BLO2206 Taxation Law | Identification of Tax Treatments for Foreigners

1.Identify the tax treatments which are different to foreigners (comparing with residents for taxation purpose);

 

2.Discuss the implications of the identified treatments to foreigners; and Your group essay MUST identify the relevant legislation, cases and tax rulings. Please note that you only need to consider the commonwealth legislations (for statute law).

alian resident are held for assessment differently from that of the foreigners. For the residents the income derived from the ordinary sources will be held taxable under the ordinary sources of “section 6-5, Income Tax Assessment Act 1997” (Grange, Jover-Ledesma and Maydew 2014). The legislative approach of taxation commissioner in “Scott v Commissioner of Taxation (1935)” held that for residents the income should be determined with respect to the ordinary sources (James 2015). An Australian resident are held for taxation from all their sources in Australia whether obtained from direct or indirect sources notwithstanding of fact that whether the taxpayer resided inside or outside of Australia during the income year.

The residential status of both the foreigners and residents are reliant upon their resident position. The residents based on the jurisdictional rules are held accountable for Medicare Levy and Medicare Levy Surcharge (Jover-Ledesma 2014). While for the foreign residents no Medicare levy is applied however the foreign residents are held liable for Medicare Levy Surcharge. An Australian resident can claim numerous tax offsets whereas the foreign residents are not provided with any facilities of tax offsets.

An individual who is a foreign residents are subjected to withholding by the payer and such withholding must be included while filing their Australian tax return (Kenny, Blissenden and Villios 2018). Foreigners required to ignore the capital gains and losses originating from the CGT assets that are non-assessable Australian property. Whereas the Australian residents are liable for capital gains tax made from the disposal of assets. In Australia being the foreign residents, the foreigners are required to lodge the income tax return in Australia. However, income such as interest dividends and royalties are excluded from taxation as they are correctly taxed.  

As a general rule the Australian resident company are held assessable for the company income tax in respect of their worldwide income whereas as the foreign company are held taxable for the income generated from the Australian sources (Kenny 2014). The taxation rate and tax treatment is similar for both the foreign and resident companies. The assessable income of the foreign business comprises of the net value of capital gains with an applicable tax rate of 30% (McCouat 2018). While capital gains or losses of Australian resident company in foreign business may be lowered till certain extent where the assets of foreign business are employed in active company.

Conversely the foreign business are accountable for the capital gains tax on the assets originating from the Australian assessable property (Morgan, Mortimer and Pinto 2015). On the other hand, the Australian resident company there are number of income tax rules that provides the taxpayer with the opportunity of claiming tax offsets on the foreign tax paid in respect of the amount that is incurred in generating assessable income.

2.Discussion of Implications relating to identified treatment for foreigners: 

Following the recent changes in legislations for foreigners, the Australian taxation implications for the foreigners that relocate intercontinentally is highly difficult. Foreigners are required to pay taxes on the Australian personal service income (Sadiq et al. 2018). The employers usually ask the foreigners to fill up their TFN number as this helps in determining whether an individual is treated as the Australian residents or the foreign residents for assessment purpose.

The implications relating to taxation are ascertained by determining the sum of tax to be withheld from the wages. The system of taxation is designed in a manner where the foreigners are offered with superannuation fund and pay the appropriate amount of tax (Taylor et al. 2018). Irrespective of the residential status of an individual, the Australian taxation system is designed in a manner that a superannuation contribution is provided to both the Australian residents as well as the foreign residents.

The taxation implication for the foreigners is such that they are held taxable for any that is obtained from the Australian sources. The taxation implication for foreigners states that they are only under obligation of filing tax return given the income received consist of the interest or royalties that results in tax withholding by the taxpayer (Woellner et al. 2018). The implication relating to taxation for the foreigners are such that they can claim income tax exemption if Australia has tax treaty with foreign resident nation.

The Australian taxation law is designed in a manner where the Australian residents as well as the foreign residents are held differently. Taxes are generally levied on the Australian residents for their worldwide income (Morgan, Mortimer and Pinto 2015). For foreigners on the other hand the implication of taxation is such that they are held liable for incomes derived from the Australian sources. The marginal rate of taxes is different from that of the foreigners.

For the Australian residents the marginal tax rates is applied only when the income is below $37,000 whereas for the foreigners the effective tax rate is greater than the Australian residents (Kenny, Blissenden and Villios 2018). The implication of taxation is such that the foreigners are only permitted to derived interest 10% interest from the Australian bank account. For the foreign residents the rate of interest is such that they are not considered while determining the assessable income. Whereas for the foreigners the system of taxation requires them to provide the foreign address or they may subjected to higher amount of tax withheld.   

References:

Barkoczy, S. 2018. Australian Tax Casebook 2018 14e ebook. Melbourne: OUPANZ.

Douglas, H., Bartlett, F., Luker, T. and Hunter, R. 2015. Australian taxation judgments.

Grange, J., Jover-Ledesma, G. and Maydew, G. 2014 principles of business taxation.

James, S. 2015. The economics of taxation.

Jover-Ledesma, G.2014. Principles of business taxation: Cch Incorporated.

Kenny, P., Blissenden, M. and Villios, S. 2018. Australian Tax.

Kenny, P. 2014. Australian tax.

McCouat, P. 2018. Australian master GST guide.

Morgan, A., Mortimer, C. and Pinto, D. 2015. A practical introduction to Australian taxation law.

Sadiq, K., Coleman, C., Hanegbi, R., Jogarajan, S., Krever, R., Obst, W., Teoh, J. and Ting, A. 2018. Principles of taxation law.

Taylor, C., Walpole, M., Burton, M., Ciro, T. and Murray, I. 2018. Understanding taxation law 2018.

Woellner, R., Barkoczy, S., Murphy, S., Evans, C. and Pinto, D. 2018. Australian taxation law.