Taxation Law Assignment: Case Scenarios Based on Australian Income Tax Law
Taxation Law Assignment - Part A
Cas Silk lives and works in Brisbane as a fitness consultant. She is employed by the French company Puissance Ltd and is paid a monthly salary of $8,000 which is usually deposited into Cas’ bank account in Australia on the first day of each month. Cas commenced her employment with Puissance in January 2017.
In March 2018 Puissance Ltd successfully tendered for the contract to design and instal Olympic standard gym equipment for the Japanese company Fitu Ltd. Cas had always wanted to visit Japan and was excited when Puissance selected her to oversee the installation of the equipment. Cas travelled to Japan on 1st April 2018 and the installation of the equipment was expected to take a month. Unfortunately, due to poor design, the connections on the gym equipment were not compatible with the Japanese power supply outlets. Cas’ planned one month stay became four months as she worked to finalise the safe installation of the equipment. In late April 2018 Puissance Ltd instructed Cas to open an account with a bank in Japan. On 1 st May, 1st June and 1st July Puissance Ltd deposited Cas’ monthly salary into her Japanese bank account.
While Fitu Ltd was dissatisfied with Puissance Ltd’s performance of the contract it was very impressed by Cas’ professionalism. At the end of July 2018 Fitu presented Cas with two airline tickets and travel vouchers for a holiday in New York, valued at $8,000.
In addition, Fitu offered Cas a consultancy job for 3 years, with a salary of $100,000 per annum and a car. Cas was also offered an amount of $40,000, to be paid in two equal instalments, as an incentive to join Fitu and to compensate for the cost of moving to Japan permanently. The first instalment of the $40,000 would be paid when Cas joined Fitu and the second instalment after one year of service.
Cas accepted the offers by Fitu on 1st September 2018.
1. Advise Cas of her Australian tax residency status for the financial years 2017/2018 and 2018/2019.
2. Advise Cas of the tax treatment of the non-monetary benefits she received at the end of July 2018, and the car. (How would these be characterised according to Australian tax law and what implications does this have for Cas?)
3. Advise Cas about the accessibility in Australia of the amounts she received during the financial years 2017/2018 and 2018/2019.
4. Is Cas an Australian resident for the financial year 2019/20, and which, if any, of the amounts she received that year would be accessible in Australia?
Taxation Law Assignment- Part B
The final report of the Royal Commission into Aged Care Quality and Safety was recently released. One of many findings was to increase funding for aged care services. Both Commissioners supported consideration of introducing an aged care levy as a way of increasing funding, however, they had differing views on whether this should be hypothecated.
Required: Assume a decision is made that the Australian government will provide increased funding for aged care services; and answer the following:
- What is meant by ‘hypothecated’? Give Australian examples of both hypothecated and non-hypothecated taxes in your response.
- Do you think it would be a good idea for the government to increase aged care funding through hypothecating a part of its tax revenue to fund aged care services? Why or why not? Refer to and evaluate at least two characteristics of a good tax system in your response.
Taxation Law Assignment- Part A
1. It is required to Ascertainment of the tax residency status of Cas for the financial year 2017-18, and 2018-19.
For financial year 2017-18
Issues:It has been seen that, Cas was engaged in work with French company Puissance Ltd at Brisbane from January 2017. In the year 2018 April 1st, she travelled for Japan.
Relevant rules and regulations: As per Section 995-1 of ITAA 1997, resident is referred as a person who is resident of the Australia.
Australian Taxation Authority explains about following residency test for ascertainment of the residential status of the person, which is evaluated as follows –
Ordinary resident test: It is considered as primary test of residency. There is not any clear manner of working to ascertain whether a person is resident as per the ordinary test. In the legal case, FCT v Miller, it was held that, the place where an individual is resided is considered as question of fact and surrounding conditions. This test consider the following factors such as –
- Time period of physical presence of person in Australia.
- Duration and frequency of visit.
- Objective of visits.
- Family connection. In the legal case, Reid v IRC, the aspect that, there is family connection of appellant in England, was considered as legal factor for ascertainment of residential status (Tax residency, 2021).
- Maintenance of employment and business connection (Marcarian, 2020).
- Location of the assets of taxpayer
Domicile Test: This test would be applied for ascertainment of residency status of person, if they are not considered as resident by application of ordinary residency test. According to Section 6(1) of ITAA 1936, if a person whose domicile in Australia, he/she would be included in the term resident, except of the commissioner is satisfied that their permanentestablishment is exterior to Australia (Dirkis, 2020). In the legal case of Applegate v FCT, court held that, permanent does not assist towards forever.
183 days test: As per Section 6(1) of ITAA 1936, resident consists of an individuals who has been actually present in Australia in continuous manner or in breaks, for a period of more than 183 days, except if commissioner is satisfied that their normal place of abode is exterior to Australia and they have not any intention to return Australia (Blissenden, & Kenny, 2019).
Superannuation test: As per Section 6(1) (a), individuals who are members of particular commonwealth funds are considered as resident of Australia.
