Law2453 Taxation 1 - Free Assessment Answers

The case facts denote that Helena and Maxwell were resident of Edinburg, Scotland. In the later instances Helena and Maxwell graduated in the local architecture business to ultimately move to Australia for an architectural project. Van Diemen’s Architecture Ltd is incorporated in England and commenced business operations in Tasmania by transferring its key directors to newly created office in Tasmania. The case facts obtained would be based on understanding the residential status for Helena and Maxwell as well as Van Diemen’s Architecture Ltd to decide upon their residential status.

Issues: 

The present issue is based on determining whether taxpayer Helena and Maxwell will be held as the Australian occupant inside the denotation of “subsection 6 (1) of the ITAA 1936”? Will Van Diemen’s Architecture Ltd would be held Australian resident company under the “Central Management Control Test of residency”?

Rule: 

As per “taxation ruling of TR 98/17” the clarification of the commissioner includes the ordinary meaning of the word resides within the description of occupant under “subsection 6 (1) of the ITAA 1936”. The decision is largely applicable to individuals that enter Australia based on the pre-arranged contracts of occupation (Woellner et al. 2016). The ruling explains that the residency status of a person forms the matter of fact and also the main standards that helps in understanding the Australian income tax liability. The tax liability originates each year. Referring to “FCT v Applegate (1979)” happenings subsequent to the income year might help in ascertaining the domiciliary position of a person.

According to the statutory definition of “section 995-1 of the ITAA 1936” an Australian occupant includes the individual that are dweller of Australia within the purpose of the Act. The main test in determining the citizenship position of a person is whether the person lives in Australia based on the ordinary notion of the term resides (Basu 2016). The quality and the character of a person’s actions in Australia aids in understanding whether the individual lives in Australia. Factors that are useful in explaining the quality and character of a person’s behaviour include the person’s purpose of existence, employment ties, social and living arrangements.

The “taxation ruling of 98/17” explains that the period of physical presence in Australia is also significant factor in determining whether the person is an Australian resident (Braithwaite 2017). Whether any considerable time has elapsed a person’s behaviour needs the continuity, habit or routine forms the matter of fact and is also reliant on the situations of each case. The taxation commissioner views that the period of six months is regarded as the substantial period in determining whether an individual’s behaviour is regular with the living in Australia. When the person’s behaviour is found to be complying with residing in Australia that person is regarded as the resident from the time when such behaviour begun.

The court of law in “Reid v Commissioner of Inland Revenue (1926)” considered the meaning of the term reside. The quality of the existence and time should be considered in ascertaining whether the person lives in Australia (Snape and De Souza 2016). The intention or the purpose of presence in Australia aids in establishing whether the individual resides in Australia. Citing the decision of court in “Miesegaes v Commissioner of Inland Revenue (1957)” a settled purpose particularly the employment or education might support the intention of residing in Australia (Robin 2017). Similarly, an individual that comes to Australia with the pre-arranged employment opportunities or course of study might be living in Australia given the person’s stay is consistent with living here.

The “taxation ruling of TR 2018/5” explains the commissioner view of implementing the central management and control test to determining the residency status of company (Blakelock and King 2017). A company is regarded as the resident or an Australian occupant under the central organization and control test given the company has the central administration and control in Australia or conducts the business in Australia. For a company to be classified under the central management and control test of residency, the company should conduct the business in Australia.

In “Malayan Shipping Co Ltd v FC of T (1946)” the commissioner held that if the company performs the business and has the central management as well as control in Australia, it would conduct the trade in Australia inside the sense of the central administration and control residential test (Roe 2017). The central managing and control of the company refers to the direction and control of the business operations. The vital element of the control and direction of the business operations is making higher level decision that lay down the policy of the company and ascertain the direction of the business operations with the type of transactions in which the business would enter (Maley 2018). The commissioner views in “Bywater Investment Ltd & Ors v FCT (1973)” held that exercising central managing and control of a business involves setting up the investment and working policy.

The commissioner views that all the necessary facts and situations, together with the role of directors in administering and controlling the business affairs or decision making process should be considered in determining the residency status of the person. 

Application: 

The present case facts reveal that Helena and Maxwell were the resident of Scotland. After having graduated in Architecture Helena jumped on the offer of working in Tasmania for a period of 12 months for Van Diemen’s Architecture Ltd. She also maintained her bank account in Australia where her wages were paid. The “Taxation ruling of TR 98/17” should be applied in the situation of Helena since arrived Australia with a pre-arranged work agreement (Waltrich 2016).

Instances from the case study suggest that Helena migrated to Australia from Edinburg with the intention of living in Australia. The stipulation of contract mandated her to stay in Australia for 12 months however Helena carried the original intention of residing here permanently. The quality and character of Helena’s stay is consistent with the behaviour of staying in Australia as she opened her bank account in Australia which reflected maintenance and location of assets in Australia (Chardon, Brimble and Freudenberg 2017). In view of “Reid v Commissioner of Inland Revenue (1926)” Helena’s behaviour has been consistent with residing here and she would be considered to be a resident from the time when she originally intended to make her home here by opening a bank account.

