Taxation Theory Practice Law Residence Status and Ordinary Income

Question: Discuss abot the Taxation Residence Status and Source of Income. Answer: Residence Status and Source of Income The taxation laws of Australia describe the residency status of a person whether he is an Australian resident or not for tax calculations. In the light of the question, Kit has a status of permanent resident in Australia but spend most of its time from outside Australia for its job purpose. An individual who was not present in Australia from last four years cannot term as an Australian resident for the taxation purpose. But there are certain exceptions which need to be considered exclude the condition of the time spent in the country. The important points in this aspect are: From last four years, Kit's family (Wife and two children ) lives in Australia. According to the taxation laws of Australia when an individual's family means spouse and children reside in Australia then the person should be treated as an Australian resident. Kit holds a bank account in Australia, and he gets the privilege of salary credited directly to his bank account from his employer. A person in Australia does the financial activities, or any economic activities recognized him as an Australian resident. He is currently working in Indonesia for a project by a US company from last nine months, but he got his job in Australia. Australia taxation laws state that an individual resident who is not present in Australia and remains outside Australia for most of the year is not treated an Australian citizen. But In the discussion of this point, an important aspect is that he got his job in Australia which is also very much important in deciding about his private status. He travels to his family in holidays and works off. It clears that his aspect is to live in Australia for long term basis. From this point, we can conclude him as an Australian resident. Kit's made investments to outside Australia in Chile. The taxation laws of Australia identifies that when a person made the investment to outside country, he should not be regarded as an Australian resident. So, from the above points, we can say that his financial aspect (Bank Account in Australia), Social aspect( Wife and Children living in Australia) conditions directly speaks about the indication of his Australian residency. As it is also true, that he remains outside Australia for most of the year and his investments are also made to outside Australia, his various aspects give the decision about that he wants to settle in Australia for a long term. Thus from the discussion of all above points and looking on different aspects, He should be considered as an Australian resident for the Australian taxation purpose.In reviewing the income tax purpose, his income should be treated in the same manner as the income of an average American resident does. Kit earns salary income from his employer, and it seems to be the only source of revenue as far as a consistent income is concerned. He gets some benefit from the part of his investments in Chile also, but salary income can be called as a primary source of revenue for taxation purpose. Therefore, he is accountable to pay taxes to the Australian tax department just like a regular Australian citizen. If we talk about the investment income earned from Chile, it should be treated as income from foreign investment and taxed accordingly in that way. Ordinary Income Explanation of outcomes of Court Cases Californian Copper Syndicate Ltd v Harris (Surveyor of Taxes) (1904) 5 TC 159 In this case, it clearly states that the taxpayer is the owner of the mining land and its objective is to done mining in the area which also proves by its memorandum of association. Initially, the taxpayer bought property for the purpose of mining only but soon he ran out of capital, and he does not have to spend on the mining purpose, and thus he started selling land. The taxpayer earned a handsome profit from the dealing of a sale of land, and it was claiming that such profit should not be declared as capital gain and cannot be included in assessed income for the taxation purpose. The judiciary provides the conclusion that the profit raised from the dealing of a sale of mining land should be considered as an advantage in the head of capital gain for the assessment of the individual income. The facts given by the court justifies that from the inception the motive of the taxpayer is to generate capital gain from this land because he does not have the capital from the beginning to min e the area. Scottish Australian Mining Co Ltd v FC of T (1950) 81 CLR 188 In this episode, the taxpayer bought the property in the 1860s for the objective of coal mining in the land and it carried out till 1924. After 1924 when the coal from the area was exhausted, the taxpayer split the land into subparts builds roads and structures including railway stations with an aim to sell the property and get a maximum monetary advantage over it as the land was no more helpful in carrying out its core business operations. The individual argued that income created from the sale of the property should not be termed as revenues from the business service. As it is not in their memorandum to develop and sell the area, but they did it only to dispose of an asset which was no more beneficial to the core objective of the business and did in the manner by which they get the