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JURISDICTION TO TAXCHAPTERS 3, 4, 22Right to TaxBASICS Income tax payable each year: s 3-5 ITAA - Financial (tax) year = 1 July to 30 June: ss 4-10(1) & 995-1 ITAA 97  Tax payable = (Taxable Income x Tax Rate) – Tax Offsets: s 4-10 ITAA 97TAXABLE INCOME Taxable income: - Assessable in...

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JURISDICTION TO TAX CHAPTERS 3, 4, 22

Right to Tax BASICS  

Income tax payable each year: s 3-5 ITAA97 - Financial (tax) year = 1 July to 30 June: ss 4-10(1) & 995-1 ITAA97 Tax payable = (Taxable Income x Tax Rate) – Tax Offsets: s 4-10 ITAA97

TAXABLE INCOME  

Taxable income: - Assessable income less Deductions: s 4-15 ITAA97 Assessable income (money coming in): - Ordinary income: s 6-5; AND - Statutory income: s 6-10; BUT NOT - Non-assessable income: s 6-15 -

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Residents: o Ordinary and statutory income of “Australian resident” derived directly/indirectly from ALL SOURCES during income year: s 6-5(2) & s 6-10(4) Foreign residents: o Ordinary and statutory income of “foreign resident” derived directly/indirectly from ALL AUS sources during income year and ANY OTHER AMOUNTS specifically included: s 6-5(3) & s 6-10(5)

Deductions (money going out): - General deductions: s 8-1; AND - Specific deductions: s 8-5

Australia’s Tax Jurisdiction AUS RESIDENT FOREIGN RESIDENT

AUS INCOME Yes Yes

FOREIGN INCOME Yes No

Residence INDIVIDUALS  



“Australian resident” resident of Australia for purposes of ITAA36: s 995-1 4 residency tests in s 6(1) ITAA36: 1. Ordinary resident test; OR 2. Domicile test; OR 3. 183 day test; OR 4. Superannuation test ALTERNATIVE TESTS – ONLY NEED TO SATISFY ONE TO TREAT AS RESIDENT - If don’t satisfy any tests, TP is ‘foreign resident’

1. ORDINARY RESIDENT TEST (PRIMARY TEST) ELEMENT Dwells permanently, or For considerable time in A particular place

FACTORS (ATO TR 98/17) Physical presence in Aus

CASES Levene (CS 4.1)

Frequency, regularity and duration of visits Purpose of visits (Aus & abroad)

Lysaght (CS 4.2) Frequency of visits

Maintenance of place of abode in Aus during absences

Joachim (CS 4.3) – Home in Aus Family ties in Aus

Family, business and social ties Nationality Factors not determinative Argue both sides, then support conclusion

2. DOMICILE TEST: s 6(1)(a)(i) ELEMENT Relevant for those who have left Australia

CATEGORIES Domicile of origin – Born here, parents are Australian

Aus resident if domicile is in Aus unless Commissioner satisfied that TP has ‘permanent place of abode o/s’ PERMANENT PLACE OF ABODE ELEMENT Place of abode – Home or presence outside Aus: Applegate (1979)

Domicile of choice – Migrated (PR & citizen) Intention to stay indefinitely (IT 2650) O/S FACTORS (IT 2650) Intended and actual stay in foreign country

Permanent – Not forever. Takes meaning from context: Applegate (1979)

Duration & continuity of TP’s presence in o/s Rule of thumb – 2 years Establishment of home outside Aus (more than temporary accommodation) Residence/place of abode in Aus Durability of association with Aus

STEPS Is TP domicile Australia? If so, automatically resident unless fall out: e.g. have permanent abode o/s

CASES Applegate (1979) CS 4.4 Stayed in Vanuatu less than 2 years, was home in Vanuatu perm abode? Intention was to be there for long time, perm abode o/s Jenkins (1982) CS 4.5 Transferred for fixed 3 years, transferred back for 18 months, was Vanuatu home perm? Court ruled 3 years enough to be perm

