Income Tax Implications for ABC Ltd-Free-Samples for Students

Question: Advise ABC Ltd, Peter and his wife of the Australian taxation issues arising from the above fact situation. Reference should be made to appropriate legislation, case law and rulings. Calculations are not required. Answer: Issue: The existing issue is based on determining the income tax implications for ABC Ltd, Peter and his wife. The issue is determines whether ABC Ltd, Peter and his wife would be considered as an Australian resident for income tax purpose. Rule: The taxation ruling of TR 2017/D2 determines whether a company will be considered as occupant or a inhabitant of Australia under the central management and control test of residency. According to the Taxation ruling of TR 2017/D2 a corporation will be company will be held as an Australian inhabitant if it performs the trade in Australia and has the central organization and control situated in Australia (Woellner et al. 2016). The ruling defines that to consider a company as the Australian inhabitant under the central administration and control test, the corporation should carry on the trade in Australia. On noticing that if the corporation has the central organization and governance situated in Australia and it is carrying on the trade, it would be carrying on the trade in Australian inside the denotation of the central organisation and regulatory test of residency. The ruling also defines the nature of the companys activities and the business which defines the types of acts and decisions are exercised as the central organisation and regulatory of the corporation. According to the taxation ruling of TR 2017/D2 it identifies who exercises the central management and control (Robin and Barkoczy 2018). The ruling provides the question of fact to consider is where the central control of the company is situated. The federal court in Federal Commissioner of Taxation v Malayan Shipping Co Ltd (1946) stated that if the actual high level judgement procedure are executed in Australia or where the monitoring of the inclusive business performance occurs in Australia the company will be considered as the Australian resident. Referring to Bywater Investment Ltd Ors v Federal Commissioner of Taxation (2016) the high court in its judgement held that the appellants were considered as Australian resident for income tax purpose during the relevant years and would be held liable to tax in Australia (Barkoczy 2016.). The judge in its verdict held that the central management and control of every applicant was located in Australia in respect of section 6 (1) of the ITAA 1997. Therefore, each of the appellant would therefore be considered for income tax purpose as the Australian resident. Section 6-5 (2) of the ITAA 1997 defines that an individual who is a occupant of Australia will be held for taxation on their ordinary source of income and statutory source of income (Zummo, McCredie and Sadiq 2017). Under the domicile test section 995-1 of the ITAA 1997 defines resident or the resident of Australia if the person who has been residing in Australia and includes an individual that has their domicile in Australia will be regarded as Australian resident (Cao et al. 2015). An exemption to the law is that an individual may not be held as occupant of Australia unless is it recognised that a persons perpetual place of residence is out of Australia. The taxation ruling of IT 2650 ascertains whether the individual has the perpetual place of residence out of Australia. The ruling is usually applied on those individuals that more overseas but does not change their domicile (Tan, Braithwaite and Reinhart 2016). The court of law in Jenkins v Federal Commissioner of Taxation (1982) held that an individuals estimated and the real span of stay in the foreign nation along with the purpose to live in the foreign state either permanently or temporary is a question of fact. Another instances of Applegate v Federal Commissioner of Taxation (1979) where the court of law stated that permanent does not represents everlasting or forever and it is measured objectively every year (Braithwaite 2017). The taxpayer was found to have the perpetual place of residence out of Australia however the taxpayer returned to Australia after being ill. In the context of the current case, it is illusory to take account of whether an individual has developed the intent of living or residing or having a perpetual place of residence out of Australia forever without the purpose of ever coming back to Australia in the probable future. Perhaps an important matter of fact is whether a person has abandoned any dwelling or place of residence he or she may have held in Australia. An Australian occupant are usually taxed based on their wide-reaching source of revenue. The federal court in FCT v French (1957) defined service where the performance of service takes place (Saad 2014). Section 6-5 of the ITAA 1936 states that income from private exertion represents proceeds from salaries, wages, fees etc. in respect to any service given or the proceeds of any trade performed on by taxpayer. Application: As evident from the current case study ABC Ltd in spite of being incorporated in Hong Kong carried the central management