Taxation: Law and Practice

Australian law has provided for rules and regulations with regards to income and investment tax based on applicable laws and the custom of the courts. Kits cases tudy presents a person whose association with Australia is only coincidental because of his wife and children living there. This essay will be touching on residence, source and ordinary income in Kits case to determine what tax provisions apply to his case.

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Under the Taxation Rule No IT 2650, the statutory definition of a residence is a person whose domicile is in Australia, who has been in Australia in more than one half of the income year unless it is satisfied by the commissioner that his permanent place of abode is outside Australia (Australian Government, 2015). A person his considered a permanent resident if he holds a permanent visa under the Migration Act 1958. The commonwealth superannuation fund test considers a person a resident of Australia if he contributes to the funds earned by the commonwealth government officers (Alan Lewis, 2012). Kit and his wife also have a joint bank account and a home in Australia which proves that their intention is to reside in Australia. It is therefore right to say that Kit is a resident of Australia from the findings above (Australian Government, 2015).

Let us consider the case of Shand v FCT (2003) ATC 2080. This case involves a taxpayer who worked in Kuwait but resided in Australia. He spent his relevant years mostly in Kuwait. It was submitted in the court that in the relevant tax years, Mr. Shand resided in Australia; his domicile was in Australia and had a home in Australia. It was also proved that the plaintiff went to Kuwait purely for business purposes. It was therefore held by the tribunal that Mr. Shand was a resident of Australia since he did not abandon his residence. Kit is also a resident of Australia since he only went to Indonesia for a business. Moreover, he was recruited and signed in Australia. He had a home and a family in Australia where he occasionally went to visit.

Under The Commonwealth of Australia Constitution Act, any officer who is in the public service of the state has the same rights and responsibilities as anyone else in Australia. Since Kit was recruited and signed a contract in Australia to work for a United States Company, then he is obliged to perform his residential duties including paying taxes. Additionally, section 95 of the Financial and Trade Act provides that duties of customs will be imposed on goods not imported but passed into the states beyond the limits of the commonwealth and will be collected as duties by the commonwealth. This means that salary sent to Westpac Bank from Indonesia and profits from investments in Chile will be taxed by the Australian taxation office (Dune, 2015).

Kit had investments in Australia and as well as in Chile. He receives income from Australia and foreign countries. Under the Foreign Income Tax Offset Rules 2004-2015, anyone who has assessable income from overseas must declare that income to Australia even if tax was taken from that income by another country. Since Kit sends his salary from Indonesia to Australia and also receives another dividend income from Chile, his entire income may be taxed in Australia and the other foreign countries. He is entitled to an Australian foreign income offset if he usually pays taxes in the other countries on his foreign income which provides relief from double taxation. Kit is also entitled to tax offset for every profit earned from his foreign investment. Kit must have paid or deemed to have paid foreign tax on foreign income and profit gained for him to be entitled to Australian tax offset (Investing in Australia, 2015).

Australia has tax treaties with Indonesia and Chile (Australia Government, 2011). Kit can therefore ask the authorities in these foreign countries to reduce the income tax or to exempt him from paying tax so that he can pay in Australia thus avoiding double taxation. For Kit to be entitled to this, he has to be providing a tax relief form or a certificate of residency to the responsible officials (Australia Government, 2015). Annuities earned are also taxable. Since Kit and his family own a home in Australia where they reside, they will have to pay land rates for that house. Kit is also entitled to a refund if the foreign countries tax his assessable income yet they have tax treaties with Australia. Any income and capital gained from overseas properties that are owned by Kit is taxable in Australia. It must be declared in kits Australian tax return.

Case 2: Ordinary Income

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

Here it was concluded that any profits made from an investment acquired and later sold is taxable. A company was formed for purposes of purchasing and selling mining properties so that they can gain profit arising from it. Later they resold the property to another company which paid them the entire shares in full. In the companys defense, they mentioned that their ideal and dominant purpose of starting the business was to accrue profits from the buying and selling of the mining properties. The court held that this was a case of capital accretion and not profit derived from the property. A distinction was drawn between an assessable income and mere capital since there was an act preferred in the carrying of the business (Maloney, 2010).

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

The taxpayer purchased 1771 acres of land which he used for coal mining. Due to financial difficulties he decided to venture in subdividing and selling parcels of land for railway, road construction and giving out land to institutions. The court held that this was part of realizing capital asset since it was advantageous to the tax payer to sell parcels of land instead of it as a whole. The judge also observed that subdividing and selling of the land was not mentioned in the object clause of the company. The court allowed an appeal with costs.