3. 183 DAY TEST: s 6(1)(a)(ii) ELEMENT Relevant for those coming into Australia

FACTORS Treated as resident if been here for 183 days or more unless commissioner satisfied that:

CASE Executors of the Estate of Subrahmanyam (2002)

Person’s usual abode outside of Aus; AND Doesn’t intend to take up residence in Australia If test satisfied, treat as Aus tax resident for whole income year: Executors of the Estate of Subrahmanyam (2002)

4. SUPERANNUATION TEST: s 6(1)(a)(iii) 

Members of certain Commonwealth funds are deemed to be Australian residents

NOTES  Go through all tests even if not relevant  If not relevant, explain why not relevant

Special Rules TEMPORARY RESIDENT (subdivision 768-R)   

Holds temporary visa under Migration Act 1958; and They and spouse not Australian residents Treated as foreign resident for tax purposes even though satisfy residency tests – only taxed in Australia on Australian sourced income at resident’s rates

WORKING HOLIDAY VISA-HOLDERS (‘BACKPACKERS’)  

Special tax rate of 15% on Australian-sourced income up to $37,000; normal rates above that amount Residency not an issue

COMPANIES: s 6(1) ITAA36 ISSUE Is co incorporated in Australia?

If not incorporated in Aus, carrying on business and central mgmt in Aus?

Carrying on business in Aus and voting power controlled by Aus SH

TEST Place of incorporation test

Place of central management & control test

FACTORS If incorporated in Aus, will be resident of Aus for tax purposes All other factors irrelevant Must be: Carrying on business in Aus; AND Have its central management and control in Aus to be Aus resident for tax purposes

Voting control test

Question of fact – TR 2017/D2 (TR 2004/15 withdrawn) Carrying on business Voting power controlled by Aus SH - Majority of votes in GM: Kolotex (1975) - Limited to registered SH: Patcorp (1976)

Source of Income DEFINITION What ‘a practical man would regard as a real source of income’ and the ascertainment of the real source of income is a ‘practical, hard matter of fact’: Nathan (1918)

FACTORS Location of property used in generating income Place of performance of any work/services Place of negotiation, execution and performance of contracts Place of making/receipts of payment

GENERAL SOURCE RULES INCOME

FACTORS

CASES/SECTION

Income from business

Income from personal services

Income from property

Sale of trading stock – where business activities are carried out

Kirk (1900); Murray (1929)

Income from services (i.e. contract) – place where contract is made

Cliffs International (1985)

Income from sale of land – source where land is located

Rhodesia Metals (CS 4.7); Thorpe Nominees (CS 4.8)

Source is where services are performed

French (CS 4.9); Efstathakis (CS 4.10)

Exception: if services can be performed anywhere, rely on other factors to determine income source Interest income – where loan contract made & where funds advanced

Mitchum (CS 4.11)

Dividends – source of profits from which dividend is paid If flows through chain of cos, source is previous co in chain

Sale of property

Royalties – location of property BUT note s 6C ITAA36 Capital gains – Aus sourced if ‘Taxable Australian Property’ - Sale of shares/property - Taxable Australian property

Spotless Services (1993); Philips’ Gloeilampenfabrieken (1955)

s 44 ITAA1936 Esquire Nominees (CS 4.12)

s 855-15

Double Taxation ISSUE Concurrent exercise of taxing rights

Dual residents

Income sourced in > 1 country

MEANING Aus resident taxed on worldwide income but foreign source likely to also be taxed in o/s jurisdiction Foreign residents taxed in Aus on Aus sourced income but jurisdiction where they’re resident may tax worldwide income e.g. ordinary resident of other country but in Aus for > 183 days

e.g. contract made in one country but activities carried out in another

RELIEF FROM DOUBLE TAXATION Tax treaties (i.e. double tax agreements) – - Bilateral - Allocate taxing rights - Includes tiebreaker provisions for residence & source Australian tax law – - Exemption - Foreign income tax offsets (FITO) Exemption relief – Foreign source employment income Foreign branch income and capital gains: s 23AH Non-portfolio ‘participation interests’: s 768-5 FITO – Provides ‘tax offset’ for any foreign income tax paid on amounts also assessable in Aus

