 2014).

The life cycle and costs of the assets are effective to devalue the rental property as the stove, hot water service, furniture and fittings and carpets are cost effective for their very durability. George earns AUD$13, 900 in a year as the rental income from the property of Sydney House. The real estate agent takes five percent commission from George based on the total income from rental property in a year. This scenario implies the urge of a property income statement that will reveal the total amount of taxable return for George by evaluating the inclusion and exclusions in the property statement. The property income statement thus plays a pivotal role in determining the exact amount of tax return for George by considering the depreciating assets of George (Xynas, 2011).

Law Application

According to Richardson et al. (2014), The Australian Capital Territory Book suggests that a owner of a property can take systematic initiatives to procure the aspect of depreciation through the renovation and changes in property statement. The renovation for gaining profit by giving away the Sydney House in rent comes under the jurisdiction and criteria of Revenue Generation amendment Bill 2010 of New South Wales province. According to the statement of Richardson & Lanis (2007), the Land and Property Information Act 1994 (LPI) considers the very activities by the owner of properties to use it as a source of income for imposing income tax and capital gains tax (CGI) based on the income statement of the property. The Australian Banknotes Tax Act 1910 is a vintage legislation that can be vehement in this scenario to reduce the taxation rate for George. According to the opinion of James & Wallschutzky (2007); the Tax Administration Act of 1996 of Australian federal government is eventually relevant for the property renting income statement for evaluating the tax returns. This act implies that George can manipulate the total tax return amount by prolific use of legal terms and conditions.  According to Freedman (2004), the use of prime cost can be more than helpful in Australia to reduce the property valuation in terms of tax returns. The Taxation House of Australia suggests that some prolific features in repairing and building property are accounted in the Land and Property Information Act 1994 and the expenditures of these features are generally deducted from the total amount of tax return. The static use of assets to depreciate the value of property is a legal aspect under the guidelines of taxation law of Australia (Eccleston, R., & Smith, 2015).

The inclusions and exclusions of the viable components of the rental property statement are evaluated in order to get a serene concept about the impact of these components on manipulating the taxation rate. George has used the techniques of prime cost to formulate an effective decline in the valuation of the property and this depreciation will reduce the taxation rate in compliance with the income statement for rental property.

 

Conclusion

The critical evaluation of the two provided scenarios in this assignment through the terms and conditions of taxation law of Australia generates sustainable ability to identify the clauses of taxation rates from different perspectives. The reliance of income tax on the aspect of resident is detailed in this assignment through analysing the guidelines of Australian Tax Administration Act and the Taxation House of the federal government of Australia. On the other hand, the rental property tax of Australia is a substantial division of income taxes that considers numerous clauses provided by the Land and Property Information Act 1994 to formulate the taxation amount. The aspects of depreciation in asset value and utilizing the legal clauses to get deduction in total taxation amount are a prolific method that is both legal and cost effective for the citizens of Australia.

 

Reference List

Barry, R. (Ed.). (2007). The law handbook: your practical guide to the law in New South Wales. NSW: Redfern Legal Centre.

Braithwaite, J. (2003). Making tax law more certain: A theory. Australian Business Law Review, 31(2), 72-80.

Cassidy, J., & Sykes, A. (2007). 'Isn't Sport Taxing?'The Taxation of Sports Professionals Post-Agassi. Revenue Law Journal, 17(1), 1.

Devos, K. (2012). The impact of tax professionals upon the compliance behaviour of Australian individual taxpayers. Revenue Law Journal, 22(1), 31.

Eccleston, R., & Smith, H. (2015). Fixing Funding in the Australian Federation: Issues and Options for State Tax Reform. Australian Journal of Public Administration, 74(4), 435-447.

Freedman, J., (2004). Aligning Taxable Profits and Accounting Profits: Accounting standards, legislators and judges. eJournal of Tax Research, 2(1), 71-99.

James, S., & Wallschutzky, I. (2007). Tax law improvement in Australia and the UK: the need for a strategy for simplification. Fiscal Studies, 18(4), 445-460.

Kenny, P. L. (2005). Australia's capital gains tax discount: more certain, equitable and durable?. Journal of Australasian Tax Teachers Association. 45(3), 253-263.

McLaren, J. (2014). Uniform Land Tax in Australia: What Is the Potential for This to Be a Reality Post the Henry Tax Review, A. Austl. Tax F., 29, 43.

Parsons, R. W. (2011). Income taxation in Australia: principles of income, deductibility and tax accounting. Sydney: Law Book Company.

Richardson, G., & Lanis, R. (2007). Determinants of the variability in corporate effective tax rates and tax reform: Evidence from Australia. Journal of Accounting and Public Policy, 26(6), 689-704.

Richardson, G., Taylor, G., & Wright, C. (2014). Corporate Profiling of Tax-Malfeasance: A Theoretical and Empirical. eJournal of Tax Research, 2(1), 359-382.

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

Schenk, A., Thuronyi, V., & Cui, W. (2015). Value Added Tax. London: Cambridge University Press.

Smailes, A., & McDermott, P. M. (2013). The uniformity of taxation penalties in Australia. A Smailes, P McDermott,'The Uniformity of Taxation Penalties in Australia'(2013), 39, 213-245.

Tran-Nam, B. (2004). Assessing the tax simplification impact of tax reform: Research methodology and empirical evidence from Australia. In Proceedings. Annual Conference on Taxation and Minutes of the Annual Meeting of the National Tax Association. Vol. 97, pp. 376-382.

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

Xynas, L. (2011). Tax Planning, Avoidance and Evasion in Australia 1970-2010: The Regulatory Responses and Taxpayer Compliance. Revenue Law Journal, 20(1), 2.

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