Application and conclusion: It has been seen that, financial year in Australia is started from 01st July and ends on 30June. It has been seen that, in the financial year 2017-18, Cas is considered as resident by application of ordinary resident test, as in that year, she usually resided in Australia only. Further, by application of 183 days, she is also considered as resident of Australia as being present in the court for more than half year as Cas leaves Australia on 01st April 2018. Therefore, it is concluded that, Cas was resident of Australia for the FY 2017-18.
For financial year 2018-19
Issues: Cas left Australia on 01st April 2018.
Relevant rules and regulations: Above explained rules for the residency purpose would be applied
Application and conclusion: It has been noted that, Cas left Australia on 01st April 2018, and therefore in the financial year, and therefore, she is not considered as resident of the Australia. She was settled in Japan during this year, and therefore she is non-resident for the financial year 2018-19.
2. Analysis of the non-monetary benefits received by Cas at the closing of July 2018, and the car.
Issues: It has been seen that, Cas has received
non-monetary benefit in the form of two airlines tickets as well as travel vouchers for holiday in the New York. The value of that benefit was $8000. Along with this, she also received car from the employer.
Rules and regulations: Fringe benefits are referred as additional benefits provided by the employer in the course of employment to the employees. In this case, benefit may be monetary and non-monetary form (Barkoczy, 2015). It should be noted that, tax on fringe benefit would be charged in the hands of employers, and therefore for the employees it is considered as exempted income under ITAA 1997. According to Section 6 of the ITAA 1997, assessable income consists of income from ordinary sources and statutory income, and it does not include exempt income and non-assessable income (Assessable income (2018). It should be noted that, ordinary income is generated through profit from ordinary activities.Along with this, if the person is resident of Australia, then in such case, income from all sources would be taxable in Australia, but in case of non-resident person, income from sources that is generated within Australia would be only taxable (Shin, Lee, & Lee, 2021).
Application and conclusion: By going through from prevailing case scenario, it has been seen that, Fitu Ltd provided Cas with airlines tickets for holiday and Cas. Such non-monetarybenefits are given by Fitu in relation to the employment. It can be said that, air ticket as well as car would not be included in the assessable income of Cas. The reason behind the same is that, on such type of benefit, tax would be charged on the provider of services such as employer. Moreover, in the assessable income, exempted income would not be included. In this aspect, it has been seen that, fringe benefit would be considered as exempted income in the hands of employee such as Cas, and therefore both non-monetary benefit would not form part of the assessable income of Cas.
3. Analysis of the accessibility of the amounts in Australia that is received in the course of financial year 2017-18, and 2018-19. For financial year 2017-18
Issues:In this case, it has been seen that, Cas has left Australia from 01st April 2018. Therefore, it is required to ascertainwhether or not salary would be taxable in Australia only.
Rules and Regulations: According to section 6-5(2) and 6-10(4) of the ITAA 1997, if the taxpayer is resident of the Australia, thenentire ordinary income and statutory income would be taxable in the Australia only, which is generated directly or indirectly from all sources whether within Australia or exterior to Australia (Amir, 2021). As per Section 6-5(3), assessable income for the non-resident of Australia would consists of all ordinary income and statutory income of the non-resident taxpayer generated from all sources of Australia in direct manner or indirect manner in the course of financial year and the any other amount particularly included in Section 6-5(3) and Section 6-10(5).
Application and conclusions: On the basis of above aspects, it can be said that, all income earned by Cas during financial year 2017-18 would be included in the assessable income. It is because, for FY 2017-18, she was resident of Australia, and therefore source of income was not considered as relevant for resident of the country. In other words, it can be said that, total assessable income of Cas would be consists of all ordinary income and statutory income that is generated in direct manner and indirect manner from all sources, whether within or exterior to Australia. Therefore, monthly salary of June would be included in the assessable income even if it is paid by Puissance Ltd into bank account of Japan.
For financial year 2018-19
Issues:In this case, it has been seen that, from 01st April 2018, Cas left Australia, and thereafter, salary of subsequent period has been deposited by French Company in Bank account of Japan. Further, she accepted the offer of Job from September 2018 from Fitu Ltd and left job at previous company.
Rules and Regulations: Above rules would be applied in this case.
Application and conclusions: It has been seen that, during the financial year 2018-19. Cas was non-resident of Australia. Therefore, assessableincome of Cas would comprised with income that is generated from Australian sources only. Since, during this financial year, only income of two months such as July and August would be generated from the sources of Australia. Due to this, income from salary of July and august would be included in assessableincome.Moreover, salary paid by Fitu would not include in assessable income of Cas. In addition to this, compensation for cost of moving permanently in Japan would also not form part of the assessable income
4. Whether Cas is the resident of Australia for the financial year 2019-20, and what would be amount accessible in the Australia. Facts of the Case: It has been seen that, Cas has joined employment in Japan from September 2018, and did not return to Australia in that financial year. Therefore, it is required to ascertain residential status and accessibility of income for FY 2019-20.
