Taxation Theory, Practice and Laws

According to residence taxation, a country can tax individuals if they are residents in that country in spite of the source of income. The place of registration in the case of companies is their place of residence. Furthermore, if it is income tax, companies and individuals have to pay taxes on their worldwide income. This means that the global income is determined by the principle of residence-based taxation. This is to say that individuals tax jurisdiction is determined by the residential stay but not citizenship. Looking at this case study, Fred is not a resident of Australia for taxation purposes.

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Case Study 1: Residence and Source

For an individual to become an Australian resident, a number f alternate tests that are contained in the definition of residence need to be met. Notably, if an individual has been in Australia for more than 183 days, then he qualifies to be a resident of Australia for tax purposes unless the commissioner is contented that his place residence is not Australia. Fred had only stayed in Australia for eleven days hence he cannot qualify to be a resident for tax purposes. Fred has come to Australia in order to set a branch of his company which is incorporated in the United Kingdom.

In Australia, the company can only be a resident of Australian for tax purposes if it is incorporated in Australia and in this case, Freds company is in England. Additionally, if a company has central management in Australia it can be a can be an Australian resident. Central management is a place where senior management of the company meets to discuss the business of the company. But looking at Freds company, it central a management is England and he has just established a branch in Australia (Brederode, 2009).

The residence is one of the double twin bases in Australia that bring a person inside the jurisdictional arm of the government to benefit the country economically. Australia revenue laws onto income resulting under a contract that has been agreed and carried out to a different country, as long as the person concerned is a resident of Australia. This is to say that, the residence is a taste of extra -territorial authority. Therefore, the question on whether or not Fred will be considered as an Australian resident for taxation purposes will radically influence the amount of tax levied on his income generated from the transaction. If an individual is an Australian resident, he is legally responsible to tax on his worldwide income, but for non-residential individual, he is responsible for tax on his income that is sourced from Australia, but looking at this case study, Fred is sourcing from England after renting his home in England and at the same time from his investment in France. Additionally, income which results from the international investment may be taxed from the country where his income is coming from or where an individual who receives previously lived. In this scenario, Fred is being taxed in France and at the same time in England, if Australia goes on and tax him, this will double taxation and it should be exempted (Brederode, 2009).

Case Study 2: Ordinary Income

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

The case put into consideration the matter of the comprehension of the capital asset and if the profit from the sale of the property to be exploited for its mineral was measurable as capital in nature. The verdict provided direction in finding out if profits from transactions that have been isolated are income and thus measurable. The application of section 25A capital losses and gain is considered in the ruling. It was decided that taxpayer was looking forward to making profit from the beginning after selling off the land. The tax payers capital showed that it did not have enough money to mine the land. This was a trading transaction since the lucrative selling of the property was not just an ordinary replacement of somebodys venture. The tax payer stated that it had just replaced one property with another one in a different company and that it had not by this means known the profit assessable. The taxpayer was assessable on the gain that was available after the selling of the land as the gain was income in nature (Steiner, 2015).

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

The case reflected on the issue of income of land that had been used as mine by a mining company was assessable as ordinary income or just a capital asset realization. This after the mining company had divided the land in order to sell it in lots. The taxpayer was assessed on the profit that was gained after selling land in portions by the commissioner. The commissioner stated under section 25(1), the profit was assessable as an income as a result of proceeding with a business of developing land, at the same time, under section 26(a) as a profit that comes as a result of venturing in a business that the investor gets profit. The taxpayer claimed that it did not carry out the business with the outcome that the profit was not assessable but simply realized capital asset in a beneficial manner. Generally, if the sale of land constitutes the business or part of it, it is automatic that the income will be assessable as ordinary income, however, the profit will be capital amount is the sale is simply a realization of the land.

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

The case focused on the matter of business income and if when the land is subdivided and sold attracts income or capital in nature. The court ruled that the under section 25(1), the taxpayer was assessable on the profit after selling the land and it went beyond just realizing the capital asset and the activities that it executed were the same as of that of a land development business. If at all the companies were company was involving in a business of land development, it was evident that the companies would have purchased the land from the company and engaged in development and sale the land on their account. However, the companies participated in activities such as subdivision of land that led the court to conclude that the activities of the taxpayer involved more than an ordinary realization of an asset. According to the second limp of section 26(a), the profit gained after selling of land was assessable as the profit as it came from participating in schemes.

