Taxation - Theory - Practice and Law Income and Earning

Question: Describe about the Taxation, Theory, Practice and Law for Income and Earning. Answer: Case Study 1- Residence and Source As per the given case study, Fred shall be taxed on the grounds of being a resident in Australia and as he has resided for more than 11 months before he returned back to England. Due to this fact, his income and earnings from France at the time of his employment in England will also be considered for the purpose of Australian tax assessment. Due to the intricacies involved in the assessment of the issues of the residency, it is likely stay dependent upon the individual personal situations. Although it has to be considered that one cannot put much emphasis on the importance of lucidity in the subject of residency and the immigrants seeking suitable advice in advance of a particular undertaking of the contract or business venture. During the tax evaluation, Fred is considered as the primary resident of Australia being given the fact he has resided for more than 183 days. As per the taxation rules any migrant residing in Australia for more than 183 days either sporadically or incessantly is liable to be taxed. It has to be also noted that Fred holds a lease 12 months. It is also seen that Fred stayed with his wife during that period before returning to his local place due to ailing conditions. As per Australian taxation agency, an individual can only be excluded from tax only when he/she has satisfied the conditions of dwelling outside Australia. The law also states that the person must not have any intention of taking up residence. As per the domicile test, it has been observed that taxation ruling no. IT 2650clearly states that the individuals national state is the place where individual is born until he or she migrates to a separate country and adopts a domicile of their personal choice. According to the case study Fred is a resident of Britain and intends to operate his business in Australia. However in terms of his tenure of stay it is not sufficient as he resided in Australia for more than 11 months and took a house on lease for period exceeding 12 months returning to his native place due to ill health. Based on the aforementioned conditions the residential status of Fred is considered based on his stay at Australia and the residency test further provides the information that the liability of taxes dependent on the situations of his stay. It has to be also noted that if a person comes back to his place of origin then the regularity, occurrence and that tenure concerning those trips can become an important factor. In case the primary reasons for an individuals absence from Australia is due to business, then this fact is not enough to support the claims that the person is not an inhabitant. Moreover, the ties with his family and business in Australia, Fred is liable to be taxed under the Income Tax Act. Case study 2 Ordinary Income I. Californian Copper Syndicate Ltd v Harris (Surveyor of Taxes) (1904) 5 TC 159 The case considers the problems related to realization of capital assets and the scope of exploitation of earnings from sale of property for the presence of minerals in form of capital or ordinary income. Law: the different types of ruling procedure provides a uniform direction in determining whether income of the company is as a result of the profit generated from isolated dealings under subsequent25(1) of the Income Tax Assessment Act 1936 (Arthur 2016). The main components of the isolated transactions are: Such transactions which are included to non-business taxpayers and; Transactions which are outside the ordinary course of business of a tax payer with respect to individual carrying out trade and commerce activities Outcome: As stated by Arthur (2016), the outcome of such a situation states that the taxpayer has to be assessed based on profit generated from the sale of land. These profits are considered as income in nature. It has to be further noted that the taxpayer intended to generate profit by selling the land. Hence, it indicates that the taxpayer never had a sufficient amount of funds to perform mining activities in the land. As per the statement given by Lord of justice, it has to be understood that the owner of an ordinary investment has the choice to realize it so that it taxpayer may act in a higher price when the acquisition is done on it enhanced price and not based on profit. It has been stated as per Sense of Schedule D of the Income Tax Act of 1842, which is further assessable to the income tax act (Mares and Queralt 2015). I. Scottish Australian Mining Co Ltd v FC of T (1950) 81 CLR 188 The aforementioned case takes into consideration several issues, which we are identified as the result of his net income. The case also considers whether any sale of land or subdivision has been used for the purpose of mining activities, which were assessable in form of the realization of capital or in form of ordinary income. Law: Capital Gains Tax: As per the law given by capital gains tax, the gains or loss can be realized if a CGT event takes place or due to any capital gains from assets. As stated under section 108-5(1) of the income tax assessment act 1997 that the origin of capital gains is described as any form of legal equitable right or a property that is not recognized as a property (Samuel 2013). Outcomes: The decision approved by the