and control operations from Australia. The majority of board of directors were residing in Australia and conducted meeting on monthly basis to management the corporate affairs and policy of the company. ABC Ltd will considered as Australian resident company. Evidences obtained from the case study suggest that ABC Ltd has the central organization and control situated in Australia and it is executing the business in Australia. The board of directors exercises the over-all and business affairs to give direction to the company operation in Australia. Additionally it has been found that Peter who is Australian resident was hired to make decisions of the companys operations and decide to do things in the best interest of the company. The board of directors are also found to be setting the policy on the disposal of trading stock of company which implies the acts of central management and control in Australia. Citing the reference of Federal Commissioner of Taxation v Malayan Shipping Co Ltd (1946) the actual high level decision process of ABC Ltd are made in Australia. The nature of ABC Ltd activities and business suggest that monitoring of the overall corporate performance occurs in Australia. Considering the example of Bywater Investment Ltd Ors v Federal Commissioner of Taxation (2016) ABC Ltd and its directors will be considered as Australian resident for income tax purpose during the relevant years and would be held liable to tax in Australia (Miller and Oats 2016). The central administration and control of ABC Ltd was situated in Australia in respect of section 6 (1) of the ITAA 1997. Therefore, each of the board of directors would therefore be considered for income tax purpose as the Australian residents since corporate policy of the company was continuously made by the board of directors in Sydney. On the other hand, to determine the residency of Peter, Domicile Test is conducted in respect to Domicile Act 1982. Evidences obtained suggest that Peter had the permanent place of abode in Australia prior to moving Brunei on a two year work contract with ABC Ltd. Though Peter was offered with the extension of one year on his contractual agreement but later it was found that he rejected the possible extension and returned to Melbourne after the end of contract with his wife and children. With reference to Taxation ruling IT 2650, under section 995-1 Peter retained the domicile of his origin and will be considered as the Australian resident under the Domicile Test. This is because Peter did not had the intention of staying in Brunei or setting a permanent place of residence out of Australia. During his absence his house in Melbourne was rented out and received the interest money in his Australian bank account. Citing the reference of Applegate v Federal Commissioner of Taxation (1979) the taxpayer was found to have the permanent place of abode in Australia (Blakelock and King 2017). More importantly Peter did not abandoned any dwelling or place of residence he had in Australia. Considering the example of Jenkins v Federal Commissioner of Taxation (1982) Peter also expressed that he does not have any intention to stay in the overseas country since he rejected the extension of contract with ABC Ltd (Chardon, Brimble and Freudenberg 2017). Therefore Peter has met the criteria of Domicile Test and will be considered as an Australian resident. Evidence suggest that Peter derived income from rental property, salaries and dividends from investment and also received dividends from his investment. Upon his return to Melbourne started the business of practicing accountant and received fees. The receipt of fees and other sources of income by Peter was considered as the income from personal exertion which is held assessable under section 6-5 of the ITAA 1936 (Pinto, Kendall and Sadiq 2015). Referring to FCT v French (1957) the receipts of fees by Peter constituted business income that was carried on by the taxpayer will be considered taxable under section 6-5 of the ITAA 1936. Conclusion: On a conclusive note, ABC Ltd will be considered as an Australian resident company since the central management and control was situated in Sydney. Additionally, Peter and his wife will be regarded as the Australian resident under the section 995-1 as Peter has satisfied the criteria of Domicile test. The income derived by peter from various sources will be included in his taxable income under section 6-5 of the ITAA 1997 as the income derived from personal exertion. Reference List: Barkoczy, S., 2016. Foundations of taxation law 2016.OUP Catalogue. Blakelock, S. and King, P., 2017. Taxation law: The advance of ATO data matching.Proctor, The,37(6), p.18. Braithwaite, V. ed., 2017.Taxing democracy: Understanding tax avoidance and evasion. Routledge. 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Trust, competence and aggressive advice.International Small Business Journal,34(3), pp.329-344. Woellner, R., Barkoczy, S., Murphy, S., Evans, C. and Pinto, D., 2016. Australian Taxation Law 2016.OUP Catalogue. Zummo, H., McCredie, B. and Sadiq, K., 2017. Addressing aggressive tax planning through mandatory corporate tax disclosures: An exploratory case study.eJournal of Tax Research,15(2), pp.359-383.