Taxation Law and Practice: Stephanie, Roger and Rogan Advertising - Case Study Example

Taxation Law and Practice--- Stephanie, Roger and Rogan Advertising Case Stephanie, Roger and Rogan Advertising assessable income for the 2015/16 and 2016/17 tax years should be ascertained from different perspectives. These include corporate residence as far as their company is concerned, their residence, source of income and income from the business. To begin with, the definition of corporate resident as enshrined under s 6 ITAA 1936 shows that Rogan Advertising is a company since it is incorporated in Australia and continues to carry on business in Australia with central control and management in Australia in as much as Stephanie and Roger are currently in Brazil. The second test is the criteria for liability to Australian tax. Stephanie and Roger are Australian residents in accordance with s 6(1) as they satisfy common test law by virtue of residing in Australia. ‘Reside’ according to s 6(1) has been interpreted in different jurisdictions in Australia to mean a person(s) residing in Australia and such definitions have been applied in cases involving IRC v Lysaght; Levene v IRC. In particular, in Levene v IRC the court observed that tax payer can reside in another country for other reasons including business or holidays without contravening s 6(1). Having revised case laws and provisions of ITAA 1936 to ascertain that the Company, Stephanie and Roger satisfy ‘reside’ clauses, the principle of ‘income from business’ is essential in the assessment of Stephanie, Roger and Rogan Advertising of assessable income for the 2015/16 and 2016/17 tax years. In accordance with s 6-5 Stephanie, Roger and Rogan Advertising should be advised that income from carrying on their business in Australia through the company is ordinary income. It has to be added that the law is clear on the scope of business as not all receipts from their business will constitute income. The principle in this case is that the profits from this business are clearly within ordinary course of their business in accordance with s 6-5. A clear Court argument on this matter involved Californian Copper Syndicate v Harris where the Court argued that the income was from ordinary course since the company engaged in the acquisition of mines and later selling them for a profit ---an essential feature of tax payer’s business as it is the case with Stephanie and Roger operation of Rogan Advertising either from Brazil or while they were still residing in Australia. Generally, all the amounts received by the three parties must be characterized as ordinary income in the hands of the recipients. Accordingly, Courts have held that whether or not these monies are ordinary income to Stephanie and Roger, a determination will be made by assessing the amount from the perspective of the recipient (Stephanie and Roger) as it must be income to the two persons receiving the amount. As such, a salary of $80,000 paid to Stephanie and Roger is income to the two tax payers. This position was interpreted in the case involving the Federal Coke Company Pty. Ltd. v. Federal Commissioner of Taxation where the Court judged that the amount earned by Federal Coke was assessable income since price of coal was paid to its subsidiary (Federal Coke). The case notes that any income of Rogan Advertising not distributed as salary for Stephanie and Roger, and after payment of all other expenses, is distributed in terms of un-franked dividends to Stephanie and Ronald. Based on this information, s 6-5 holds that ‘how receipt is used is irrelevant.’ In the process of determination of whether an amount was received by the two tax payers, the approach the two used the money becomes irrelevant because s 6-5 still holds that such amounts remain assessable income. This position was used when Courts adjudicated over the matter involving GP International Pipecoaters v FCT. The Courts made a consideration on the issue of taxation of income from business and whether payment obtained from the construction of a project were to be assessable in terms of capital in nature or ordinary income. While s 6-5 has provided framework for Stephanie, Roger and Rogan Advertising of assessable income for the 2015/16 and 2016/17 tax years, s 6-10 provides that their assessable income for the same period include the amount falling outside the bracket of their ordinary income. Based on their case provided, Stephanie, Roger and Rogan Advertising incurred amounts that are regarded as ordinary income but can be included as their assessable income basing on the provisions regarding income termed as statutory income. Breaking this point within the context of the case, Stephanie, Roger and Rogan Advertising have accumulated different incomes as follows: Income from the business (Rogan Advertising Company) Income from the provision of services (while working with Greater Union Advertisers Pty Ltd and deliver a series of lectures over two 6 week periods at the Federal University Rio) Income from their property (leasing out their house for $450 a week) and Periodic receipts Beginning with services rendered, total amount of money Stephanie and Roger obtained from providing their services, including their stay in Brazil where Stephanie engaged in a series of lectures at the Federal University Rio is ordinary income. In as much the services rendered at the university may not be considered ordinary income as per s 6-5, provisions of s 15-2 (previously reflected under s 26(e) deem the earnings from this service ordinary income. This matter was interpreted in the case involving First Provincial Building Society v FCT. Specifically, subsections 15-2 provides an explanation on the categorizing of services offered by Stephanie as assessable income on the premise that; Your assessable income entail the amount to you of all gratuities, allowances, benefits, compensations, premiums and allowances given to you with regard to, or for in respect to directly, indirectly to services, or employment rendered by you. According to capital gains tax law (CGT) subsection 108-5(1), A CGT asset is any kind of property including the house Stephanie and Ronald stay in, which has been leased. In accordance with this common law doctrine, the house shall maintain exception status in case a resident is temporarily from the residence for a period of up to six years if the same property has been rented or leased and indefinite if owners have not leased the property. The case provides that Stephanie and Ronald moved to Brazil on 26 June 2015 for 2016 Olympic Games. From the one hand, the two intended to stay in Brazil for “unknown period, and at least until the end of the Olympic Games.” On the other hand, the case notes that they hoped they would be able to return to Australia around October – November 2016. Based on tax law (CGT) subsection 108-5(1) the two did not stay in Brazil for over years therefore the $450 a week from the leased house should be exempted. In most cases, and as it was with the case involving Lomax v Peter Dixon, CGT categorises income Stephanie and Ronald obtained from the lease to be exempted income based on the period they stayed outside the country. Section 6-5 provides that Stephanie, Roger and Rogan Advertising of assessable income for the 2015/16 and 2016/17 tax years will include ordinary income as already elaborated based on different activities Stephanie, Roger and Rogan Advertising engaged in for the period specified. Additionally, the study has noted, based on s 6-1- that Stephanie, Roger and Rogan Advertising assessable income will also entail their statutory income and for this case, this involve all amounts Stephanie and Roger received but were not ordinary income as s 6-5 provided. This paper has also applied the aspect of constructive receipt rule where (s 6-5(4) & s 6-10(3)) have been applied to the case provided to help in understanding that income will be derived when the two tax payers receive it. For instance, the two tax payers ordered some income to their bank account and as much as the amount was not received it was dealt on behalf of the two tax payers as they instructed the transaction thus the law deems it received and as assessable income. In accordance with the law of propositions in the identification of ordinary income, features of earnings, salaries and savings from lease are considered assessable income. This position has been supported by ordinary income which came home to the two recipients and when it did so, it was derived from external activities (which were salaries from the business, salaries from previous employment, leasing and offering lectures). There is sufficient connection between income producing activity and converted into cash. In this case, there is one share for partner which can be converted into cash. Elaborating on the facts presented, the law has provisions that income from Stephanie and Ronald, including the personal exertion as those which consisted of their salaries of $80,000, commissions, earnings, wages, fees, bonuses, gratuities, superannuation allowances, pensions and allowances should be considered as assessable income. Such assessable income further includes the assessable income of Stephanie and Ronald in accordance with 393-10 of the Income Tax Assessment Act 1997. Read More