Name of Student: Student Number: Course Name: Course Code: Course Director: Date of Submission: CASE STUDY 1 THE RELATION BETWEEN TAXATION, RESIDENCE AND SOURCE IN ANALYZING WHETHER KIT IS LIABLE TO PAY TAXES IN AUSTRALIA To do a thorough analysis on whether Kit is liable to pay taxes in Australia, then a serious analysis of his income and residence must be done because these are the factors that are looked at to determine whether one should be taxed in Australia or not. This is because if you live in Australia for a certain period of time then you must be subjected to tax or in the event that your income comes from Australian sources. It will therefore be prudent to establish whether Kit is an Australian resident because his taxation is basically pegged on residence and income sources. Usually, in most countries, the general rule has all along been that if you are a resident then all your income is assessable for purposes of taxation (Bentley, et.el, 1974). However, in Australia this is subject to the deductions and tax concessions provided by the Act (Income Tax Assessment Act, s989B). The question of who qualifies to be a resident then arises. The Income Tax Assessment Act defines a resident for the purposes of taxation to include a person whose domicile is in Australia and further gives the Commissioner of Tax to decide whether a certain tax payer is domiciled in Australia or he has a permanent place of abode in another country (Income Tax Assessment Act, s6). Domicile in simple terms means that a person has been living and/or working for gain in another country with the intention to make the stay permanent. The intention to stay must come out clearly because without it the tax commissioner will not be in a position to tax the person (Braithwaite, 2009). Suffice it to not that domicile and citizenship are two different things. If a country were to tax her citizens only then it would lead to absurdity because people from other countries would come make profit and leave without having to pay taxes.There exists three types of domicile being domicile by operation of law, domicile by choice and the domicile of origin. Domicile by operation of law takes place when a person is deemed by law to be a resident of that particular country. A good example will be when a woman gets married to an Australian man. Domicileby origin happens through birth such that all persons who are born in Australia and elect to live in Australia are domiciled in Australia by origin. Finally, domicile by choice occurs in the event whereby one elects to move in another country with the intention of making the stay permanent. The reason that we pay taxes is for the government to secure the sources from which we get one income. One cannot be able to make income if the government didn’t have put measures to protect the people. Indeed, the law theories stipulate that the reason that the government was formed was that citizens would surrender their power to entity that would secure them and to put measures to avoid depletion of resources. In Kits case we are told that he is a permanent resident of Australia and that his family resides in Australia where he spends most of his vacations or in Chile, we are further informed that he has a joint account with his wife in Westpac bank which is in Australia. The fact that Kit works for a US company based in Indonesia does not change things because he is an Australia resident and he lives there like four months a year because we are told that he gets a vacation every third month. It is therefore worth mentioning that because the family of Kit is being protected by the government then Kit must b subjected to pay taxes. Some countries usually have taxation agreements so that people working in other countries and having residences in other countries are not taxed twice. CASE STUDY 2 A DISCUSSION ON ORDINARY INCOME Introduction To engage in a thorough discussion of ordinary income, then one must be well seized of the meaning of ordinary income as is provided by the law and further expounded by taxation scholars. The Act stipulates that ordinary income includes assessable income, income according to ordinary concepts. (Income Tax Assessment Act, s6F). The question that arises is therefore what ordinary concepts are. The Act does not provide the definition for ordinary concepts to mean that the commissioner has the discretion to decide what amounts to assessable income and what ordinary concepts are (Braithwaite, et.al, 2001). Lawyers and tax scholars have strived to define what income from ordinary concepts is and it seems that the agreement has been that income from ordinary concepts is income from salary or wages, income from the dealings of a corporation and income from the sale or lease of property (Woellner, et.al, 2011). It is worth noting that the disposal of property is different from the realization of a capital asset. In the latter, one will not be subjected to pay tax. I am going to discuss the given authorities so as to establish whether they were decided correctly in so far as tax assessment is concerned. Scottish Australian Mining Co. Ltd V FC of T In this case, a company that had been formed to conduct mining business went under, the company had purchased a portion of land solely to conduct the mining business. When the business did not do well, the company sold the land upon subdivision into several parcels. The company made a profit as a result. The commissioner of tax assessed the income and the company appealed. The court of appeal held that the company merely realized a capital asset and therefore not subject to taxation. (Scottish Australian Mining Co Ltd v FC of T (1950) 81 CLR 188 III). In my opinion, the court made the decision having in mind that companies are guided by other laws and therefore shareholders should not bear the burden of getting losses twice especially after the company had crumbled because on taxation they will be left with little to share. FC of T v Whitfords Beach Pty Ltd In this matter a company bought a piece of land that was bordering one they owned so that their members could access fishing