Taxation - Theory - Practice & Law: Residence and Source

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Discuss about the Taxation, Theory, Practice & Law for Residence and Source.

Answer:

Residence and Source

• Domicile Test: Prescribed that the individual having permanent place of residence in Australia is deemed as resident (Australia Residency Test, 2016).
• 183 Day Test: If an individual has stayed in Australia for a period of 183 days or more in the year for which status is sought to be determined, then he/she is deem
  ed as resident of (Residency- 183 day test, 2016).
• Superannuation Test: As per this test, the Australian government employees posted outside Australia are treated as resident of Australia.

Case study 2: Ordinary Income

The outcomes in respect of the cases have been discussed as under:

Case 1: Californian Copper Syndicate Ltd v Harris (Surveyor of Taxes) (1904) 5 TC 159     

The primary issue arose before the court in this case was that whether a single transaction could be regarded as business and tax can be levied under the head business income on the person who carried out that transaction. Addressing this question, the first assertion of the court was that rather than thinking about the size of the transaction, one should consider the source from which that income emanates (Manyam, 2011). Thus, it becomes clear that for taxation purpose, even one single transaction could be brought to tax under the head business income, if the transaction was carried out with the business motive. Further, the court held that if the transaction related to land and property and securities was not with the business motive, rather the land, property or securities were held as investment, the gains can not be taxed as business income. The major outcomes of this case were as under:

• In case of land, property, and securities which are held as investment, the gains arising on sales or otherwise transfer of such land, property, and securities are not to be taxed as business income (MinterEllison, 2016).
• However, in cases wherein it is apparently clear that the activities are of business nature, the gains arising on sale or otherwise transfer of the securities, land, or property are to be taxed as business income (MinterEllison, 2016).
• Further, the court held that whether the transaction was a single transaction and whether or not it was commercial in nature, the gains arising from it shall be regarded as income, however, taxed it may be under any of the heads (MinterEllison, 2016).
• Further, the court stipulated that each case must be considered separately by going through the exact nature of the transaction (MinterEllison, 2016).

Case 2: Scottish Australian Mining Co Ltd v FC of T (1950) 81 CLR 188        

Case 3: FC of T v Whitfords Beach Pty Ltd (1982) 150 CLR

Case 4: Statham & Anor v FC of T 89 ATC 4070

Therefore, referring to the judicially pronouncements of other cases and considering the circumstances of the current case, the court held that the net proceeds of the sale of land can not be taxed as business income. Final order of the court also directed the commissioner to reimburse the expenses incurred by the taxpayer in connection with this appeal (Court Cases, 2016).           

Case 5: Casimaty v FC of T 97 ATC 5135

The law promulgated through this case was also to assist the taxation of the sale of land. In this case, the taxpayer was gifted a farm by his father. On this farm, the taxpayer was carrying on primary production activities and using a part of it for residential purposes. Later on, after several years, the taxpayer sold a part of the land from that farm (Casimaty's case, 2002). The tax authorities demanded tax on the gains arising on sale of that part of the land. The taxpayer challenged this decision of the tax authorities in the court by appealing that the gains on sale of part of the farm land were not chargeable to tax under section 25 (1) of the income tax assessment act (ITAA) 1936 (Australian Government, 2016). However, the decisions of the administrative appeal tribunal and the federal court came against the taxpayer. The federal court based its decision on the ground that the taxpayer was actively involved in planning and managing the sales of land, which in no case can be said to be involvement for mere realization of the asset. 

Case 6: Moana Sand Pty Ltd v FC of T 88 ATC 4897

Case 7: Crow v FC of T 88 ATC 4620

Case 8: McCurry & Anor v FC of T 98 ATC 4487

However, the court pronounced its decision based on the inherent intention of the taxpayer, which was to use the land in profit making activities and earn profit. The court based its decision on the finding that the taxpayer did not take required steps to let out the property and further, it was likely that to repay the heavy bank loan, they would be selling the property shortly (Webb Martin, 2016).

References

Australian Government. 2016. Income tax: whether profits on isolated transactions are income. [Online]. Available at: https://law.ato.gov.au/atolaw/view.htm?DocID=TXR/TR923/NAT/ATO/00001 [Accessed on: 10 August 2016]. 

Manyam, J. 2011. Taxation of Gains from Banking and Insurance Businesses in New Zealand. Revenue Law Journal, 20(1), pp. 1-29. 

MinterEllison. 2016. Australian tax brief. [Online]. Available at: https://www.minterellison.com/Pub/N/201002_ATB/ [Accessed on: 10 August 2016].

Smith, A. 2003. Taxation Institute of Australia. [Online]. Available at: file:///C:/Users/Abasus%20Solution/Downloads/d020520030207_prop_development_smith.pdf [Accessed on: 10 August 2016].

Statham & Anor. 2016. Statham & Anor v. Federal Commissioner of Taxation. [Online]. Available at: https://law.ato.gov.au/atolaw/view.htm?locid=%27JUD/89ATC4070%27&PiT=99991231235958 [Accessed on: 10 August 2016].