Residence, Source and Odinary Income

The government is tasked with the responsibility of providing services to the citizens and ensuring that everybody stays in peace and harmony. However, these roles are quite challenging and require it to raise funds for the beneficiaries (the countrys residents) in various ways including taxing them for any economic activity that they are involved in. Nevertheless, the respective government may have different taxation laws, meaning that for those who migrate from one state to another must ensure that they have fully complied with the taxation law requirements (Wells, and Lowell, 2013, 1). In Austria, there are specific requirements that one should meet to become liable for tax purposes, meaning that for anybody to be on the safe side of the law, this issue should be at the fingertips. Additionally, the laws are prone to change and thus a foreigner should never depend on the tax knowledge acquired some time back.

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The case in this study involves an individual, Fred, an employee of a British corporation who moves to Austria and works for eleven months for his company before returning to his home country. It should be remembered that ones residence status is the primary determining factor for the liability to be considered as a resident for the purposes of paying tax. Any individual who resides in Austria has the responsibility of paying tax so long as he/she meets the minimum criteria of living in the country. This means that if one has an official residence in Austria and works for one company and specifically in the same place, they that individual is considered a resident. It is not a must for a person to remain or intend to remain an Austrian resident for him/her to be considered a resident for tax purposes. Some of the variables that need to be considered include the length of residence and the circumstances that led to the stay. For instance, visiting Austria for a period exceeding six months and for a significant portion of that time, working for a single organization and leaving at a particular place as is the case with Fred will make one qualify as a resident for taxation.

The case is applicable for the Austrian nationals who intend to leave the country and reside elsewhere for more than two years. In that case, they will be treated as non-residents immediately they depart. If however they regularly visit their home country, they will be liable to pay tax on their income. Once Fred had moved to Austria for business reasons and decided to lease a house for 12 months, he was, therefore, liable to pay tax on his income because he met the criteria for analysis. First, the resided in Austria for more than six months had an official residence that he had leased for 12 months and worked for his British-based company. Therefore, it is necessary to consider some variables before making a decision of whether an individual should be or should not be considered as an Austrian resident for tax purposes.

Case study 2: ordinary income

Californian Copper Syndicate Ltd v Harris (Surveyor of Taxes) (1904) 5 TC 159

The case involved an issue of making a decision of whether funds realized from capital assets and if the profits from the sale of property for the purposes of mineral exploitation should be considered as capital in nature or ordinary income. The ruling gave guidance to the issue of isolated transactions, thus ascertaining whether they are assessable as per the provisions of subsection 25(1) as outlined in the 1936 tax assessment act. Therefore, the ruling gave guidance in defining an isolated transaction as any business deal that involves non-business taxpayers and any other transaction that is out of the bracket of the ordinary business for a taxpayer (Hart, 2015, 4). The case involved an operation that even if did not involve the ordinary business, was made with the purpose of gaining a profit while carrying out a taxpayer business. Additionally, the taxpayer is considered to have converted the future income into the present.

The issue of whether profits realized from any transaction considered as isolated being considered as income for tax purposes depends on the available circumstances. Nevertheless, any profit from an isolated business should be considered as income if the primary objective of the transaction was to make a profit by the taxpayer, and the business was carried out resulting in the making of profit. The taxpayer must have a reason for entering into the business deal and if it involves the transfer of property such as land, then in most cases, the taxpayer should be included in the sale for the purpose of making a profit.

Scottish Australian Mining Co Ltd v FC of T (1950) 81 CLR 188

This was a unique case as it involved the issues of whether business income obtained from the sale of land (after subdivision) that has been utilized by a mining company should be considered as funds generated from the sale of capital assets or just ordinary income. In this case, the taxpayer had carried out a mining business and after its exhaustion decided to subdivide the land before selling it (Wilson, 2015, 41). The subdivision led to the development of transport network and even the construction of schools, churches, and parks. However, the high court ruled that the subdivision was not aimed at increasing the value of the land, profit making and that the taxpayer was therefore not liable to pay tax from the profits as they were not assessable.

The explanation, in this case, is that for a transaction to be considered assessable, the taxpayer should be involved in a business deal or activity that is mainly aimed at making a profit. That is the primary reason why the high court did not subject the mining company to paying income tax out of the profits generated. Therefore, the subdivision of the land was considered under a capital account the decision to subdivide and sell the property and even benefit the community was reasonable instead of abandoning it and even becoming a health hazard. The primary reason for this decision is. Therefore, the mining company was not focused on making a profit, but making economic use of their property (land) after carrying out its activities exclusively.

