Taxation Assessment: Jill’s Case study
This is a taxation law problem related to intention to legally bind by the considerations of
The relevant key cases, legislation and principles of the Australian Tax law. Whether Jill is obligated to pay her taxes and other obligations as they fall due is dependent on whether the apparent bodies collecting the tax have been legally incorporated.
Qualification as a tax payer
The first issue is concerned with the Jill’s qualification for tax purposes. The Australian tax regulations, one qualifies to pay taxes if;
- A person’s domicile (permanent home of residence is in Australia. Such a person will be regarded as an Australian resident for taxation purposes.
- Jill satisfies the residency for tax purposes test as she has been living in Australia for at least half of the year of income under consideration (Usually 183 days) (s 6, Income Tax Assessment Act 1997). This assessment will take into account whether Jill has been present in Australia continuously or partially with breaks. Whether partial or continuous, the main take away here is that Jill has been a resident of the Australian nation for a cumulative period that is equal to 183 days (Tran-Nam et al. 229). The element of residency is determined as per the following rules and regulations
- That the person has always lived in Australia
- That the person moved to Australia with the intention of living there permanently
- That the person has been living in Australia for at least half of the financial year under consideration with the current home address being in Australia, except in cases where the home address is overseas
- That the person being assessed has been living in Australia for the last 6 months with their usual abode being Australia.
However, the following rules apply as per the annotation of the office of the Commissioner of tax;
- The purpose of presence and legality of income generating activity under review
- Personal or family relationship with the place of work or business
- Location and maintenance of personal businesses and assets
- Social living arrangements
In addition, Jill’s incomes have all been realized in Australia during the Australian calendar year. Therefore, she qualifies to pay tax as per the relevant rules and regulations. This means that Jill must file an income return report with the Australian government for any incomes realized and declared during the year or at the end of the financial ear of consideration for tax purposes. Jill will, therefore, be required to declare all her incomes in the bracket of the year of consideration with such incomes being earned from any part of the world including Australia. Nonetheless, according to the Australian tax law, Jill is entitled to a tax-free threshold. This indicates that Jill will be exempt for tax on a specified portion of her income. In addition, all persons who are qualified to pay tax on their respective incomes are required to pay a mandatory Medicare levy to cater for government healthcare initiatives.
Sufficiency of consideration and payment
This entails the capacity and capability of the taxpayer to pay taxes. It is involved with the general process of tax return declaration, documents and policies related to tax compliance and the management of applicable taxes (Gupta, 1). It also looks at the policies and committee charters that specify methods frequencies and procedures for declaring taxes. For instance, according to the Australian tax laws, Jill is qualified for tax. This is primarily because she is an Australia resident earning income in Australia.
Duty to pay tax and the collection point
According to the Australian tax law, any person who has lived and worked in Australia for a period longer than 6 months of the year of consideration is deemed resident for tax purposes. In a recent court decision in the case of Harding v Commissioner of taxation (2018) FCA 837, the court held that Mr. Harding was considered an Australian citizen liable to pay tax even if he lived and worked abroad. This is spelt in an expanded definition of residency where a person liable to pat tax under the terms of the year of consideration (Income assessment tax 1936 (ITAA 36). In addition, Jill also passes the domicile test for the definition of “resident” as outlined in the provisions of section 6 (1) (a) (i) of the ITAA 36 (“Domicile Test”). However, Jill is also accorded some entitlements by the law where the commissioner of tax is expected to take some matters into account when assessing the incidence of tax as outlined in the case of Futuris Corporation Ltd Vs Commissioner of Taxation (2007) FCAFC 103: (2007) 161 FCR 1.
According to the Australian Tax and investment policy, all persons who qualify to be assessed for the tax are to be taxed on any worldwide income. “Worldwide Income” here refers to all the incomes that have been incurred by an Australian citizen either within the country’s borders or abroad. The federal government on the total taxable income for an individual imposes this tax. The tax is levied based on progressive tax rates where Jill will be expected to pay more than her peers in the same organization or industry earning a lower income than she does. The progressive tax rates range between 0% and 45% depending on the level of income with an additional Medicare levy at the rate of 2%. The assessments are done under the guidance of two main statutes namely the income assessment tax Act 1936 and the Income assessment tax act 1997.
The Australian taxation act also provides for a tax offset for low-income earners called the “ low-income offset” (LITO). This is a form of tax rebate accorded to resident low-income earners. The taxable threshold is $18200 at a rate of $445 until such a person reaches an income threshold of $37000. This is then scaled down by 1.5c for every dollar earned above $37000. The taxable income based on low-income offset ceases when individual taxable income reaches $66,667. The amount of tax offset on LITO scales will not be used to calculate PAYG as it is calculated automatically by the Australian Tax office once individual income returns have been filed.
As per the deductions, the law provides that an individual taxpayer is eligible for lodging a claim for deductions related to a particular class of expenses. This is usually done for expenses that are directly related to the process, procedures and resources acquired with an aim of creating an income. It must be directly related to a taxable income and there must be adequate records supporting the claim. Further, where the expenses are related to both private and formal work purposes, one is only allowed to make a claim on the portion of the total amount that is related to work activities. The Australian Tax Office is authorized to lodge enquiries with the employer where it is suspected that a taxpayer is making a claim for which they have already been paid. In addition, tax regulations further indicate that a person can only claim deductions for the government fiscal year for which they were incurred.
In the case of Jill, therefore. She will be taxed based on the following incomes;
Initially, Jill will be required to pay the first tax on the basic salary. Considering she earns an income that is higher than $ 66,667, she is unqualified for a low-income tax offset rebate. Jill also has other incomes in terms of proceeds from the sale of curtains, the sale of rare books, rent income, insurance compensation and a bank loan. However, not all her incomes are liable for the tax. According to the Australian Taxation Act, all these incomes must be added together before any deductions can be made to arrive at the total taxable income (Borden 166). However, income on rare books have not been realized therefore, it does not qualify for tax purposes. This income will be taxed when it is realized and declared (Wenzel 31). Nonetheless, Jill can also claim some deductions for expenses incurred during the year of assessment. Jill has two jobs, that is, her main job and her private consultancy Job. The Australian tax office allows such a person communizing between jobs to claim the travel expenses. In addition, she is entitled to a claim on the 5% interest payable on the bank loan she obtained for investment. Her financial awards for recognition of excellence are non-taxable.
I can be confirmed that Jill is aptly an Australian resident of Majority age due to being employed and that her domicile in Australia. In addition, she earns incomes that are sourced from within Australia, which means that her incomes must be subjected to tax according to Australian Taxation law regimes. Failure to pay tax is a criminal offence actionable in a competent court of law.
Borden, Bradley T. “Income-Based Effective Tax Rates and Choice-of-Entity Considerations Under the 2017 Tax Act.” SSRN Electronic Journal, 2018, pp. 166–167., doi:10.2139/ssrn.3208688.
Federal Court of Australia. Harding v Commissioner of Taxation (2018) FCA 837. FCA 837, 2018.
Federal Fourt of Australia. Futuris Corporation Ltd Vs Commissioner of Taxation (2007) FCAFC 103: (2007) 161 FCR 1
Gupta, R. (2010). Accessibility of Receipts from Personal Exertion. J. Australasian Tax Tchrs. Ass’n, 5, 1.
Income Assessment Tax Act (1936) sec 6
Tran-Nam, Binh, et al. “Tax compliance costs: Research methodology and empirical evidence from Australia.” National Tax Journal (2000): 229-252.
Wenzel, M.. The multiplicity of taxpayer identities and their implications for tax ethics. Law & Policy, (2007) 29(1), 31-50.