Semester 1, 2019PACC6006 Taxation Law
Required:The final grade will be worth 25% of your final grade.
The final report must be 1500 words +/-10%. In grading this task, examiners will focus on your referencing appropriate sections of the ITAA 1936 and ITAA 1997, income tax rulings issued by the Australian Taxation Office, tax treaties and International taxation legislation. Please see marks allocation below. A list of references used to answer all assignment tasks should be attached to the assignment.
In this assignment you are employed by a local tax consultancy practice. You have been approached by an International Investor from your home country who is interested in understanding the rules associated with tax residency in Australia and under what conditions someone satisfies the criteria for tax residency. They are also interested in knowing of there are any tax agreements between Australia and your country.The investor is considering returning to their home country but would like to understand the differences in the taxation legislation between the two countries and which country may be most advantageous to live in from a taxation perspective. Your role is to prepare a report for the investor regarding this issue. The document you produce should be clear, logical and provide advice that can be relied upon by the client.
You are required to provide your advice by referring to:
You must reference the marking rubric in writing your assignment.
|1. Organisation and Logic||2|
|2.Logical Flow of Materials||3|
|4.Syntax & Mechanics||3|
|6.Sources and Evidence||3|
|7.Reflection and Evaluation||2|
PACC6006 Taxation Law
This report is formulated with a view to analyse tax residency concept in Australia. As a person working in tax consultancy firm, this report will be aid international investor with regard to analysing tax legislation of home country i.e. Mongolia and Australia. There will be analyses whether the person must be resident of Mongolia or he should become resident of Australia. Hence, it would make in-depth analysis of tax legislation and taxation structure of both the countries. The analysis will be done through analysing income tax, capital gain tax, fringe benefit tax and Goods and service tax. This report divulges the key details of the taxation implication and different laws and regulation which is imposed on the individual in different-different country.
Tax residency test in Australia:
For the taxation for resident, persons who reside in the country are considered for tax purpose. Further, if a person is not resident than it need to clear three statutory tests discussed as below:
Domicile test: This test simply describes that a person who is by origin or through choice reside in the place is considered as resident of that country. It is most common test to address if the person is permanent resident of the country or not. Therefore, a person who is by birth there, will be called a resident person.
183 day test: In this test, a person is considered as resident only if the person resides for than half income year. This can be either continuous or in separate period.
Commonwealth superannuation test: it is applicable over Australian government employees who works abroad. But these are applicable only over PSS and CSS schemes.
Thus, the above criteria must be fulfilled for taxation in Australia and for considering as resident of the country. A resident of Australia has to pay taxation in that country (Apps, and Rees, 2013).
Double taxation agreement:
Double taxation agreement is an agreement which is made between two countries for eliminating double tax botheration over tax payer. There is currently no double taxation treaty between Australia and Magnolia. This taxation agreement was undertaken with a view avoid the excess tax implication on the individual.
Taxation difference between both the countries:
Income tax is the tax to be paid upon income earned in a particular state and is levied by government. Income taxation in Australia has a tax slab rate as described below. A person who is resident of Australia has to pay tax accordingly and is also entitled for certain deductions (Greenville, et. al., 2013).
|Taxable income||Tax to be calculated|
|$18201-$37,000||19c for each over $18,200|
|$37,001-$90,000||$3,572 plus 32.5c for every $1 over $37,000|
|$90,001-$180,000||$19,822 plus 37c for every $1 over $ 87,000|
|$180,000 and above||$ 54,547 plus 45c for every $1 over $ 180,000|
For instance: if the international investor, earns $100,000. Then he has to pay in accordance with the slab rate of the financial year 2018-19:
|Tax to be paid for $0-$18200||Nil|
|Tax to be paid for $18,200-$37,000||19/100*18,800 =$3,572|
|Tax to be paid for $37,001 - $90,000||$3,572 + 32.5/100*53,000 = $17,225|
|Tax to be paid for $90,001-$180,000||37c*10000= $3,700|
|Income tax payable||$3,572+$17,225+$3,700 = $24,497|
Income tax to be paid is $24,497
Further, Medicare are also levied which is $2,000
Hence, total tax to be paid on $100,000 is ($24,497+$2,000 = $26,497).
