Foundations of Tax Law - Assignment Example

TAXATION LAW STUDENT NAME PROFESSOR’S NAME COURSE TITLE DATE Question 1 a) Rights Amongst the most inherent right of a taxpayer in Australia just like John is the right to lodge and objection in order to seek a review of the decision taken by the ATO. A taxpayer has the right to seek and inquire for information from the ATO as part of a post ATO audit review, when one needs to prepare an objection to an assessment issued by the ATO office or requesting a private ruling. The rights to information are both given under common law principles and through statutory provisions under the Freedom of Information Act 1982 or under the Ombudsman Act 1976 It is a long-standing precedent set on the case of DFCT v Brown (1958) 100 CLR 32, that the Constitution allows citizens to file a complaint through a judicial process to prove that they are liable or not liable to pay tax in relation to the amounts assessed by the ATO as a right. The Judicial process in this case implies seeking a formal review of the action or decision taken by the ATO. b) options The options available to John are asking for a formal review of a decision of action of the ATO. However, a taxpayer must know that the taxpayer disputing an ATO assessment bears the ultimate onus of proving to a Tribunal the unfairness of the Tribunal or Court (Tax Administration Act 1953 sections 14ZZK (b) (i)). An objection is a procedure provided for under section 175 of ITAA36 at section 175 that a taxpayer dissatisfied with the assessment given by the ATO to initiate the review process through an objection. Ideally, one can seek a formal review of the decision taken by the ATO through the Small Taxation claims tribunal, the Federal Court of Australia or the Administrative Appeals tribunal (AAT). Lastly, one has the right to file a complaint with the Privacy Commissioner or the Commonwealth Ombudsman. The administrative appeals are governed by the Ombudsman Act 1976, which can grant compensation or maladministration through the ATO. Question 2 a)Net tax payable for year ended 30th June 2013 Assessable income= $158,000 Allowable Deductions= $25,000 Taxable Income = Assessable Income – Deductions = $158,000-$25,000 Taxable Income=$133,000 Medicare levy= 1.5%/100 x $133,000 =$1,995 Income tax payable=Taxable Income x Tax rate- (Tax Offsets) $133,000- $18,2000(tax free threshold)= 133000-18200 =$114,800 = ($114,800 x 37/100) Net tax payable= $42,476+ $1995 =$44,471 b) Net Tax payable Income offset of $650 No private Health Insurance, PAYG installments $23,000 Sections 25- 25(2) of ITAA97 states that one can be denied a deduction for expenditure for income tax or amounts that are withheld under the Pay as You Go (PAYG) regime if it is private in nature. Assessable Income = (Ordinary Income + Statutory Income) – exempt income Taxable Income = Assessable Income – Deductions Taxable income= $133,000 Income tax payable=Taxable Income x Tax rate- (Tax Offsets) = $133,000- $18,200(tax free threshold)= $114,800 =($114,800 x 37/100)- ($650) = $41,826- ($23,000) Net Income Tax Payable=$18,826 c)Net Tax Payable if not a resident for 6months in the year ended 30th June 2013 The precondition for the 183 day test rule is satisfied that is a person must be a resident of Australia for more than half the year. Net tax Payable = Taxable Income x Tax Rate x Year = $114,800 x 37/100 x ½ =$21,238 Question 3 Pauline worked at the Indonesian Office on 1 March 2013 heading it for 2 years. The first issue is to explain the tax implications for the transfer to work for Paper Products in Indonesia. According to ITAA97 sections 8-1 it states that if “a person is an Australian resident then one’s assessable income includes their ordinary income derived either directly or indirectly from all sources whether in or out of Australia during the income year” (Barkoczy, 2013). In the Taxation Ruling No.IT 2650 the factors that need to be taken into account are the intended and actual length of the stay of the individual in a foreign country, the intention of a person to return at a definite point, establishment of a home outside Australia. Further, one needs To take into consideration the duration and continuity of the presence in the overseas country and the association of the individual with Australia. In the case of I.R.C v. Lysaght (1928) A.C. 234 a UK taxpayer had spent some considerable time abroad and had inherited an estate in Ireland. He sold the home in England while remaining a non-executive director of the family business and went back to England for a week in each month to attend the board meetings. The court held that he was a resident under the ordinary concepts. In