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BULAW5916 Tax law Implication on Individuals in Australia Assignment Answer

BULAW5916 Taxation Law & Practice 

Assignment 

Purpose

The purpose of the assignment is to enable you to research and explore an aspect of taxation law.

Word limit

The length of the assignment is to be approximately 2,000 words. Assignments of more than 2,200 words will not be marked; those with less than 1,800 words will be at risk of failing. Please provide a word count with your assignment. Do not include any synopsis, references or bibliography in the word count. Do not use appendices or footnotes as a way around the word limit. 

Note all Federation University Australia rules relating to assessment, including those relating to plagiarism, referencing and late submission of work, apply.

Note all Federation University Australia rules relating to assessment apply.

Topic

Task

In essay style, and with the use of headings, please discuss the following implications of the judgements in these cases

  1. What are the tax implications for Australians who are living as expats in other counties?

  2. What are the implications for the application of the ordinary concepts test?

  3. What are the implications for what can constitute a permanent place of abode and why is this important?

Criteria used to grade this assessment

Analysis (approximately 60% of the marks will be allocated here):

  • Depth of understanding of the topic and identification of relevant issues

  • Clarity and coherence of the debate or discussion

  • Quality of discussion and argument

  • Attempt to canvass a range of views and to offer an individual opinion on the need for reform

Research (approximately 30% of the marks will be allocated here):

  • The use made of appropriate legal sources, in particular sections of the Income Tax Assessment Act 1936 and Income Tax Assessment Act 1997 to support your discussion

  • The breadth and use made of relevant secondary legal sources such as Government reports, newspaper reports, and academic articles

Presentation (10% of the marks):

  • Readable connected prose. Not point form summaries

  • Effective use of headings

  • Consistent and accurate acknowledgement of sources using a recognised referencing style- Both in relation to in-text referencing and list of references/ bibliography.

Your lecturer will mark your assignment. Feedback and grades will be communicated via Moodle within two weeks of the assignment deadline or submission (whichever is the latter).

Answer

TAXATION LAW & PRACTICE

Introduction 

With the ramified changes in the taxation rules and regulation, the implication of Australian taxation laws are becoming very strict and eight states, territories follow these laws.  It has been considered that there are many individuals from the Australian origin who want to work overseas. As per the Australian taxation system, ATO will first determent the tax resident status that whether he would be liable for the tax or not based on the circumstances and arrangement. In this essay, tax implications for Australians who are living as expats in other counties have been assessed. After that implication for the application of the ordinary concepts test has been taken into consideration. Afterward, implications for what can constitute a permanent place of abode and why is this important have been assessed and evaluated for the tax purpose. However, it has been analyzed that taxpayers need to fulfill all applicable legal procedures as there could be the imposition of the high legal penalties if someone does not follow any law properly.  It is evaluated that the tax amount can be higher (due to the penalties and fines) if there is no proper implementation of tax laws. This study will help in understanding the Tax law implication on the individuals in Australia. All the applicable rules of taxation act 1936 and 1997 will be assessed for the tax purpose of individual. 

Discussion 

Tax implications for Australians who are living as expats in other counties

The Australian taxation system has been occupied with the two residency status with expats need to be aware named Australian resident for tax purpose and foreign residency. However, regardless of the residency status in Australia, a person needs to complete his/ her tax return.  However, there are laws and regulations which every citizen needs to follow to have healthy relations with the country and be a good citizen and enjoy all the facilities of the country. There are some "tax implications" for the "citizens of Australia" who are willing to be as expats, and they need to follow some procedures to live and work overseas.

Impact of CGD changes for "family home"

The largest asset is the family home for anybody, and that asset can be taken over by the Australian government if there is any misconduct regarding expats overseas. The amended tax law suggests that the citizens need to give proper identification of the capital assets that they hold before heading to other countries to stay or to work (Torgler, 2016). As per the taxation rules and tax implication regulation, it is evaluated that this implication is made by the Australian government as if the citizens are staying oversees the capital assets will be safe, and there will be proof that the individual is a citizen of Australia. The individual will rent out their houses in Australia while living overseas the CGT will be calculated and paid to the government. In case the citizen wants to sell the house in Australia then after selling the house, the citizen needs to pay CGT post six months of the capital sales. The "capital gains tax" is calculated for the assets that generate any profit the citizens who reside overseas; they need to pay an amount to the government according to the tax law implications.

Tax residency 

Tax residency is critical as the whole process of tax payment is depended on the residential status of the individual. The rules and laws will be different for people who are residents of Australia and non-residents (Spiro, 2018). The resident ship of individuals is calculated according to the rules suggested by the tax law of Australia. As per the "Income Tax Assessment Act 1997", the law states that any individual who resides more than 183 days in Australia then he will be deemed to be the Australian resident and they will be liable to pay tax as a typical resident even if they work overseas. Therefore, the tax implicating of that person will be dependent upon the residential status. This is done because there will be fewer issues in case of expats while payment of fees. It is assessed that if in an individual is domicile (a person having a permanent home in Australia) then he will be classified Australian resident for the tax purpose and would be liable to pay tax on his income. Nonetheless, 183 days tests would also be satisfied by the individual for his residential status in which he needs to be present in Australia for the half of the income year either regularly or continuously or with the taken breaks in the year.  In addition to this, there is another test called superannuation test which is designed to ensure and evaluate the Australian government employees who are working overseas for their Australian government post will be classified as an Australian resident for tax purpose.  

Investment properties

According to the "Tax Assessment Act, 1936 and taxation rules given under the taxation assessment act 1997" the investment properties are the capital assets and individual needs to pay tax when these items are sold (Warren, 2016). However, there are many discounts available in CGT for a resident of Australia, but in case a non-resident of Australia has sold any investment properties after 8th May 2012 they will not have any discounts. The residents need to show documents before moving overseas than he can enjoy the benefits of the law as a general resident of the country.

