Residential Taxation law Australia Assignment

Residential Taxation law Australia Assignment

This is a solution of Residential Taxation law Australia Assignment which provides elaborate explanation of the residential status of an individual and how he will be treated for the tax purposes.

Introduction

In this paper, the elaborate explanation of the residential status of the individual is given. An individual can be treated as a resident, if he passes the domicile test and the 183 days check test. If the domicile country of an individual is Australia, he will be treated as an Australian resident for the tax purposes and the tax rates applicable for resident tax payers will be imposed on him. However, if the individual’s domicile place is out of Australia, then he will be treated as a non –resident, unless he doesn’t fulfil any of the other conditions. If the individual is staying in Australia for 183 days or more, then he will be treated as a resident for the tax purpose unless there is no other contrary provision regarding the residential status check. The calculation of the ordinary income of an individual resident is shown with the help of a scenario. The capital gain tax is imposed on the sale of the capital asset and 50% discount is given to the individuals for it. The exemption of gift is given to the tax payer if it is of a small amount and received from a business out of normal services. The medical levy is to be surcharged on the taxable income of the resident individual along with the normal tax liability.

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Scenario 1: Residence and Source

Determination of the residential status of Bradley for the tax purpose: -

As per the Australian taxation rulings, a person can be treated as a resident or non – resident for the tax purposes. The first residency test is to find the domicile country of the tax payer. If he is a migrant but has an intention of staying in Australia i.e. have bank accounts, lease property or rented property in Australia which indicates that he wants to stay for long, it will consider him as a resident. If the person is residing in Australia for temporary business purpose and has a family in his home place, can’t be taken as the only reason for treating him as a resident or non- resident (CCH, 2011). The place where a person is keeping his personal assets such as bank accounts, insurance policies, leasehold property etc can be an indicator of the residential place. All the behavioural aspects need to be analysed for determining the residential status of an individual for tax purposes. If the person takes a short visit to another country during his emigration period in Australia, can’t be taken as the strong reason for determining the residential status (Commissioner of Taxation v Ashwick, 2011).

As per the taxation law, the tax payer needs to pass the 183day test for residential status determination. If the person is present here for more than 183 days, then he can be treated as a resident for tax purpose unless it is proved that his nationality or normal abode place is not in Australia and he has no intention of staying in Australia for long (Confidential and commissioner of Taxation, 2013). If his place of domicile is outside Australia, then it should not be treated as a resident, unless other conditions are fulfilled.

In the present case, Bradley who is a professor in the University of London came to Australia for the profession purpose of working on a research project for a period of eight months. His wife and children live in London, which is his domicile country. He also owns a small family business in his domicile country which is being handled by his wife in his absence period. Bradley clearly showed his intention of leaving Australia after the completion of the research project. Though, he owns a leasehold property nearby his work place in Australia for his temporary residence in Australia during the emigration period only (Federal Commissioner of Taxation v. Cooke and Sherden, 1980). He also purchased a four – wheeler car in Australia during the period of research for conveyance purpose to go to his work place. During his emigration period, he also went for a short trip to Sydney and Adelaide. Bradley is engaged in opening a bank account with a bank in Australia for receiving the salary amount in it and for transferring a part out of it to his family in London. It is clearly given that he also owns a house in London. He pays regular tax in London (Taxpayers, 2014). With the evaluation of all the above behavioural aspects, it is concluded that the residential status of Bradley is Non – resident as his place of domicile is London and he has no intention of staying for long in Australia. The 184 days test need not to be performed as the domicile test shows the correct residential status of Bradley. He has a leasehold property and a bank account in Australia, but that can’t be taken as the sole reason for recognising the tax payer as a resident for the tax purposes in Australia[Read Taxation Assignment Help Sydney] (Wendt, 1979). He will be treated as a non- resident for the tax purpose under the Australian taxation rulings.

Scenario 3: Assessable Income, Deductions and Capital Gain

  • Calculation of total ordinary income of Erin for 2015-2016 tax years:-
ParticularsAmount $
Salary and wages income98000
Interest on bank term deposit4200
Income from rental property [500*50]25000
Winnings on poker machines10000
Income from sell of eggs to friends (other income)500
Watch received as a gift is exempt (assuming it is a small gift)
Holiday bonus from the employer1000
Earnings from charitable organisation700
Less- Payment of mobile bill ($1500 * 50%)(750)
Less- Payment for electricity bill (amount not given)
Less – Membership fees for CPA Australia(350)
Less- Membership fee for the charitable organisation(150)
Net ordinary income138150

Note – 1) The amount of payment for electricity bill is not provided in the question. Hence, it is taken as nil. Otherwise, the business expense portion in the total electricity expense will be allowed as a deduction for the tax purposes (Taxpayers, 2014).

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  • Calculation of the total capital gain /loss for Erin for the year 2015-2016:-
ParticularsAmount $
Selling price of Capital asset220000
Less- Purchase price of capital asset(60000)
Balance160000
Less- Discount @ 50%(80000)
Capital gain80000

(Wendt, 1979)

  • Calculation of the total taxable income for Erin for the year 2015 – 2016: -
ParticularsAmount $
Ordinary income138150
Capital gain income80000
Total assessable income218150

Note – 1) It is assumed that there is no deduction for charity income as it is not clearly mentioned that the charity organisation is a registered “deductible gift recipient or not) (CCH, 2011). [Know about UK Personal Taxation Assignment]

  • Calculation of the actual tax payable /refundable for the year 2015 – 2016.
ParticularsAmount $
Total taxable income218150
Tax payable [$54547 + 45c for each $1 over $180000]71715
Add- Medical levy @ 2%4363
Add- Temporary Budget Repair levy @ 2% over 180000763
Total tax payable76841

Conclusion

From the above paper, it is concluded that the residential status is to be determined first for assessment of the tax liability of the tax payer. The various provisions and rules regarding the determination of the residential status of the individual are demonstrated in this paper with the help of a scenario. The domicile test and 183 days test are the major tests for this purpose. If the domicile test of the individual is cleared, he will be treated as a resident or non – resident for the tax accounting purpose in Australia accordingly. The temporary emigration of an individual n Australia for business or profession purpose can’t be taken as the reason for treating him as a resident for the tax purpose. But if he has intentions of staying for long in Australia, then he will be a resident and tax rates will be applicable on him accordingly. This paper also showed a brief calculation of the capital gain on sale of capital asset of the tax payer and its effect on the total tax payable of the individual. The earnings from the part time job in a charity organisation can be allowed as a deduction, but there are some factors which are to be considered for this purpose. Oz Assignment Help hopes that this Residential Taxation law Australia Assignment has increased your understanding about Australia norms and laws regarding taxation.

Bibliography

  • Commissioner of Taxation v Ashwick, 49 (Federal court of Australia April 7, 2011).
  • Confidential and commissioner of Taxation, 112 (Administrative Appeals Tribunal of Australia Feb 28, 2013).
  • Federal Commissioner of Taxation v. Cooke and Sherden, 10 ATR 696 (Federal Court of Australia April 16 , 1980).
  • Wendt, P. F. (1979). Real estate investment analysis and taxation. McGraw-Hill.
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