authority can be cited as the proposition of meager realization of an asset as in an enterprising way on capital. It is to be further understood that the report by common law states that the case prolonged for two days for hearing furthermore the judgment took six days. Additionally, it can be understood that there cannot be a long factual inquiry made into the several activities of the taxpayer or the extensive nature of disputes regarding the accounting and other problems associated with the case. The outcome further indicates that the substantial commercial exercise was a mere capital assets realization (Barnett and Harder 2014). II. FC of T v Whit fords Beach Pty Ltd (1982) 150 CLR The following case study takes into consideration whether the taxpayer was assessable as per the norms of profit on sales of subdivided land listed under section 25(1) or 26(a) or whether it was an incidence of realization of the capital assets. Law: The directions given as per this law offers in determination of proceedings which have occurred from Isolated transactions which are treated as income or assessable under subsection 25 (1) of the Income Tax Act Assessment Act 1936 (Fleischer 2015). On the contrary the rulings is not accountable for application of section 25 A of the capital gains and capital losses under provision (Part IIIA) or Division of Part III. Outcomes: Based on the verdict given by Wilson JJ, Murohy, Gibbs CJ and Mason it was noted that the taxpayer where assessable on the ground of profits which was generated as a result of sale of land as stated under section 25 (1). The High Court further clarified that the profit had exceeded the boundary of realizing a capital asset and the activities, which are constituted in carrying out the business activities based on the land development. The profit sourced from the sale of land was assessable under the second limb of section 26 (a) as a form of profit taking place by any scheme or undertaking. Although as per the statement given by Mason J and Gibbs, the second limb is only operational when section 25 (1) does not take into consideration the profit sourced from gross income (Burke 2016). The outcome is further noted by profits, which was to be computed after subtraction from the gross proceeds as a result of relevant sales value of the land on a specific date when it was ventured in land development business of the taxpayer. III. Statham Anor v FC of T 89 ATC 4070 The aforementioned case relates to questioning of the proceedings which is received as a result of sale of its subdivided lots constituting assessable income either are under listed as per section 25 (1) or 26 (a). Law: Assessable income: As stated by Davison et al. (2016), the selling activities from the origin of the acquired subdivided land was used for the purpose of farming along with proceeds derived from carrying on a business represented any kind of sheer realization of the assets. Outcomes: As per the rulings of federal court the net proceeds sourced from the selling of subdivided land did not constitute of assessable income under section 25 (1) or 26 (a). As per the statement given by Hartigan JJ, Woodward and Lockhart it was further observed that the mere realization of asset with the profit does not mandatorily provide the taxable profit. It was further stated by them that the profit must take place as a result of carrying out business undertaking (Ricketson et al. 2012). Hence, it has to be noted that the mere degree of realization is not responsible for converting it into a business unit are schemes however the amount of realization activities must be taken into account while accessing the nature of undertakings as per (ATC p 4075). IV. Casimaty v FC of T 97 ATC 5135 As per the given case study, it shows the determination of profit arise out of selling of subdivision parts of property which is assessable either under section 25(1) or 25A (Horngren et al. 2013). Law: The aforementioned case falls under the purview of assessable income which outlines the sales of subdivided land obtained initially and utilized for the purpose of farming (Bently and Sherman 2014). The law further questions whether the profits have occurred from the various types of business activities or it is any form of mere realization of the capital assets. Outcomes: As per the rulings of federal court, the earnings were not derived out of any form of commercial subdivision of property or any form of profit making undertaking or scheme. As per the court rulings, it was stated that the profit were sourced from a part of realization of capital asset of the taxpayer. It was further derived from the case that the taxpayer was always involved in conducting his business activities related to fencing and farming along with his sons and wife. However, as per the rulings of the case he did not attempt to bring any sort of action view into the accountability as a partnership asset (Hart Clark and Fazzani 2013). It was also observed the taxpayer did not seek any claim for the business expenses in form of interest, which was taken to repay the various types of cost related to sub divisional overheads. The court further fostered the verdict by stating that the action view was obtained by the taxpayer with the motive of primary production that no profit from s ales is assessable in accordance with the first limb of Section 25A (1). The court further ruled that neither of