This is a solution of Taxation Assignment Help Sydney which discuss citizenship of an individual and how his income will be taxed in Australia.
The income tax in the country of Australia is one of the most crucial ways of earning revenues for the government. The government charges tax on three types of income, which include the salaries and wages of the individuals, income from business finance and capital gains. These three types of income tax contribute effectively to the federal government of the country in earning and generating revenues. This study deals with two different case studies, in which the first one is to determine the residential status of a person and the second one focuses on giving advice to a doctor about including any amount in his assessable income.
Case Study 1: Residence and Source
1.1 Discussing whether Kit is a resident of Australia and how his salary and investment income would be taxed:
The criteria of the Australian government to be the resident of the country include the following:
The Australian citizenship test has been developed to help those people willing to become the citizens of the country. Biber (2010) stated that this test would help the applicants develop an insight about the laws, finance program, values, history and traditions of the country. The test is taken to ensure that the applicants are capable of becoming the citizens of the country and contribute effectively towards its development.
For participating in the test, the applicant needs to be a permanent resident of Australia, showing the identity proof at time of enrolling the name and allowing the department to take photo or giving a photo.
In this case, study, Kit is a permanent resident of Australia. Since Kit has a permanent residential status in the country, it is quite obvious that he has sufficient identity proof in his favour and can provide a photo required. Therefore, it can be stated that he is eligible to sit for the citizenship test.
Requirements of Australian Citizenship:
General Eligibility Criteria:
The eligibility criteria for becoming the citizen of Australia include passing the citizenship test and aging over 18 years at the time of the application. Braithwaite (2009) stated that the applicant needs to be a permanent resident at the time of the application and at the time to decide. The applicant needs to satisfy the government about his residence requirements.
The government would only grant the citizenship if the applicant has been likely to stay in the country. In addition, Oats (2012) stated that the citizenship would be granted if the applicant is planning to reside in Australia or visiting the country frequently by maintaining a close relationship with it. The applicant applied for the citizenship needs to have a good and strong moral character.
In the given case, Kit has been a permanent resident of Australia, although he lives in Chile and possesses a Chilean citizenship. The person has wife and two children, who live in Australia for the past four years. From the statement, it has been clear that Kit is well above the age of 18 and satisfies the criteria of residence. The person intends to visit the country frequently, since he is employed in an Australian company and has half of his family living in the country. From the above statements, it can be inferred that Kit satisfies all the criteria for becoming a resident or citizen of Australia.
The government of Australia sets a standard that the applicant applying for the residential status of the country has been residing in Australia for the past four years before the application. Alm et al. (2010, pp. 579) stated that the minimum criteria for an applicant is that the applicant has stayed for 12 months as a permanent resident and not remained absent for a period of one year from the country.
In the provided case, it can be seen that Kit used to work in Indonesia for a US company and later hired by an Australian company. Since his wife and children have lived in the country for the last four years, it implies that Kit has been residing or visiting Australia for more than four years. Therefore, from the above statements, it can be remarked that Kit possesses all the requirements to become an Australian resident, since he has reside in the country for more than a year with his wife and children.
In this context, Woellner et al. (2012) observed that the applicants need to match the above-mentioned requirements or criteria for achieving the residential status of the country. In this study, it has been assessed that Kit satisfies all the essential requirements and therefore, is a resident of Australia.
Since Kit is a resident of Australia, therefore, his income is subject to tax. The various tax charges imposed by the Australian government on its residents are depicted below in the form of a table.
|Taxable Income (in AUD)||Tax on this Income (in each AUD)||Effective Tax Rate (in %)|
|180001 and more||54547.45||30.3-44.9|
Table 1: Table showing the individual tax rates of the residents of Australia
(Source: Ato.gov.au, (2015)
In this case, the income earned by Kit has not been mentioned in exact amount or figures. Therefore, it is not possible to compute the amount in numeric terms. Since it is mentioned in the study that Kit has been working in an Australian company, therefore, his taxable income will fall under any one of the categories mentioned in the above table. Woellner et al. (2011) stated that the federal government decides the taxes imposed on the personal incomes of the individuals.
Since, Kit has purchased a property in Australia and store savings in his Australian bank account, the government charges levy tax on the land value along with the stamp duties from the buyer. Fisher (2012) stated that the government also charges fire service levy from the house owner for house insurance and therefore, Kit has to pay certain amount of tax on this property. The government, however, does not charge any tax for the income received in dividends from other countries to a dual citizenship holder (Ashby et al. 2009). Therefore, Kit need not have to pay any tax on his dividend income from Chile.
Case Study 2: Ordinary Income
2.1 Advising the doctor as to whether he would be required to include any amount in his assessable income because of the sale:
This study deals with the ordinary income of the doctor and advising him to incorporate any amount in his assessable income arising out of selling property. Bird (2011, pp. 140) stated that ordinary income is the amount of income earned by an individual and the government charges tax on this type of income at as higher rate. It mainly consists of the wages, salaries, commissions and income from the bonds and dividends (Dell’Anno, 2009, pp. 990).
