Taxation Law ATO Interpretative Decision

Question: Describe about the Taxation Law of ATO Interpretative Decision. Answer: Case Study 1: Residence and source According to Oxford Dictionary reside means, to permanently inhabit, or for an appreciable time span, to reside, in or at a particular place. But in order to know whether Fred is a Australian resident for the purpose of taxation different tests will apply, which are used to find out whether a individual is a Australian resident or not. (Australian Taxation Office, 2011). If he satisfies any one of the 4 legal tests requirement he will be considered as Australian citizen: Residency Test: It is a Primary Tax Residency test for determining on whom and when tax is being levied and if a person doesnt fulfill the test of residency, he will still be taken as a resident of Australia. Abode Test: An individual will be believed to be a citizen of Australia, if the abode is of Australia, unless Australian Taxation Office is pleased that the individuals domicile is outside the nation. 183 day test: If an individual is there in the country for more than half 6 months, he will be considered as a constructive individual if Australia unless it is proved that the domicile of that person is not the country and there is no intention to be a resident of that country. Superannuation test: It says that Australian government employees working at an Australian post outside are to be treated as the residents of Australia (Australian Taxation Office, 2015). Residential Status of a person entering in Australia can be determined by studying Tax Ruling TR 98/17 which includes the situations under which an individual is seen as an Australian Resident. This Ruling gives the interpretation of commissioner within the definition of resident included under the ITAA act ('the 1936 Act'). There are various elements which aid in establishing the residential status of an individual which are as follows: Behavior and reason for ones Presence When family also resides in abroad because of work Buying and maintenance of assets in Australia Ordinary course of life being same as before entering in Australia and after i.e. Actions and Habits (Australian Taxation Office, n.d.). If a person is physically present for a long period of time in a country it would be considered consistent to reside in Australia. Normally 6 months are taken into consideration for determining the residential status of a person in Australia. It was held in the case of FCT v Pechey that: if a person had stayed in a particular country for a considerable time it will be assumed that he had a established or usual abode there( FCT v Pechey). The invisible intention element is being referred in the rule of 183 day test. Thus it is avoided by the Australian government and also it is seen that intention is the major element in deciding the residence of an individual (Wills, 1997). Therefore in the current situation Fred will be considered as a resident of Australia as he satisfies two tests requirement as mentioned earlier i.e. Domicile test and 183 day test as he lived for 11 months in Australia and have taken a house on lease for staying there and it was only because of his ill- health that he went back otherwise he would not have returned back. Case Study 2: Ordinary Income Californian Copper Syndicate Ltd v Harris (Surveyor of Taxes) (1904) 5 TC 159 In this case the court upheld that although transactions with a profit-making purpose is a well known principle, with regard to the question of taxable income where a investment owner wishes to earn it and get a larger amount for the same rather than the amount on which he originally took it over, the increased amount will not be regarded as assessable gain for the purpose of taxable income. Although it is founded that increased amounts earned by way of realizing or assessable by way of converting the securities where whatever is done is not simply a realization or exchange of investment but an enactment take place in whatever happens inside a business. There is a slight difference which departs the two classes of case laws that are impossible to explain and both the cases should be seen in accordance with their factual situations: the question to be decided in both total number of profit have inculcated a simple change of values by leaving a security because it is the profit earned in an occupation in doing or performing a act of earning profit (Australian taxation Office, n.d.). Scottish Australian Mining Co Ltd v FC of T (1950) 81 CLR 188 In this case it was held that as company is being engaged in the work of sub-dividing the work and other activities which take place inside the company so it has merely taken the essential pace to realize the land in the most beneficial manner as a result of which the profit is said to be non- assessable. In the regard of which it was held by another judge that, In my view the facts has to be secure enough before a court had to say that the company which has not bought or adopted a land for making profit by way of agreement to sale was employed in the job of giving the land and not simply realizing it, although company has taken immense care and took essential steps to realize the property in a better manner, the property has been taken and utilized for various uses which were not related to carrying out business activities. Decision given was used a landmark for the cases wherein it was held that simply realization of an asset was on account of capital in an enterprising way (Smith, 2003). III. FC of T v Whitfords Beach Pty Ltd (1982) 150 CLR It was held in this case that property which has not been bought in regular way of doing a occupation or differently for the motive of earning gain or doing sale including profit is merged into a job of dealing with such a land, with a drawback that the gains of such a deal are counted as earning, even though the gains should be calculated by way of giving acknowledgment to the price of the land at the time it merged and not by way of acknowledgment which was given to the cost of acquiring(Edmonds,2010). Statham Anor v FC of T 89 ATC 4070 In this case