Hence, income after tax and Medicare is $ 73,503.
Income taxation in Mongolia:
In Mongolia, the tax rate is progressive which 10% on amount up to 3 billion is. Hence, if the investor earns 100,000 Mongolian tugrik. Then he has to pay:
1,000,000*10% = 100,000 (MGT).
This is the amount of tax which needs to be paid in Mongolia.
Hence, considering income taxation, income tax to be paid is 1, 00,000
Income after payment of tax (1,000,000-100,000 = 900,000 MGT) (Harding, 2014).
Hence, considering currency exchange and money term value, it is more advisable to earn in Australian dollar (PWC, 2019). Therefore, individual needs to understand implication of the tax and changes in the foreign exchange currency when he makes import experts of its services or goods.
Capital gain taxation:
Capital gain tax is a taxation system which is levied on the sale of capital assets such as stocks, property, bonds and metals. There are two types of capital gains namely, short term capital gain tax and long term capital gain tax. This tax arises when individual makes profit on the assets classified in the capital tax schedule.
In the current scenario, if the international investor sells an Australian security worth $4,000 for $5,000. Then, he has to pay capital gain tax as below:
Asset sold for = $5,000
Asset purchased for = $4,000
Net capital gain = $1,000.
The estimated capital gain tax for the person is $ 390.
In Mongolia, if the international investor has sold its shares which are held for less than one year (Saad, 2014). The purchase price of the security is 200,000 MGT and the sales price is 400,000 MGT. The capital gain tax for the person will be as follows:
Sales price of the asset is 400,000 MGT
Purchase price for the asset is 200,000 MGT
Capital gain for the asset is 200,000 MGT.
The rate for capital gain tax for individual resident is 10%. The capital gain tax will be 200,000*10%= 20,000 MGT.
Hence, from above calculation it is estimated that the capital gain tax to be paid in Australia is higher than in Mongolia (PWC, 2019).
Goods and service tax:
Goods and service tax is a tax imposed on selling of goods and services in the local or domestic consumption. The tax is submitted to the government by the businessman but the tax is ultimately paid by customer.
The general goods and service tax in Australia is rated at 10%. A person has to pay 10% tax on selling of goods and services. In general or for most of the consumable items, the GST rate is 10% in Australia.
In Australia, if the international investor has sold goods worth $5,000, then GST calculation is:
Goods worth = $5,000
GST for the goods = $5,000*10% = $500
GST inclusive price = $5,500
In Mongolia, there is no applicability of GST tax. Instead of GST, there is applicability of sales tax, VAT tax. Currently, the sales tax rate in Mongolia is 10%. If the international investor sells goods worth 10, 00,000 MGT (Voßmerbäumer, 2013). the sales tax to be paid over this amount will be as follows:
= 10, 00,000 *10%
Hence, it is witnessed that the GST rate in Australia is higher than the Mongolia.
Fringe benefit tax:
This is the tax which is paid by employers on the fringe benefits provided to employees or their known of the company. In accordance with ITAA act, there are number of fringe benefits provided to employees such as providing car for private purpose, reimbursement of school fees etc. In accordance with ITAA act, varied fringe benefits taxable value are calculated and GST credit are also claimed (Australia government, 2019). In Mongolia, also various taxable fringe benefits are provided to employees on which taxation are to be provided by the employer (Wilkins, 2015). This tax needs to be paid as per the domestic country tax laws and regulation.
In accordance with taxation system of Australia, there are large number of deductions available for an Australian employee. Hence, it would be advisable for the international investor that he chose to become resident of Australia and take advantage of tax benefits as provided by the government.
With the analyses of different taxation legislation of both the countries, it is analysed that it would be effective if the international investor become resident of Australia. Since, there is no double taxation agreement between Mongolia and Australia, the international investor would have to pay tax in both the countries and hence, makes losses. On contrary, as an Australian resident, there are number of deductions and benefits which would reduce taxable income. Now in the end, it could be inferred that individual needs to assess which country would be more beneficial for him to pay tax. However, As compared to Australia, Mongolia is the best suitable country for the individual for the tax saving purpose.