The government of Australia charges ordinary income taxes on any gain arising out from the sale of an asset that has been held by the owner for less than a period one year. Genschel and Schwarz (2011, pp. 441) stated that it contradicts the concept of capital gain, which is the amount received from the sale or exchange of a property or an asset. [Learn about UK Personal Taxation]
In respect to the income from property, there are certain specific rules set by the government of Australia and applied from time to time in finding the ordinary income of the individuals. The government also uses it to determine about the profit received by the individuals from the utilisation or exploitation of properties. There are certain principles of ordinary income, which are briefly summarised below:
- The nature of the amount is income or not is determined by the feature of the amount in the hands of the individual (Miller and Oats, 2012).
- This feature is assessed by taking into account the various considerations of the facts. It depends on the way of thinking of the individual about the amount received and accordingly decides whether it is an income or not (Görg et al. 2009).
- There is no specific relation between the income or the feature of the capital amount and the features of expenditure.
In this study, it has been stated that the doctor purchased a rural land in the town of Sydney. The doctor used the land or property for growing fruit trees and a place to spend quality time for relaxation during the weekends. He has decided to sell his property due to some financial constraints and therefore, this amount would be included in his capital gains and not ordinary income.
Since, the value of the land has increased in Sydney; therefore, the doctor would earn more than the amount he spent on purchasing the property. Lanis and Richardson (2011, pp. 54) cited that the capital gain is the amount or value obtained from an asset that has a higher value than the original purchase price. However, the gain would not be recognised until the sale of the asset. The long-term capital gain is taxed at a lower rate by the Australian government than the ordinary income. The government adopts this policy to promote entrepreneurship and drawing investment for the country (Eichfelder and Schorn, 2012, pp. 192).
In this study, the doctor has been facing financial problems due to the malpractices adopted by him. Lanis and Richardson (2012, pp. 87) stated that the amount needs to show this income as a part of the capital gain, so that the government of Australia can charge appropriate tax on the property to be sold by the doctor. Therefore, the tax imposed on the doctor by the government would be less than the ordinary income tax.
In Australia, the ordinary income is not realised on the sale of an asset or property. Rather, it is considered as a capital gain. The government charges capital gains on the cost of acquisition of the property, expenses incurred for buying and selling the property and cost of improvement (Leigh, 2009, pp. 36). However, the property sold within a period of one year would not fall under the category of income tax.
The items that need to be included in the ordinary income of an individual includes the income from the salaries and wages, income from the property in the form of rent, dividends and interest and income for running a business (Mankiw et al. 2009, pp. 243). Therefore, in this study, the doctor has been planning to sell his property, which would not be included in the ordinary income assessment of the doctor.
Due to the financial constraints, the doctor has decided to sell its property at the time, when the surrounding area of the property has been developed and increased the value of the asset or property. The malpractice adopted by the doctor has also resulted for the doctor in paying a high amount of tax and thus, selling this property would be taxed under the section of capital gains tax (Whiteford, 2010, pp. 529).
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In the current case, it can be seen that the doctor purchased the property at a much low price for satisfying his personal needs for gardening and a place to relax in the weekends. However, he decided to sell his property after few years to overcome his financial difficulties. Therefore, it is advisable to the doctor that he need not have to include any amount in the assessable income, which would be generated out of the sale of his property, since it falls under the category of capital gains and would be taxed at a much lower rate by the government of the country.
This study describes the several aspects of the Australian tax structure. It deals with two different case studies; one is to determine the residential status of a dual citizenship holder Kit and the other is to advise a doctor in including any amount in his assessable ordinary income. The residential requirements of Australia have been briefly described in the study along with relation to determine the residential status of Kit. In addition, this assignment also focuses on the second case to identify whether it is a situation of ordinary income or capital gain. In short, this study deals with the various aspects of the Australian taxation law structure.
- Biber, E. (2010). “Revenue Administration: Taxpayer Audit: Development of Effective Plans”. International Monetary Fund, Fiscal Affairs Department.
- Braithwaite, V.A. (2009). “Defiance in taxation and governance: Resisting and dismissing authority in a democracy”. Edward Elgar Publishing.
- Fisher, R.C. ed. (2012). “Intergovernmental fiscal relations (Vol. 56)”. Springer Science & Business Media.
- Alm, J., Cherry, T., Jones, M. and McKee, M. (2010). “Taxpayer information assistance services and tax compliance behaviour”. Journal of Economic Psychology, 31(4), pp.577-586.
- Ashby, J.S., Webley, P. and Haslam, A.S. (2009). “The role of occupational taxpaying cultures in taxpaying behaviour and attitudes”. Journal of Economic Psychology, 30(2), pp.216-227.
- Bird, R.M. (2011). “Subnational taxation in developing countries: a review of the literature”. Journal of International Commerce, Economics and Policy,2(01), pp.139-161.
- Ato.gov.au, (2015). Individual income tax rates | Australian Taxation Office. [online] Available at: https://www.ato.gov.au/rates/individual-income-tax-rates/ [Accessed 11 Dec. 2015].
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