In the later instances it is noticed that Helena also joined local running group in order to keep herself active. This signifies the social and living arrangements Helena interact with the surroundings during her stay in Australia and may reflect that she is residing in Australia. Citing the reference of “Miesegaes v Commissioner of Inland Revenue (1957)” the arrangement of joining the charitable community reflects the establishment of social and living arrangements (Oishi, Kushlev and Schimmack 2018).

Van Diemen’s Architecture Ltd experienced continued increase in business demands and as a result she accepted the permanent position of working and living in Australia. This reflects that permanent behaviour of taking up the Australian residency and inside the sense of “section 995-1 of the ITAA 1936” Helena would be held as the resident of Australia (Bankman et al. 2017). All the facts and circumstance explained Helena’s behaviour in Australia relevant to be held as Australian resident within “subsection 6 (1) of the ITAA 1936”.

Maxwell, visited Australian only for the holiday purpose. The character and the nature of stay was only temporary and reflected no such behaviour of continuous physical existence or continuity of living in Australia (O'connor 2017). Therefore, Maxwell would not be held as the Australian dweller inside the sense of “subsection 6 (1) of the ITAA 1936”.

Viewing the instances of Van Diemen’s Architecture Ltd the company was incorporated in England but the company has transferred three of its major directors to Australia. The transfer also included several key employees ranging from architectural and administrative staff to decide the future company direction (Buenker 2018). Van Diemen’s Architecture Ltd would be considered as the resident of Australian under the central management and control test because three main directors of the company is transferred to Australia. The directors not only set the policy for the company but also decides the future directions of the company.

Referring to “Malayan Shipping Co Ltd v FC of T (1946)” Van Diemen’s Architecture Ltd is performing the business by setting up architecture firm and also has the central management as well as control in Australia (Miller and Oats 2016). The nature of Van Diemen’s Architecture Ltd activities and business defines that the directors exercise the decision of central managing and control of the business in Australia.

Citing the reference of “Bywater Investment Ltd & Ors v FCT (1973)” the company is run by its directors in compliance with the applicable rules that give Van Diemen’s Architecture Ltd directors to control and direct its operations in Australia (Chen 2015). Van Diemen’s Architecture Ltd would be held as the Australian resident company under the “central management and control test of residency” since the business decisions are exercised in Australia.

Conclusion: 

Conclusively, Helena’s location and maintenance of assets, continuity of physical presence and behaviour reflected a habitual of residing in Australia. She would have held as the Australian dweller under the meaning of “subsection 6 (1) of the ITAA 1936”. Van Diemen’s Architecture Ltd on the other hand is found be inside the sense of “central management and control test of residency” as the directors are found to be making decisions relating to business operations and directions.

References:

Bankman, J., Shaviro, D.N., Stark, K.J. and Kleinbard, E.D., 2017. Federal Income Taxation. Wolters Kluwer Law & Business.

Basu, S., 2016. Global perspectives on e-commerce taxation law. Routledge.

Blakelock, S. and King, P., 2017. Taxation law: The advance of ATO data matching. Proctor, The, 37(6), p.18.

Braithwaite, V., 2017. Taxing democracy: Understanding tax avoidance and evasion. Routledge.

Buenker, J.D., 2018. The Income Tax and the Progressive Era. Routledge.

Chardon, T., Brimble, M. and Freudenberg, B., 2017. Tax and superannuation literacy: Australian and New Zealand perspectives [Part 1]. Taxation Today, (102), pp.17-25.

Chen, D., 2015. The Framework for Assessing Tax Incentives: A Cost-Benefit Analysis Approach. UN.

Maley, M.N., 2018. Australian Taxation Office Guidance on the Diverted Profits Tax.

Miller, A. and Oats, L., 2016. Principles of international taxation. Bloomsbury Publishing.

O'connor, J., 2017. The fiscal crisis of the state. Routledge.

Oishi, S., Kushlev, K. and Schimmack, U., 2018. Progressive taxation, income inequality, and happiness. American Psychologist, 73(2), p.157.

Robin, H., 2017. Australian taxation law 2017. Oxford University Press.

Roe, A., 2017. The doctrine of sham in Australian taxation law. AUSTRALIAN TAX REVIEW, 46(2), pp.99-119.

Snape, J. and De Souza, J., 2016. Environmental taxation law: policy, contexts and practice. Routledge.

Waltrich, A., 2016. Cross-border Taxation of Permanent Establishments: An International Comparison. Kluwer Law International.

Woellner, R., Barkoczy, S., Murphy, S., Evans, C. and Pinto, D., 2016. Australian Taxation Law 2016. OUP Catalogue.