the court held that there are various governing bodies that support that a taxpayer who has a part of land which is a capital asset and who acquires the land in an enterprising manner can treat the profits from the realization as capital if the growth is nothing more than the Mere realization of capital assets. And also a growth involving 105 lots over 4 stages were held to be nothing more than mere realization of capital assets (Cooper Grace Ward, 2015). Casimaty v FC of T 97 ATC 5135 It was held that the sale of the taxpayer from the sub division arose from simple realization of a part of property of the taxpayer. Consequently, According to section 25(1) or 26(a) of ITAA (1936) any type of profit on sales will not be assessable. Therefore, it was concluded by the judge that as the business carried on by the taxpayer was not on land development as a result of which, the growth and sub division of Acton View was taken up step by step in reply to the emergencies of increasing debt and harming health. No logical plan was given for the subdivision of the property to increase the return.eve at the last assessment date 1/3rd area of the whole land had not been subdivided. In order to reach the view that the transactions were not done inside a business like fashion in regard to the fact that the individual who is liable to pay tax did not guarantee to take charge of the work apart from what was essential to assure the recommendation of municipal bodies of the upcoming plans of sub dividing or enriching the presentations of the peoples lots. Because as per the judge the person who is liable to pay tax took over and continued to hold Acton View for the purpose of Production or residence(Smith, 2003). Moana Sand Pty Ltd v FC of T 88 ATC 4897 Court in this case held that the scheme of earning gain which was taken into concern was not entered into for a predefined aim of making gain by selling the land which was took over as a part of scheme. Court established that it gave the judgment individually for the aim to absolve the suspension of the first part of Section 26(a). The words of Gibbs a jurist were consulted for the aim and words of Jacob in a case in which he made a reference to the being of a dual object as adequate to give an value the personality of a receipt related asset. Although inspite of the fact that the test was rejected it was upheld that the Court went no further than to engage this test in London Australia (Flynn, 1999). VII. Crow v FC of T 88 ATC 4620 In this case it was upheld that the leverage of different properties and the incidental sub division and selling of piece of property involve deals which were repetitious and planned manner and had characterteristics of a continuous occupation of property growth. The Tribunal was gratified that the person paying tax purchased and sold the property for the aim of earning profit. The Taxpayers activities properly answer the description of doing the business of property growth and profit therefore constitute income for the aim of sub section 25(1) (ITAA 1936) (Australian Taxation Office, 1996). VIII. McCurry Anor v FC of T 98 ATC 4487 In this case it was held that the profit from sale of any land was said to be assessable under section 25(1). The taxpayers entered into a profit making agreement or scheme which was a deal or a business. Their merge was related to trading and from it they make profit which has been expected. If a land is taken up in a course of business or as a result of deal for attaining or earning profit from its growth and sale that merge is not taken as investment and profit taken up from it is income for the purpose of section 25(1). In a case study, where taxpayers were not doing any business, the profit to be assessable must have been taken up from a transaction that can be described as a commercial deal. References: Australian Taxation Office, (1996). ATO Interpretative Decision, Australian Government. Accessed on 22nd Aug, 2016 from: https://www.ato.gov.au/law/view/document?docid=AID/AID200155/00001. Australian Taxation Office.( n.d.). Taxation Ruling TR 98/1, Australian Government. Accessed on 22nd Aug, 2016 from : https://law.ato.gov.au/atolaw/view.htm?Docid=TXR/TR9817/NAT/ATO/00001. Australian Taxation Office. (2011). Residency - the resides test, Australian Government. Accessed on 22nd Aug, 2016 from: https://www.ato.gov.au/Individuals/International-tax-for-individuals/In-detail/Residency/Residency---the-resides-test/. Australian Taxation Office.(2015).Residency Tests, Australian Government, Accessed on 22nd Aug, 2016 from: https://www.ato.gov.au/Individuals/International-tax-for-individuals/Work-out-your-tax-residency/Residency-tests/. Australian Taxation Office.(n.d.). Taxation Ruling TR 92/3, Australian Government,Accessed on 22nd Aug, 2016 from: https://law.ato.gov.au/atolaw/view.htm?DocID=TXR/TR923/NAT/ATO/00001. Cooper Grace Ward Lawyers.(2015). Tax and GST issues with small property developments, Accessed on 22nd Aug, 2016 from: https://www.cgw.com.au/wp-content/uploads/2015/07/Tax-and-GST-issues-with-small-property-developments-Greg-Cahill-May-2015.pdf. Edmonds, J.R.(2010). A Finding that a taxpayer carries on a business: what is required, related issues and what are the tax consequences?,Accessed on 22nd Aug, 2016 from: https://sites.thomsonreuters.com.au/journals/files/2010/10/j03_v039_ATREV_pt02_edmonds_offprint.pdf. FCT v Pechey 75 ATC 4083 at 4086 Flynn, M.(1999). DISTINGUISHING BETWEEN INCOME AND CAPITAL RECEIPTS - A SEARCH FOR PRINCIPLE, Journal of Australian Taxation, Accessed on 22nd Aug,2016 from: https://www.austlii.edu.au/au/journals/JlATax/1999/13.html. Smith,A.(2003). PROPERTY DEVELOPMENT Land and Property, TAXATION INSTITUTE OF AUSTRALIA, Accessed on 22nd Aug, 2016 from: file:///C:/Users/Guest/Downloads/d020520030207_prop_development_smith.pdf. Wills, M. (1997). The Income Tax Implications of a Foreign Individual Contracting to do Business in Australia, with Particular Reference to the Concepts of 'Residence' and 'Source', Bond Law Review, Volume 9, Issue 1.Accessed on 22nd Aug, 2016 from: https://www.austlii.edu.au/au/journals/BondLawRw/1997/3.pdf.