FC of T v Whitfords Beach Pty Ltd (1982) 150 CLR

In this case, the shareholders had sold their land to an investor whose main intention was to make a significant profit. As a result, the investor subdivided the land and later sold it at a profit. Additionally, proper records were kept regarding the transactions and the intention to sell the subdivided pieces of land at a pre-determined profit, a business that was eventually accomplished. In this case, the court ruled that the profits generated from the business transaction and activities were assessable under the Income-tax Act, meaning that the company had to pay income tax out of the profits realized as applicable to the 1936s section 26(a) (Mason, 2013, 149). This is because the gain was a profit from a profit-making transaction.

Business activities that involved the making of a profit as the main aim are subjected to tax and the respective companies should keep proper records as was in this case. If not, the management will have violated the basic business laws. the subdivision of land was not only focused on the realization of invested capital but also making a profit out of it meaning that it could not just be considered as a capital income but assessable income for tax purposes. If however the land was subdivided for the benefit of its shareholders, it could not have been considered for tax purposes. The mere issue of enterprising the land for the intention of making a profit makes it necessary to be considered for taxation purposes.

Statham & Anor v FC of T 89 ATC 4070

The case gives an insight as to when an individual or corporation decides to subdivide land can be considered as an activity for profit making. For instance, farmland can be subdivided to make easy for the owner to sell. Additionally, this will result in some minimal development as a way of meeting the legal requirements. In this such subdivision, activities are considered as a way of making the land available and the realization of the capital assets, meaning that it should be treated as a unassessable transaction for tax purposes. Therefore, the taxation authorities must determine if the activities carried out were intended to raise some profit or that, they were merely targeted at ensuring that the capital assets have been realized in time.

Some of the requirements that made the court consider the activities as a mere realization of capital include the following. The owners got consent from the local council before subdividing the land into two portions, and that the minimal developments such as the water supply connection and the installation of a boundary were only meant to ensure that the owners get approval from the local council. The two instances make it possible for the income generated to be considered as not assessable for tax purposes since it was only meant to meet the necessary legal requirements. Additionally, the owners did not seek the assistance of an engineer in designing ad overseeing the development on the piece of land, meaning that no development was done with the intention to raise its value and thus make a profit in return.

Casimaty v FC of T 97 ATC 5135

The case involved a taxpayer who inherited land from this father and decided to put it into economic use, particularly agricultural activities. However, in the course of his economic activities, he realized significant losses, leading to the accumulation of debt. Additionally, his health deteriorated and eventually had to sell some portions of land to cater for the maturing debt obligations. During the subdivision of the portions of land for sale, some developments were done such as water supply, and road network. Additionally, the owner as not directly involved in the selling of property since he had nominated a sales agent. However, the taxpayer considered the profits generated as assessable for tax, a decision that was immediately appealed.

The taxpayer was compelled to sell some portions of his land to pay for the maturing debt obligations and not for profit making. This means that any profit or income generated from the decision to sell a mere realization of capital assets and thus not liable for taxation. Additionally, there was no preconceived plan for the sale of the property as this was considered as a decision made out of the inability to pay the maturing obligations and the deteriorated health conditions.

Moana Sand Pty Ltd v FC of T 88 ATC 4897

The case involved the purchase of land for the sole intention of making carrying out business activities of selling sand that was available on that land. However, once the company had exhausted the sand on the piece of land, it decided to hold the land until the prices were favorable and then sold it after subdivision. In this case, even if the subdivision was not specifically meant for profit making as a sole purpose, the companys activities leading to the sale can be considered to be profit oriented, meaning that the profits raised had to be considered assessable for tax purposes (Dabner, 2012, 136). An organization can, therefore, make a decision to sell its piece of land; such income considered assessable for the tax because of the intention of the organization in respect to the subdivision, and eventual sale of the property as explained in section 26(a) of the Austrian tax system.

Unlike Casimaty v FC of T 97 ATC 5135 in which the owner had to sell the land to pay for the maturing obligations, the sand company carried out its business activities on the piece of land and after its completion, waited until land prices were high. After that, it decided to su...