Max offset = $1,000

Taxation of Foreign Residents Rate of tax Collection of tax

Generally subject to progressive rate structure, but denied tax-free threshold No obligation on country to collect tax on behalf of other country Active income (e.g. business profits & services income) – assessed to foreign resident Passive income (e.g. interest, dividends & royalties) – taxed through withholding tax system

FOREIGN RESIDENT TAX RATES (2017-2018) TAXABLE INCOME $0 - $87,000 $87,001 - $180,000 Over $180,000  No tax-free threshold  No Medicare levy  No CGT discount

TAX ON THIS INCOME 32.5 cents for each $1 $28,275 plus 37 cents for each $1 over $87,000 $62,685 plus 45 cents for each $1 over $180,000

GOODS AND SERVICES TAX (GST) CHAPTER 25

Basics   

Broad-based consumption tax, designed to impose tax on final private consumers A New Tax System (Goods & Services Tax) Act 1999 Main rules: - 10% tax on supplies and importations unless ‘input-taxed’ or ‘GST-free’ - Charged and credits claimed by entities registered for GST - Imposed each time goods/services supplied or imported - Borne by consumers - Remitted by suppliers

Taxable Supply (s 9-5) ELEMENT

Supply

SECTIO N

S 9-10

Consideration

In the course of furtherance of enterprise

S 9-15

S 9-20

Goods, services, advice (broad interpretation)

Not limited to the provision of $, could be anything of value, doesn’t have to be voluntary In the form of business, adventure or concert, license or grant etc., which is connected to the enterprise. Isolated commercial activities

S 23-10

Carrying on an enterprise; your GST turnover meets registration threshold:  Non-profit TPs ≥ $150k  All other TPs ≥ $75k

GST-FREE SUPPLIES (DIV 38)

 

CASES

Exclude supply of money unless consideration for supply that is supply of money: s 9-10(4)

Reliance Carpet (2008) – CS 25.1 Qantas Airways (2012) – CS 25.2

Provision of labour as employee; or Private, recreational pursuits or hobbies: s 9-20(2)

Activities carried out by trustees, charities, religious institutions and government bodies Goods are delivered, or made available, in the indirect tax zone i.e. AUSTRALIA to the recipient of supply

Exemptions 

EXCEPTIONS

Leasing property

Connection with indirect tax S 9-25 zone

Registered for GST

MEANING

Food (s 38-2; 38-3; Schedule 1) - Lansell House (2011) Health Education, etc.

Must register for GST regardless of turnover: Taxi drivers: s 144-5 Ride-sharing: Uber (2017)

Uber (2017)

INPUT-TAXED SUPPLIES (DIV 40)      

Financial supplies (GSTR 2002/2) Residential rent Sale of existing residential premises Precious metals School canteens Fund-raising events conducted by charitable institutions

Consequences 



Taxable supply: - GST payable by supplier on 10% of value of taxable supply: s 9-70 - Registered entity required to pay applicable GST payable on any taxable supply that it makes: s 9-40 GST-free or input-taxed supplies: - No GST is payable on supply

Creditable Acquisition (s 11-15) ELEMENT Acquisition

SECTION S 11-10

Creditable purpose

S 11-15

Taxable supply

S 9-5

Consideration

S 195-1 (dictionary)

Registered for GST

S 195-1 (dictionary)

MEANING Any form of acquisition whatsoever Acquisition relates to carrying out of entity’s enterprise but EXCLUDES acquisition of supplies that are input taxed or private and domestic in nature Partial refund possible See s 9-5 Have paid GST Not limited to provision of $. Could be anything of value, doesn’t have to be voluntary Carrying on an enterprise; your GST turnover meets registration threshold

Consequences   

Eligible for claim of input tax credit (refund of GST paid) in respect of amount of GST paid on creditable acquisitions: s 11-5 & 11-20 BUT no entitlement to input tax credits if relates to provision of input taxed supplies: ss 11-15 & 15-10 No entitlement to input tax credits for non-deductible expenses: Div 69 GST PAYABLE?

