Taxation cases Essay Example

10 September 2011

Taxation Cases

  1. According to the definition in ITAA36 s6 (1), for purposes of tax, a person is considered a resident of Australia if he or she has in effect been in Australia either intermittently or continuously for over one half of the income year. However, a person will not be consider an Australian resident for purposes of tax under this definition if there is satisfaction from the Commissioner that the individual’s usual place of residence is not within Australia and if he or she does not have intention to reside in Australia.

The residency of individuals coming to Australia is first determined to show whether the individual is an Australian resident for tax purposes. The test of residency of the 183 days confirms Basil to be a resident of Australia for tax purposes. Having considered the terms of BSC and the BMP, a migrant who has been in Australia for over 183 days is regarded as an Australian resident under the 183 days test. Basil has been in Australia since 28 August 2009 and therefore by virtue of his long stay in Australia he is considered a resident in Australia for tax purposes. Furthermore, he has obtained a work permit visa that permits him to work in Australia for three years which is far much beyond the 183 days required for a person to be considered an Australian resident for tax purposes.

In a case “FCT V Jenkins (1982)”, the three years that the taxpayer had spent outside Australia was considered significant and the court held that the taxpayer resided permanently outside Australia. Basil had been present (physically) in Australia for a period beyond one half of an income year and therefore he is a resident in Australia for purposes of tax.

It should be noted that even if Basil has moved to Australia as a result of a resident UK company of which he is an employee securing a contract in Australia, he is accompanied by his close family (his wife Sybil and two school aged children). Therefore, the regularity of Basil going to his usual domicile in England has no much importance in determining whether he is an Australian resident for tax purposes.

Furthermore, Basil shows strong intention to reside in Australia for he proposes to rent accommodation in Adelaide and he is given an option to buy a property if he likes the country and spots a real estate bargain. In this case, Basil will effectively be regarded as a resident in Australia for the purposes of tax (Picker 97).

In a case “FCT V Applegate (1979)”, it was observed that since imposition of tax was on annual basis, the residency was determined on annual basis. The court held that “permanently” means “less than everlasting” and therefore he had established a permanent home outside Australia since he had an intention of going there for a significant time period.

  1. The block of four flats that Kumar purchases, intends to let it. Therefore, it is an income producing property and would be regarded as such for tax purposes (Greite 26). All expenses incurred in the course of carrying on of a business of kind conducted by the business are allowable deductions for tax purposes. Expenses are cash outflows or others that are brought up as a result of using an asset within the course of the business. The cost of the four flats does not form part of expenses and therefore not allowable deductions for tax purposes. The total cost of the block of four flats will include all the other expenditure necessary to put the block into use. Hence, the $10,000 incurred for plumbing, roofing and painting form part of the cost of the block and not expenses and therefore, Kumar will not be entitled to their deductions.

Any subsequent development of the block adds to the value of the block. The $30,000 incurred in replacing the ceiling with steel and specially treated timber material to ensure there were no further problems adjusts the value of the block upwards hence not an expense and therefore not allowable deductions.

In a case Revenue Commission Vs B, B included $10,000 brokerage commission with respect to purchases of bonds as expenses to his business. It was held that the brokerage commission formed part of the purchase price of the bond and therefore it was not an allowable deduction for tax purposes.

  1. If Kumar paid $1,500 to a pest control company to treat the remaining parts of the building, this would be allowed for deduction. This is because it is a cash outflow that is brought up during the use of an asset within the course of the business. That is, it is an expense incurred in the ordinary course of the business. Note that this treatment is not intended to increase the value of the building, but is rather an ordinary maintenance of the building (Greuning 105).

Works cited

Greite, Stoutle. The Development of the Australian Accounting Standards after the End of the G4+1. Sydney: GRIN Verlag, 2007. Print.

Greuning, Herald. International financial reporting standards: a practical guide. New York: Routledge, 2005. Print.

Picker, Richard. Australian accounting standards. Australia: John Wiley & Sons Australia, 2009. Print.