Rules and Regulations: In this case, residency tests such as ordinary test, domicile test. 183 days would be applied for ascertainment of residential status of Cas, which has been explained already above.
Application and conclusions: By application of the above rules of ITAA 1997, it can be said that, Cas was non-resident for the financial year 2019-2020. The reason behind the same is that, she shifted Japan for permanent intention. Moreover, during this year, she did not spent any single day in Australia. Therefore, she in not resident in Australia, and therefore salary paid by Fitu and second installment for compensation of cost of moving Japan in permanent manner would not be included in the assessable income while computing the income tax in Australia.
1.Analysis of hypothecated and examples of hypothecated and non-hypothecated tax Hypothecation of tax is referred as commitment of the revenue from a particular tax for a specific purpose of expenses (Sainsbury, &Breunig, 2020). According to Section 20.4.3 of Royal Commissioner Report, in Australia, charges may be hypothecated or non-hypothecated. It has been given that, finance generated through a hypothecated charge are paid into a committed account within the Consolidated Revenue Fund, set up for the particular objective for which charge is implemented, and could only be applied in that particular objective (Royal Commission into Aged Care Quality and Safety, 2021). In other words, it can be said that, revenue generated from the hypothecated tax could not be applied for any other purpose and any additional finance are rolled above from year to year. For example, in the year of 1926 to 1959, and again in 1982, revenue generated from the diesel and excise was hypothecated tax to finance expenses on roads. Further, Medicare levy by Australian government is considered as one of the best example for hypothecated charges (Bachus, Van Ootegem, &Verhofstadt, 2019). The amount of Medicare levy participates in the cost of public health system of Australia and it is collected in identical manner as the income tax is collected by government. Although, the finance generated through the Medicare levy are significantly less than the cost of medical and pharmaceuticaladvantages offered through Medicare system(Barkoczy, 2015). On the other side, it can be noted that, income tax levied by government, Goods and Service tax, and some others are example of the non-hypothecated taxes, in which finance raised in the form of taxes by government can be spend in any manner and it is not particularly dedicated towards financing a specific expenses (Powell, 2019).
2. Whether or not government should increase aged care finance by hypothecation
In this aspect, following are the arguments for and against hypothecation – Arguments for hypothecation
One of the best aspects of hypothecation is trust and accountability. Since, the revenue of taxes is guided in the direction of particular and identifiable trust; hypothecated charges offer taxpayers with some conformity with respect to the manner in whichtheir contribution would be applied. The requirement for probability and certainty is significant in the context of provision of subsequent advantages for older Australians (Royal Commission into Aged Care Quality and Safety, 2021). Along with this, further argument in favour of hypothecation is based on transparency. Hypothecated charges could educate individuals with respect to the cost of particular services. Taxpayer could obtain better information with respect to balance between the contribution burden and the extent of services offered. At last, hypothecating taxes assists towards public support. In this aspect, it can be said that, hypothecation could derived public support for enhanced contribution where the service set to advantages from the levy apparent to value it (Bailey, 2017).
On the other side, there are a number of arguments also against hypothecation. In this aspect, one of the primary aspects is that, it leads towards limiting the manner in which government could assign restricted resources between competing priorities, limiting the opportunities for government to handle with economic cycle (Gribnau, &Jallai, 2017). Apart from this, hypothecating taxes are also accused of connecting spending not to the need of the services but to unconnected macroeconomic situations. The Australian Treasury was not supportive of a charge as the primary concern is its flexibility. It has been argued that, there is lack of flexibility in aged care in the context of taxpayer base and the manner in which funds are directed.
It can be said that, hypothecation of tax revenue is not considered as inherently right or wrong. It is based on whether the people of country believe its government to spend revenue of taxes effectively or not (Gifford, Waa, Cvitanovic, Potaka-Osborne, &Kerehoma-Cook, 2021).
On the basis of above arguments in favour of and in against of hypothecation, it is suggested that, it would be better idea for government to enhance the aged care funding through hypothecation. The reason behind the same is that, it leads towards satisfying the good characteristics of taxation system. It has been seen that, good tax system should satisfy some of the conditions such as adequacy, simplicity, transparency, public support, and amongst others (Hopson, 2020). By the hypothecation of taxes of aged care fund, simplicity could be obtained.
It is because, such finance should be allocated towards particular expenses, and there is not any requirement of giving priorities to the elements in which such revenue can be spent. Along with this, it also assists towards increment in the transparency. The reason behind the same is that, through this, people can obtain knowledge about expenses of the particular services like aged care (Daunton, 2018). By this, assesse could take informed decision by which tax burden as well as range of services provided by the government could be balanced. Moreover, it would also leads towards building of trust as well as public support to the government, as individuals would get to know that, there taxes are spending towards in particular direction and they would try to provide support and help to the government (Gribnau, &Jallai, 2019). Overall, it can be said that, by enhancing of aged care funding by hypothecation, government can obtain advantage in terms of accountability, trust, transparency, and public support, which is considered as good elements of tax system. ?
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