Taxable supply

Yes

GST-free supply

No

Input-taxed supply

No

ENTITLED TO INPUT TAX CREDITS ON ACQUISITIONS? Yes (if creditable acquisition) Yes (if creditable acquisition) No

Special Rules TAXABLE IMPORTATIONS (S 13-5) 

Subject to GST regardless of registration or carrying on enterprise: note to s 13-5

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 

Must be taxable importation: - Low-value goods (< $1,000) - Digital supplies (e.g. Netflix Tax) Importer liable for GST on importation: s 13-15 Entitled to input tax credits if creditable importation: s 15-5

ELEMENT Goods are imported

SECTION S 13-5

MEANING Goods have been imported into AUS

Goods are imported for home S 13-5 and the Customs Act 1901 consumption Consequences A registered entity is required to pay GST on the importation

Typically, the goods are imported for ‘use’ in AUS

CREDITABLE IMPORTATIONS (S 15-5) ELEMENT Goods are imported solely or partly for a creditable purpose Importation is a taxable importation

SECTION S 15-10 S 15-25 (partly creditable) S 13-5

Registered for GST

S 23-10

MEANING Goods have been imported into AUS

See above Carrying on an enterprise; your GST turnover meets the registration threshold

Consequences A registered entity is entitled to an ITC on the importation (ss 15-1 and 15-15) Only refund if used for creditable purpose

INCOME CHAPTER 3, 5, 15

Basic Formula & Fundamental Terms  

Income tax payable each year: s 3-5 ITAA97 - Financial (tax) year = 1 July to 30 June: ss 4-10(1) & 995-1 ITAA97 Tax payable = (Taxable Income x Tax Rate) – Tax Offsets: s 4-10 ITAA97

**REFER TO ‘JURISDICTION TO TAX’ NOTES**

THE TAXPAYER ‘YOU’ 

  

Personal income tax – s 4-1 & 9-1 ITAA97 - Individuals - Couples - Families Companies Trustees Superannuation funds

AUSTRALIAN RESIDENT TAX RATES (2017-2018) TAXABLE INCOME $0 - $18,200 $18,201 - $37,000 $37,001 - $87,000 $87,001 - $180,000 Over $180,000  Not including 2% ‘Medicare Levy’

TAX ON THIS INCOME Nil $0.19 for each $1 over $18,200 $3,572 plus $0.325 for each $1 over $37,000 $19,822 plus $0.37 for each $1 over $87,000 $54,232 plus $0.45 for each $1 over $180,000

TAX OFFSETS   

Income tax credit/rebate Listed in s 13-1 ITAA97 Ordering rule in s 63-10 ITAA97

CATEGORIES Recognition of other taxes paid on same income

Foreign income tax offset Franking credits ‘Welfare’ offsets: e.g. dependant rebates; low income offsets ‘Incentive’ offsets: e.g. research & development; os defence force services

Subsidy offsets

ASSESSABLE INCOME    

S 6-1 Ordinary income (s 6-5); AND Statutory income (s 6-10); BUT NOT Non-assessable income (s 6-15)

ORDINARY INCOME DEFINITION

FEATURES

CASES

Ordinary income = income according to ordinary concepts: s 65 ITAA97

Sufficient nexus with an incomeearning activity - Income from services, business or property

Determined in accordance with ordinary concepts and usages of mankind: Scott (1935)