Other investments

As per the taxation assessment Act 1997" if an individual is a non-resident then the other investments such as shares and others will be assumed that these investments are sold in “market value” and the Australian CGT will not be implicated in those investments (Landrigan et al. 2017). The owner can still hold the stakes and can enjoy the benefits of the shares. However, individual needs to follow proper tax planning to determine the taxation amount for his tax implication on the other investments. 

Personal tax allowance in Australia

It has been considered that tax implications for Australians who are living as expats in other counties will not be liable for the personal tax allowance. It depicts that all the generated income by the person will be subject to the Australian tax. 

tax implications for Australians who are living as expats in other counties


Fig 1: tax implications for Australians who are living as expats in other counties

(Source: Self-created)

Application of the ordinary concepts test

As per the rules and regulation given under "Tax Assessment Act, 1936 and taxation rules given under the taxation assessment act 1997" it is considered that there are four tests organized by the "Australian government" to find out the residential status of individual in Australia. The four criteria are "Ordinary concept test", "Domestic test, "183-day rule test" and the last one is superannuation test.  The "ordinary concept tests" exposes the individuals that are the resident of the country as per the implication of the rules and regulations of "ordinary concepts of the Australian law". In this test, the individual needs to have a physical presence in the country at the time of income year and then only the person can be eligible to pass the test. However, these two conditions need to be complied by the individual for being liable to pay tax in Australia.  This application of the ordinary concept test shows the residential status of individual (Kennedy et al. 2017). The proof of being Australian is essential if they want to work overseas the tax payments will be disturbed, and a proper document will become challenging to maintain. This test helps to keep an appropriate track of residents of Australia and keep necessary tax rules and processes as well. This test is accompanied by the systematic procedure where the residency of the individual will be assessed before implicating the tax. The tax burden of the individual will be based on the residency status in Australia.  

There are many circumstances in which the people can enter for the resident ship of Australia, and this can be important for tax purposes as well. The individuals who reside in Australia such as individuals migrates to abroad, student pursuing studies in other countries and "those who are in pre-arrangements of employment contracts with Australian companies" can become residents of Australia as well (eprints.qut.edu.au. 2019). 

Location and maintenances of assets

The individual needs to maintain assets wherever he goes. The assets that are bought or sold must be under the law, and if the individual falls under the resident of Australia, then all the procedures will be according to law and all the "capital gains tax" will be under Australian tax. The financial affairs of individuals will be assessed and taxed done according to the "Tax Assessment Act 1936 and the Income Tax Assessment Act 1997”. 

Social and living arrangements

The social arrangement that individual makes in the area they reside or live will be helpful and the law will be considered as "ordinary conduct of life" (Hoopes, Robinson & Slemrod, 2018). The activities that include social and living life arrangements” are as follows:

  • Having a play in sport social activities in local competition
  • Member of the communities club
  • Redirecting mails to Australia
  • Registering the children in Australia

These above-given activities will be covered in the social and living arrangement for his tax purpose. These will help the government to know the resident ship of the people as this is considered an ordinary course of life.

Physical presence in Australia

The physical presence in Australia means the activities that individual carries on should not be from another country instead the events must be conducted from Australia as well, and the individual must be physically present in Australia for a minimum of 180 days then only he will be considered as a resident of Australia.

Permanent place of abode

According to the “Harding v Commissioner of Taxation [2019] FCAFC 29," a person could be Australian resident but he will be Australian resident for the tax implication purpose not for citizen of Australia. This state’s “person's domicile is in Australia, and also having an abode place outside Australia (Braithwaite & Reinhart, 2019).  The given case has helped many people to understand the tax problems and contributed Australian expatriates in constituting abode place outside Australia

Domicile

Domicile is "an old common line" which was updated after the "Domicile act 1982". According to the "Tax Assessment Act 1936 and the Income Tax Assessment Act 1997" the person will continue to have an Australian domicile if he is unable to provide a well-established house outside Australia or if he fails to offer any permanent resident ship of "abode outside Australia.''

Harding

Mr. Harding moved to Bahrain in 2008 and decided to live in temporary apartments until his wife and son shifts with him, but due to his circumstances, he was unable to do so. The court after this case stated that "permanent place of abode" does not mean to have permanent apartments in other countries but to have a stable resident ship in different countries and should pay tax regularly in that country (jade.io. 2019). 

The Permanent place of abode is crucial because it is the identification that a person is residing in another country permanently and does not visit Australia. In these circumstances, the Australian tax will be not implemented to the individual who shows there "permanent place of abode". [Referred to as appendix 1]. Therefore, it could be inferred that the residential status of the individual in Australia is required to be determined before implicating the tax.

Conclusion 

The study is concluded with “Australian tax law” that states the resident ship of the individual to find out the correct tax payment. The study helps to understand the "tax implications for Australians who are living as expats in other countries". The Assets that the individuals have gathered should be informed to the government as they keep track of it to get correct "capital gains tax" from the resident or non-resident of the country. This study states the "ordinary concept tests" that are relevant for the individuals to pass to be a resident of Australia for taxation. This study also summarises the case study of "Mr. Harding v Commissioner of Taxation” and the impacts that were seen in the law after this case. The changes are also discussed and the importance of "permanent place of abode" is mentioned above in this study. However, after assessing the Australian tax implication on the individual who is living as expats in other countries, it could be inferred that he will be liable for the tax in Australia but there are certain rules and tax implication which he needs to comply while paying tax. Nonetheless, double taxation avoidance benefits will also be given to that person to save him from the tax harshness. 

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