V. Statham & Anor v FC of T 89 ATC 4070

The taxpayers who are the trustees of the Charles alderman decides to sell the subdivided land that was once used for farming, but did the net profit received from the sale of this land constitute assessable income or simply a realization of a capital asset under section 25(a) or 25(1). The court declared that the profit received after the trustees sold the subdivided land did not constitute assessable income. The co-owner who is the deceased of the subdivided had practiced farming at but it was successful as the disease affected the cattle and the market was poor at that time. Charles did not continue with farming but rather sold the land by subdivision and this does not make the profit to be taxable. The fact is that what had real transpired was simply the realization of the asset through the favorable beneficial technique of the asset that they owned still and managed it even when they quit the possibility of farming on the subject property. Looking at the way in which the taxpayers sold the subdivided lots showed that they neither involved in a business nor in making of profit. The commissioner had argued that even though the land was bought for domestic purposes, it had committed to the business of land subdivision and for development purposes (Limited,2011).

Casimaty v FC of T 97 ATC 5135

The taxpayer acquired farming from the property from his father in 1955 and one later he bought extra 40-acre property where he builds his homestead. He carried farming business which later faced challenges and the taxpayer had subdivided the land and sale into lots in order to pay for the mortgages. The law clearly states that the subdivided land that was acquired and utilized for farming and sold, the profit gained as a result of selling this land constitutes to assessable income. However, under section 25(1) or 25(1), the decision arrived at was that the sale subdivided was not assessable. The taxpayer had not attempted to bring action view into account as partnership asset even though the taxpayer had formerly practiced farming on the farming property. Furthermore, that the action view that had been acquired by a taxpayer was with an intention of primary production but not to gain profit from those sales is assessable according to the first limp. This clearly indicated that the profit that was obtained was part of an ordinary realization of a capital asset of the taxpayer (Romano, 2002).

Moana Sand Pty Ltd v FC of T 88 ATC 4897

The final decision provides direction in finding out if profit obtained from transactions that are isolated are income and hence assessable under subsection. The taxpayer is the company that was incorporated in 1955 with an aim of acquiring, purchasing and taking over lands with an intention of venturing of venturing in selling of sands. The taxpayer acquired with the double intention of working and selling sand on it and later on possessing the land for some time until that time of selling it at a profit came. After some time, the CPB declared its interest in buying of the land in order to preserve it, after a long negotiation, the taxpayer accepted to sell the land at $499, 0000. The commissioner included the buying price, subtracted the cost of land and certain expenses in the assessable income of the taxpayer. In the final ruling, the court ruled that constituted income. Although the amount of that the taxpayer received was as a result of a single and in a transaction that appeared to be the isolate, the court holds on its decision stating that the profit the taxpayer was profit according to ordinary concepts (Steiner, 2015).

Crow v FC of T 88 ATC 4620

This case involved a farmer who purchased five blocks of land in a period of over 10 years after borrowing the money he had borrowed. Upon purchasing the land, the farmer utilized it for farming, growing crops and grazing before the farmer subdivided it. After a period of two years, the farmer finally made a profit of $33,328 after selling 51 blocks. In its final decision, the judge stated that the carrying out profit making activities and development of land and hence he was assessable on the profit. Even though the court recognized that immediately after the taxpayer purchased the land, it was evident that the farmer practiced farming, it was realized that the farmer was aware from the beginning that the farmer was trying to get profit in order to repay the huge debt and that there will reach a time when he will have to subdivide the land in order to service the loan (Limited,2011.

McCurry & Anor v FC of T 98 ATC 4487

The case involves the two brothers who are taxpayers who purchased land and constructed townhouse and later sold them. During the court decision, it declared that the profit from the sale of the land was assessable under section 25(1). The taxpayers were involved in the profit-making mission which was commercial dealing. According to section 25(1), any property that is obtained during the business with an intention of gaining profit is assessable to profit an investment (Steiner, 2015).

References

Brederode, R. F. V. (2009). Systems of General Sales Taxation: Theory, Policy and Practice. Kluwer Law International.

Limited, C. A. (2011). Australian Tax Casebook. CCH Australia Limited.

Romano, C. (2002). Advance Tax Rulings and Principles of Law: Towards a European Tax Rulings System? IBFD.

Steiner, E. (2015...