Not a capital gain

PREREQUISITES Must be money or convertible to money

Keily (CS 5.4); Dixon (CS 5.5)

Eisner v Macomber (1920) (US)

CASES Tenant v Smith (1892) (CS 5.1) Rent free accommodation Cooke & Sherden (1980) (CS 5.2) Free holiday Eisner v Macomber (1920) (US) Tennant v Smith (1892) (CS 5.1) Countess of Bective (1932) (HCA) Trust set up for benefit of daughter

Must be a realised gain Must be from an external source Must be a real gain

Hochstrasser v Mayes (1960) (CS 5.3) Amount still income if dealt with per your direction CHARACTERISTIC Usually periodic, recurrent and regular

Harris (1980) One-off Blake (1984) Periodic

THINGS TO NOTE Characterised in hands of taxpayer Illegality Principle of mutuality Compensation payments Take on character of what they’re replacing

Federal Coke (1977) (CS 5.6) La Rosa (2003) (CS 12.6) RACV (1973) Dixon (1952) (CS 10.1)

STATUTORY INCOME DEFINITION Amounts included in assessable income by specific provisions of income tax legislation: ss 6-10(2)

EXAMPLES Return to work payments (s 15-3) Bounties and subsidies (s 15-2) Royalties (s 15-20) Dividends (s 44(1)) Allowances, etc for employment/services (s 15-2) Net capital gains (s 102-5)

OVERLAP Amount only included in assessable income once (ss 6-25(1)), usually statutory income prevails (ss 625(2))

Constructive receipt rule: s 6-10(3)

NON-ASSESSABLE INCOME TYPES Exempt income Non-assessable non-exempt income

SECTION S 6-20 S 6-23

CATEGORIES Entity is exempt Income is ‘exempt’ Income is ‘non-assessable nonexempt’

SECTIO N S 11-5 S 11-15 S 11-55

EXAMPLES Charitable institutions, local gov, etc. Social service payments, educational scholarships, etc. Fringe benefits (s 23L(1)), foreign branch income (s 768-5) Exempt fringe benefit (s 23L(1A)), non-cash business benefits < $300 (s 23L(2))

Miscellaneous

Income from Services (TOPIC 5) 1. Is it a fringe benefit? - Only relevant if employer-employee relationship 2. Is it ordinary income? 3. Is it caught by s 15-2?

S 15-2 INCLUDES IN TP’S ASSESSABLE INCOME: The value to TP of any allowances, gratuities, compensations, benefits, bonuses and premiums, allowed, given or granted, in relation to employment or services rendered

PROBLEMS

OVERLAPS

Valuation – extremely subjective ‘Associates’ not included therefore, FBT introduced

Amounts caught by s 15-2 & FBT:  Treated as FB, taxed according to FBT Amounts caught by s 15-2 & ordinary income:  Ordinary income prevails – s 15-2(3)(d)

SALARY & WAGES DEFINITION Amount that is a “product or incident of employment or a reward for services rendered” Case: Hayes (1956)

INCLUDED IN ASSESSABLE INCOME

TAX TREATMENT

Yes

Collected from employer under PAYG system

Section 6-5

ALLOWANCES & REIMBURSEMENTS DEFINITION Allowances Predetermined amount covering estimated expense paid regardless of whether expense is incurred or not Case: Roads and Traffic Authority of New South Wales (1993) Reimbursements Compensation for exact amount of expenses incurred

INCLUDED IN ASSESSABLE INCOME

TAX TREATMENT

Yes

Ordinary income – s 15-2

Yes

Not ordinary income but FB – subject to FBT

VOLUNTARY PAYMENTS & GIFTS DEFINITIO N

Benefit from 3rd party may be income where “clearly recognised incident of employment”

Income – employment/services being sole and motivating cause of benefit

Cases: Dixon (1952), Kelly (1985), Holmes (1995)

Gift – personal or other characteristics of recipient being sole and motivating cause of

FACTORS

Adequately remunerated for servi...