this case, it was held that one can be an ordinary resident if they are residents for a considerable part of the year while being a foreign resident for the rest of the year. The law places a greater weight in determining whether a person is a resident depending on the family and business ties that exists. The other issue for determination is whether Pauline has severed her ties to ever returning to Australia. In the case of Commr of Taxation v Jenkins (1982) 12 ATR 745, the plaintiff was an Australian taxpayer transferred to Vila for a period of three years. He was unsuccessful in selling his house ad leased it to his employer, maintained a bank account in Australia, cancelled his health insurance, and was repatriated after 18 months because of his inability to perform (Barkoczy, 2013). The court held that the mere fact that he had not formed a definite intention to return to Australia negated his residence status and that he had no permanent place of abode in Australia. In this case, Pauline is anxious about the move though she is motivated by the financial benefits it has. Pauline has not severed her ties with Australia completely since her remuneration will be sent to her Australian bank; she will rent her home with her interests in her savings being debited in her account. Therefore, though Pauline is an Australian citizen, she derives her income from Indonesia and therefore for purposes of taxing her remuneration, Indonesia has the right to tax her due to her “source”. It therefore means that since she derives it from a foreign source and the income is taxed from that country, then the income will be exempt under section 23AG of ITAA36 or a tax credit will be given for the foreign tax that is paid. The other issue is the taxation treatment of Pauline’s remuneration package. Rental and Interest derived from Australia while living in Indonesia. In the case of Thorpe Pty Ltd v FCT 88 ATC 4886, the Federal Court held that in relation to the question of source of income, it must be assessed depending on the realities of the situation. As a rule, an Australian resident is to be taxed on all sources of income and that they should not be taxed on foreign sources elsewhere. In the case of Commr of Taxation v United Aircraft Corp (1943) 68 CLR 525 the court held that property income such as rent is probably sourced where the relevant property is situated. According to sections 6-5 (1), (2), (3) generally states that an Australian resident is subject to assessment on all ordinary income irrespective of source directly or indirectly during the income year. In conclusion, therefore, the property deriving their rental income is situated in Australia as well as the interests therefore in imposing tax, it will be based on the source of income. In relation to interest, the ATO will impose based on the place where the contract was made withholding 10% of the tax. Question 4 ITAA36 at section 263 empowers the Tax Commissioner or his officers to at all times have full and free access to all buildings, places, books, documents and other papers for any of the purposes of the Act. Further, the Act allows the officers to make extracts from or copies of the said documents or papers. Therefore as a tax agent, one has the duty to give the files to the tax office auditor in relation to the files relating to a client. The obligations imposed under section 264 of ITAA36 is that any person whether a taxpayer or not may be required to furnish an authorized ATO officer with information, attend and give evidence, produce documents relating to taxpayers issues. In the case of FCT v Citibank Ltd (1989) 20 FCR 403 the Tax Commissioners under sections 263 and 267 of ITAA 36 has wide powers to have full and free access exercised in good faith for the purposes of the Act. According to decision in the case of O’Reilly v Commrs of the State Bank of Victoria [Lawson (no.2)] (1983) 153 CLR 1, the concept of full and free access means “entry of an officer to any part of a place or building to access documents and papers, without any physical obstruction. This is not limited to fishing expeditions and overrides the contractual duties of kinds that arise between a solicitor and a client”. However, one of the ways in which one can desist from giving the information and documents to the officer is through invoking the rights to privacy, confidentiality. The taxpayers are protected by the statutory duty that of confidentiality on the people who hold information about their financial affairs and standing. REFERENCES Barkoczy, S. 2013. Foundations of Tax Law.5th ed. Lexis Nexis: Sydney. Income Tax Asssessment Act 1936 (Cth) Income Tax Assessment Act 1997 (Cth) Read More