shacks. They later subdivided the land and made developments thereon which they disposed off at a profit. They appealed the decision and the Full Court agreed with them. The commissioner further appealed to the high court which reinstated his decision to tax the company (FC of T v Whitfords Beach Pty Ltd (1982) 150 CLR IV) In my opinion, this is a good decision because the company changed the purpose of the land and made profits from the change and therefore such profits cannot be left untaxed because the company had not incurred losses and that was not realization of a capital asset. Crow V FC of Tax In this matter the appellant took out a loan to purchase a portion of land to do livestock farming, after several years he changed livestock farming and subdivided the land into 51 portions and sold them a t profit. The commissioner of tax assessed the income and he appealed to the Full Court which upheld the decision of the commissioner. (Crow v FC of T 88 ATC 4620 VIII). It is my assertion that the court was right because the appellant could not be said to have realized a capital asset because he did not incur any losses before he decided to stop the livestock farming business. Californian Copper Syndicate Ltd V Harris In this matter a company sold land to another company and payment was done by the purchasing company issuing shares to the vendor company. The value of shares exceeded the price that the company had bought the land and therefore the commissioner of tax sought to tax the difference. The company appealed and the appeal court upheld the decision of the commissioner. (Californian Copper Syndicate Ltd v Harris (Surveyor of Taxes) (1904) 5 TC 159 II). In my opinion, the court upheld the decision of the commissioner because the company engaged in a different business altogether and using a different entity in the name of the purchasing company. Moana Sand Pty Ltd V FC of Tax In this case the appellant bought a parcel of land to harvest sand and the government rezoned the area. Before rezoning, the appellant had already started subdividing the land to sell the portions at a profit. He then sold the land to the government at a profit and he was taxed. He appealed and the court upheld the decision of the commissioner. (Moana Sand Pty Ltd v FC of T 88 ATC 4897 VII). In my opinion, the court upheld the decision because the appellant had already intended to dispose off the land even before rezoning and that he did not make any loses in his sand harvesting business so as to hold that he realized a capital asset. Statham &Another V FC of T In this case, Adderman purchased land and sold a portion to his sister and husband and they entered a pact to rear beef. The business did not do well and Adderman sought to sell the land. He died after he had obtained all the necessary consents required to sell the property after he had caused the land to be subdivided in several portions. The executors of his estate sold the portions of land at a profit and the commissioner sought to tax the profits. They appealed and the court of appeal overturned the assessment.(Statham & Anor v FC of T 89 ATC 4070 V). In my opinion this is not a good decision because prior to his death, Adderman had already expressed his intention to change business. In so much as he can be allowed to recover the losses then the profit gained after recovering the losses made in beef farming should be taxable. Again the beef farming business was a joint venture whereas the selling of the land was started by Adderman alone. McCurry &Another V FC of T In this matter two brothers bought a plot in Addison avenue which they developed halfway before they engaged in a news agency business. The news agency business went badly and they went back to their initial plan to finish the apartments which they sold at a profit. The tax commissioner assessed the profits for taxation and they appealed. The appeal was dismissed with costs. (McCurry & Anor v FC of T 98 ATC 4487). In my view, I will laud this decision because they did not explain why they stopped building the apartments, it could have been a diversionary tactic to start the news agency business so that they could evade paying taxes. Casimaty v FC of Tax In this matter a farmer bought land to engage in farming, his farming business went under and he sought to sell the land. He made profits and the commissioner of tax sought to tax the profits. He appealed and the court allowed his appeal on noting that what he did was merely realizing a capital asset. (Casimaty v FC of T 97 ATC 5135 VI). In my opinion, courts should decide each case based on its own circumstances and that in this case the farmer was out to recover losses that he had incurred and subjecting him to taxation will be like double jeopardy whereas the canons of a good tax system require that a good tax system should allow tax payers some tax breaks to as to make sure that they do not try ways of evading to pay taxes. REFERENCES Books and Articles Braithwaite, J., Pittelkow, Y. and Williams, R., 2001. Tax compliance by the very wealthy: Red flags of risk. Ashgate Publishing Ltd. Braithwaite, V.A., 2009. Defiance in taxation and governance: Resisting and dismissing authority in a democracy. Edward Elgar Publishing. Bentley, P., Collins, D.J. and Drane, N.T., 1974. The incidence of Australian taxation. Economic Record, 50(4), pp.489-510. Keating, P., 1985. Reform of the Australian Taxation System: Statement by the Treasurer (No. 315). Australian Government Publishing Service. Woellner, R., Barkoczy, S., Murphy, S., Evans, C. and Pinto, D., 2011. Australian Taxation Law Select: legislation and commentary. CCH Australia. Statutes Income Tax Assessment Act, 1997 (Cth) Cases Californian Copper Syndicate Ltd v Harris (Surveyor of Taxes) (1904) 5 TC 159 II Casimaty v FC of T 97 ATC 5135 VI Crow v FC of T 88 ATC 4620 VIII FC of T v Whitfords Beach Pty Ltd (1982) 150 CLR IV McCurry & Anor v FC of T 98 ATC 4487 Moana Sand Pty Ltd v FC of T 88 ATC 4897 VII Scottish Australian Mining Co Ltd v FC of T (1950) 81 CLR 188 III Statham & Anor v FC of T 89 ATC 4070 V Udny v Udny [2001] 1 FLR 921