the second limb of the subsections had any applications as the sales did not take place during the course of carrying on with the profit undertaking scheme. V. Moana Sand Pty Ltd v FC of T 88 ATC 4897 As per the aforementioned case study questions on the viability of section 25 (1) or 26 (a) include the taxpayer assessable income with respect to the amount obtained by taxpayer as a result of the subtraction of the relevant cost to derive the profit as a result of selling of land. Law: The High Court ruled that the guidance in determination of the profit generated from the individual income as to whether they are assessable under section 25(1) of the income tax Assessment Act 1936 (Morse 2013). Although it has to be noted that the rulings did not consider the applicability of section 25A which is as a result of taxpayers capital gains are capital losses under division 6A of Part III are under provision of (Part IIIA) (Fuest et al. 2013). Outcomes: The outcomes generated from various types of court rulings states that the amount received from the taxpayers was because of isolated transactions. The associated relevant profit was further taken into account as income in terms of general concept which is in compliance with the decision passed by High Court in FC of T v The Emporium LTD 87 ATC 4363 and hence it is constituted as assessable income under section 25(1) (Dwyer et al. 2013). As per the given case study, the taxpayers also acquired the land in order to work as well as the sand the land and further sell it to earn profit (Palan, Murphy, and Chavagneux 2013). It was further noted that the profit was generated from restarting of the land activities by the course production board which still formed a part of the assessable profit notwithstanding with the fact that taxpayer had no intentions to dispose the land in the initial stage. It was rather observed that the taxpayer sold the land as and when it became ideal enough for s ubdivision. As per the rulings of the court the profit was also assessable as per second limbs of section 26 (a) as it was derived from the execution of profit-making scheme are undertaking (Morse 2013). VI. Crow v FC of T 88 ATC 4620 The aforementioned case study questions on the applicability of subsection 25 (1) or section 26 (a) of the Income Tax Assessment Act 1936 which shows the operability to include the various factors of assessable income of the taxpayers profit derived from selling off land activities near Hobart (Deegan 2012). Law: Assessable income: The rulings of the law states that the sale of subdivided land was acquired and used for purpose of farming along with the different types of proceeds generated from carrying on a business activity are illustration of meager realization of capital assets Outcomes: As per the decision stated for the case it was clear that the property was utilized in form of a mine for a longer tenure than it was used as a farming business as given in the case. The different types of rulings of the court further suggested that the taxpayer was involved in boring activities for the purpose of purchasing five large blocks of land and subsequently conducting farming activities on the same. It was also observed that at a later stage, the taxpayer decided to sell off some portion of the land and hence he was assessable on the profit for carrying on business relating to development of the land. VII. McCurry Anor v FC of T 98 ATC 4487 The given case questions on the profit accumulated because of sale of land which is assessable under section 25 (1). Law: Assessable income: the law as per the assessable income clearly states that the taxpayers are evaluated under the section 25 (1) of the Income Tax Assessable Act 1936 on the profit from the sale of land. Based on this it was derived as a profit making undertaking scheme (Corones 2014). Although it should be noted that this particular, section is not applicable for sale of property which is acquired on or after 20 September 1985. Outcomes: The outcomes as per the law clearly reflects that the taxpayers had a blood relationship off being a brother and both of them use their own funds and credits financed from bank for the purpose of purchasing land on which their house was built. On the other hand it was observed that the taxpayers cleared their old house for the purpose of constructing three townhouses on the same area of land. As per the rulings of the court, it was stated that if a property acquired during the course of commercial dealing or business with an intention to generate profit from the development of sale, then that venture shall not be considered as an investment. The rule of the court further states that the profit accumulated forms a part of the income [sec 25 (1)] (Campbell 2013). The rulings of the court further states that the in such a situation the taxpayer is considered under the purview of commercial dealings. Hence the taxpayers were not carrying a business activity and the profit derived from tr ansaction that can be considered as a commercial dealings (Sidhu and Christie 2015). Reference List Arthur, G., 2016. Tax files: Taxation duties of executors. Bulletin (Law Society of South Australia), 38(2), p.28. Barnett, K. and Harder, S., 2014. Remedies in Australian Private Law. Cambridge University Press. Bently, L. and Sherman, B., 2014. Intellectual property law. 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