Taxation is a mendatory contribution to he government paid by individual by adhering with the taxation laws, principles and regulations (Anderson, Dickfos and Brown, 2016). In Australia, Australian Taxation Office is a staturory body that is responsible to make taxation rules and regulations for the revenue generation by the way of imposing taxes. The present report aims at identfiying the ATO’s income tax rulling and taxation laws with different case scenarios.
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In the given case, Mick Remaes has bought the land on the July 1, 2016 thus, from that day, he acquired the legal ownership rights for the land. In order to purchase the land, he borrowed $3,2000,000 from the CBC Bank therefore, as per the ATO’s regulation, it will be considered as a long-term loan for the purpose of acquisition of the long-term fixed assets, land. After the period when land is ready for the use than whatever expenses Mick incur will be considered as the revenue nature expenses however, the income which he generates will be the part of revenue income.
However, on the other side, as he has decided to utilize the space for the construction of a multi-story complex that will build private building, accommodation & retail shops, therefore, the expenses which he incurred on the land to construct the building will be treated as an another caital assets and cannot be clubbed with the land. Thus, these expenses will be capitalised by Mick which is incurred in the connection with the construction of a new building on the vacant land (Alghamdi and Rahim, 2016). With the given scenario, Mick has contacted an architectural firm for the purpose of incurring preliminary expenses so as to design the proposed multi-story complex and for their services, he has paid $29,000 to the architecure which needs to be capitalised as a preliminary expense. Besides this, he has rented his own land to the neighbour, named Bourne at a rate of $175 each week for a time duration of 2 years and received $8,400. In such regards, the legislations stated that the revenue which is generated by the land owner in the way of rent and lease will be treated as a revenue nature income thus, it is clear that amount worth $8400 will be treated as income (Braithwaite and Braithwaite, 2016).
Further, as a monetary return, interest charges has been paid to the CBC bank for the money borrowed to purchase the land which are revenue expenses and on the same, income tax deduction will be available because taxation authority, ATO considered it as an allowable or deductible expenses on which tax deduction is available to the individual. ITAA taxation rulling TR 2004/04 provide tax deductions for the interset paid before the commencement of income generating activities (Australian Taxation Office, n.d.). In the given case, Mick paid an annual interest, councile rates & insurance worth $335,000 in respect to land on which tax deduction will be available. Here, it must be noted that the amount of loan which was borrowed with the intention to build a complex on the land will be capitalized proportionately hence, treated as a capital nature payment.
In the stated case scenario, Marry-Anne had contracted a siz month teaching contracted with the Britain University in Coventry, England and also the university has told to extend the contract for a period of 12 months based on her performance. She had left Australia on March 1st 2017 to begin the contract with the University on 1st April 2017. According to the Australian residential status rulling, she will be classed as an Australian resident at the end of 30th June 2017. It is because as per the ATO rules, if any of the below mentioned statutory residential test are qualified by an individual then he or she will be considered as an Australian Residential status, presented underneath:
Domicile test: It means if permanent home is in Australia instead of overseas means in foreign countries (Eccleston and Warren, 2015).
183-day test: In case where individual resides in Australia for the half year or more either with the break or with continuance then he or she will be considered as an Australian resident.
Superannuation test: In this government employee of Australia who goes outside in foreign nations will be considered as Australian residential.
In the given case, Marry-Anne resided in Australia from 1st July 2016 to 28th February 2017 for 8 months and only 4 month she resided in UK. Thus, she lived in Australia for more than half year therefore at the end of 30th June 2017, she will be considered as an Australian resident. Moreover, in the case, Marry does not has any intention to reside permanently in the UK and was unsure whether the contract will be extended or not and she might be decided to either come back to Australia or apply for another teaching position in UK. In UK, she took a property on lease for six month whilst permanent house is located in home country, Australia.
By considering the residential status of Mary-Anne as an American, the income which she receive by rendering teaching facilities in the University of Great Britain will be taxed in Australia because as per the ATO taxation rulling, if an Australian receives income outside the nation will be under the subject to Australian taxation rules (Ismer and Jescheck, 2017). However, on the contrary side, if she is considered as non-resident then in such situation, whatever income she recieve under her employment by rendering services in the University in UK comes will not come under the subject with Australian taxation and it will be taxed in the UK Income Tax Act. Double taxation agreeement is a situation where one individual is considered as a resident of more than one country at a single time, in such case, it limits the Australia’s taxation rights towards certain class of income (James, 2016).
|Gross salary as per payment summary||$75,524.00|
|Fully franked dividend||$3,800.00|
|Unfranked dividend||$ 1,350.00|
|US gross salary (note 2)||$ 8,240.00|
|Center link unemployment benefit||$ 1,950.00|
|Less: Deductible expense||$ -|
|Personal contribution to superannuation (Non-Concessional)||$ -|
|Less: Contribution to HELP (HECS)||$ 7,900.00|
|Less: Unemployment benefit||$ 1,950.00|
|Add: Disallowed expenses (20%) on building||$ 370.00|
|Less: Depreciation of building||$ 370.00|
|Less: Depreciation on brief case||$ 70.00|
|Less: Air fares to US||$ 2,000.00|
|Less: Other deductible expenses||$ 1,000.00|
|Gift from the grandmother (Not taxable as it is below 10,000)||$ -|
|Gross rent||$ 5,200.00|
|Less: Allowable expenses||$ 8,500.00|
|Net taxable income from rental property||$ (3,300.00)|
|Total taxable income||$ 74,644.00|
|Calculation of taxes|
|On next 37,000@19c for each 1 AUS dollar||$ 3,572.00|
|On remainder 37,firstname.lastname@example.org for each 1 AUS dollar||12,234.30|
|Total tax liabilities||$ 15,806.30|
|Less: deduction||$ -|
|Franked dividend||$ 1,628.57|
|Deduction in US||$ 995.00|
|Net taxable income||$ 13,182.73|
In conclusion of the report, it can be reported that every individual needs to be adhere with the taxation laws, principles and regulations otherwise statutory authority, ATO has right to make legal charges like penalties against the person who is founded under default. The report founded that loan taken for the acquisition of building is considered as capital nature transaction whereas interest paid on it treated as revenue nature payment. Besides this, rental income earned by renting the lend is considered as revenue nature receipts. However, in the second case study, it is founded that Mary Anne is an Australian resident for the taxation purpose because she resides for more than half year in Australia and also leave it for the temproary purpose not permanently.
- Alghamdi, A. and Rahim, M., 2016. Development of a Measurement Scale for User Satisfaction with E-tax Systems in Australia. In Transactions on Large-Scale Data-and Knowledge-Centered Systems XXVII. Springer Berlin Heidelberg. 12(3). pp.64-83.
- Anderson, C., Dickfos, J. and Brown, C., 2016. The Australian Taxation Office-what role does it play in anti-phoenix activity?. INSOLVENCY LAW JOURNAL. 24(2). pp.127-140.
- Braithwaite, V. and Braithwaite, J., 2016. Managing taxation compliance: The evolution of the ATO Compliance Model.
- Eccleston, R. and Warren, N., 2015. The devil is in the detail: the distributional consequences of personal income tax sharing in the Australian federation.
- Ismer, R. and Jescheck, C., 2017. The Substantive Scope of Tax Treaties in a Post-BEPS World: Article 2 OECD MC (Taxes Covered) and the Rise of New Taxes. Intertax. 45(5). pp.382-390.
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