maximum advantage from it. The court favors the argument by the individual because his primary objective is the mining of land only in its inception of purchase neither the developing or selling the prop erty can be said as an accurate and later it is merely treated as disposing of a capital asset in the best possible way. FC of T v Whitfords Beach Pty Ltd (1982) 150 CLR In the present case, the taxpayer was adopting the land for domestic purpose and by the fisherman who is in a position to hold the shares of a company. When the shares of the fisherman purchased by the three development companies the management control of the enterprise automatically transferred to the purchaser. Also, two general managers also belong from the development companies. They accept the provisions of the articles of association of the enterprise, but in a view to developing subdivide and sell the land. The taxpayer presents his part that profit derived from the sale of the property should not be classified as income from operational activities of the company as it is not the business of the company permitted by its articles of association. The authority came to the conclusion that the surplus arises from the dealing of land should be taken in view as the income directly from the operational activities which represent it is clear that the intention was to generate profit i n this dealing because the taxpayer was never intended to use the land in the domestic terms. Statham Anor v FC of T 89 ATC 4070 The facts present in this case suggest that land was acquired with an objective of desultory farming. Individual decided to go for cattle farming, but the project could not be implemented because of various reasons like market condition not suitable and health issue of the owner. The taxpayer adopts the subdivision strategy and sells the land. The plan approved by the individual for the division part and sell the property was forwarded by the council and partners of land gave a bond in the form of bank guarantee. The plants were sold through estate broker. They earned handsome profits from the dealing. The taxpayer presents an argument in his favor that subdivision and selling of land were unintentional, they merely tried to dispose of the capital asset in a sound safe manner. The judiciary power accepts the appeal of the taxpayer and says that the subdivision idea is not associated purposely with the profit earning objective related to the dealing. Casimaty v FC of T 97 ATC 5135 This case is also matched with the above one. The land was bought by the purchaser with an objective to do farming. The individual adopted the purpose for some time and later realized that it would not be more beneficial to him because of various reasons like drought, medical conditions of the proprietor, etc. Same strategy as adopted in the above case by the individual he subdivided the property and sold most of it in 8 different parts. The assessee claims that it was a just only realization of the capital asset and not the profit from carrying out operational activities. The court declared that the surplus generated from the subdivision of land should not be recognized as an income arising from the business operations. The fact presented by the assessee states that the property was not purchased to (or intending to) subdivision and resale. It was solely for the purpose of farming but because of above-discussed reasons agriculture is not possible then an alternative should be consid ered. Moana Sand Pty Ltd v FC of T 88 ATC 4897 The assessed memorandum stated that their only perspective is to sell the soil on the land. However, they also have clear in their perspective that to sell the property after extracting soil from it and when it becomes ripe the sell dealing took place. The individual first starts the extraction process and remove the whole sand from the land and start to subdivide into small parts and sell the ground and made a profit from it. The taxpayer states in his argument that it was not their routine business operation. Thus it should not be in calculation u/s 25 (1) or 26(a). Crow V FC of T 88 ATC 4620 In this available case study. The assessee purchased the agriculture land and sold it using subdivision method and subsequently made a profit from it. The taxpayer argued for a court that the income generated from this dealing should not be treated as a business income as it was not intentionally traded. The assessee has also done other type of transactions in the similar nature wherein he acquired the land and sold it later. The court does not show much interest in the assessed argument and contend that profit generated from the dealing should be treated as an operational income only. McCurry Anor V FC of T 98 ATC 4487 In this assessment, the taxpayers purchased the demolished the old houses and constructed three new townhouses there. Before the completion of the construction, the owners advertised that townhouses are available for sale, but they didn't find the interested parties in them. Then they started to reside in two of three houses and repeat the advertisement for the sale of the new townhouses.Now, fortunately, the buyers are attracted to this property, and they sold the property by generating a handsome profit in this deal. The holders argued that their objective is not to sell the property and make profit accordingly with it. 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