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

The company had been established to acquire a massive land which would be distributed to all the members of the company at the rate of their contributions. Later they decided to sell the shacks of land to three different companies. The three companies later subdivided and sold the land further. The taxation company taxed the assessed income from the company with majority shares according to section 25 of the Tax Assessment Act. The court held that the appeal would be allowed with costs.

Statham & Anor v FC of T 1989 ATC 4070

The deceaseds father had given him 270 acres of land as a gift which he later sold in parcels including the units he had built. He had established Bickerton Holdings and later sold some of the shares to his in-laws. He used the profit gained to enter into beef farming business which did not work out as expected. He decided to subdivide and sell the land due to financial difficulties. The method used to advertise the land was not official since the advertising agents were not hired. The appeal was accepted with costs. CITATION Jad \l 1033 (Maloney, 2010)Casimaty v FC of T 1997 ATC 5135

George Casimaty was a farmer who purchased land with the intention of expanding his farming business. He purchased land called Action View which he paid in installments. He later purchased 40 acres where he built his home. He decided to make his wife a partner in his farming business and his son in his fencing business. He later decided to sell the land by dividing them into parcels that were used in the construction of roads, railway and drainage systems. The court ordered for each appeal to be assessed with costs and the respondent to pay for each appeal including reserved costs since the tax payer did not intend to make Action View a partnership business. CITATION Art \l 1033 (Dune, 2015)Moana Sand Pty Ltd v FC of T 88 ATC 4897

It was held that the profit made was income because his main aim in starting the business was to subdivide and sell land. The taxpayer developed the property by selling land as stock to the government. The land was acquired by a company which later sold it to a different company whose dominant purpose was to start a company that sold sand obtained from the land. The governmental sent a letter claiming that they needed the land for development purposes. The taxpayer replied by writing five letters notifying them that he was not ready to sell the land. In his last later he mentioned that he was ready to sell the land. In the taxpayers defense he mentioned that his prime purpose for the land was to mine sand until it got exhausted and that the land was not yet ready for sale. The court held that the appeal was dismissed with costs (Carbonne, 2010).

Crow v FC of T 88 ATC 4620

It was held that the purchase of the properties and subdivision and sale of parcels of land involved repetitive and systematic transactions and a characteristic if a continuing business. The taxpayer purchased 390 acres of land at $45, 0000. He later purchased a land called the Clifton Beach of 556 acres. He subdivided and sold the land. He bought another land which he subdivided and sold but retained part of it. Due to compulsory acquisition he sold another land which he had bought. The taxpayer ventured in a hotel business which led to massive losses. His defense for selling the land was due to financial difficulties. The court held that the selling was repetitive and continuous which barred his defense completely. The appeal was therefore dismissed with costs (Bitomsky, 1991).

McCurry and Anor v FC of T 98 ATC 4487

The plaintiffs viewed a property at Addison Avenue, Lake South which had an old house on it. They found the land fit and bought it at $49,000 through their savings and a loan from a bank. They constructed three town houses which they used as their residence. They later bought a news agency where they worked as a family. Due to consistent losses they decided to sell the news agency. The two brothers, Bradley and Brett purchased another land and constructed units that they sold later. Their defense was that their intention was to purchase land and construct town houses which they would let to tenants and that financial constraints forced them to sell their property. The judge rejected their defense since they did not make any effort in advertising the houses and that they were always expected to pay back the loans they were owed by the bank. The court held that the applications for appeal were dismissed with costs the profits made were not anticipated. CITATION Art \l 1033 (Dune, 2015)

References

Alan Lewis. (2012). Resident or non-resident: Whats the difference? Retrieved May 6, 2016, from Alan Lewis Accountants: http://www.lewistaxation.com.au/tax/general-tax/resident-for-tax-purposes.

Australia Government. (2011). Australia and Singapore Protocol - exchange of information. Retrieved May 6, 2016, from Australia Government: https://www.ato.gov.au/General/International-tax-agreements/In-detail/Tax-treaties/Australia-and-Singapore-Protocol---exchange-of-information/.

Australia Government. (2015). Investing in Australia. Retrieved May 6, 2016, from Australia Government: https://www.austrade.gov.au/International/Invest/Guide-to-investing/Investing-in-Australia.

Australian Government. (2015). 3.1.1.10 Residence Requirements. Retrieved May 6, 2016, from Australian Government: http://guides.dss.gov.au/guide-social-security-law/3/1/1/10.

Bitomsky, G. (1991). The Concept of Assessable Income Has It Changed. Revenue Law Journal, 18-35.

Carbonne, D. (2010). An Extraordinary Concept of Ordinary Income? The Significance of FCT v Montgomery on What is Income According to Ordinary Concepts. Revenue Law Journal, 1-16.

Dune, J. (2015). Australian...