As stated under the “Domicile Act 1982” Domicile test can be defined as the permissible mode of ascertaining the residential status. The common law rule states that an individual acquires the original place of abode as their original domicile. Nevertheless, the rule is open to some exceptions (Lam and Whitney 2016). The rule states that an individual can retain their domicile of their own place of birth lest that individual undertakes the decision of obtaining a domicile or place of habitatbased on their own choice in alternative state or nation. As evident in the case of “Henderson v. Henderson [1965] 1 All E.R.179” the intention of the person must be in order of attaining the place of abode based on their own choice in alternative country where an individual has envisioned to make their domicile indeterminately (Jones, Passant and Mclaren 2016). From the current study, it is evident that, three years ago Kit had acquired a house in Australia so that he can live with his wife and children. This chiefly gratifies the intent of Kit in obtaining the permanent place of abode or domicile based on his own decision of residing in Australia.

An individual with an Australian residency however living outside Australia will be able to maintain place of abode based on the clearly foreseen circumstances. “Section 6 (1) of the taxation rulings 2650”  defines that while assessing the permanent place of residence it is vital to take into the considerations the original intention of the person as where he or she decides choses to reside indefinitely (Buckley and Jackson 2014). Kit in spite of being employed in the Indonesian oilrig regularly paves visit to his wife and children and according the assumption made under “section 6 (1) of the ITAA 1936”, that;

1. Kit permanently resides in Australia and complies with the circumstantial evidence that he is a permanent Australian inhabitant.
2. Kit prior to his transfer to Indonesian oilrig had resided in Australia for more than half of the income year. Therefore, Kit permanent place of residence is in Australia and is in compliance with the domicile test.

183 days test:

As defined under the 183 days test if an individual is living in Australia for term not less than half of the income year either in the form of breaks or constantly he or she will be regarded as an occupant of Australia(James 2016). From the following case study it is understood that Kit was transferred to Indonesian oilrig and only returns to visit his family once in every three months for a period of one month. This simply sums up around 120 of his actual presence within or outside of Australia. However, one cannot rule out the evidence that Kit is a permanent inhabitant of Australia and will be considered as an Australian resident since he had bought a house in Australia so that he can live with his wife and children.

As defined in the case of “F .C. of T. v. Applegate (79 ATC 4307; (1979) 9 ATR 899”irrespective of Kit absence from Australia since his transfer to Indonesian oil rig it cannot be overruled that his permanent place of domicile was in Australia (Kenny, Blissenden and Villios 2015). The study clearly defines the intent of Kit for opting to take up his permanent place of abode in Australia and satisfactorily complies with the 183 days test.

Assessment of Income tax:

The residential status of the taxpayer forms the basics of determining the tax liability in compliance with the facts, whichis applied during the income year. It is noteworthy to denote that if the taxpayer complies with the ordinary concepts occupancy test then that person will be held for tax depending upon his status of residency (Tran, Evans and Lignier 2014). Salary that is received by kit in his Westpac Bank is considered as income that is derived from Australian source. Kit has signed a contract for employment with an Australian company and his remuneration is subjected to tax. Furthermore, Kit also generates income from share portfolios, which again forms the part of tax assessment.

As noted under “Applegate per Franki J 79 ATC” Kit despite being the resident of Australia is under obligation to disclose all his income derived from overseas source and his employment income from his Australian company while lodging tax return (Bond and Wright 2017). The income derived during the year by Kit is subject for tax assessment because as per the residential test conducted above satisfies that Kit is an Australian dweller. Nevertheless, income from his investment portfolio is subjected to double taxation since it forms the part of his income. Kit can circumvent the incidence of double taxation by claiming exemption for his shares portfolio. This is because Australia has signed several treaties with more than forty other countries  so that it can provide relief from instance of double taxation.

I. Californian Copper Syndicate Ltd v Harris (Surveyor of Taxes) (1904) 5 TC 159

The case is related with the issues concerning the realization of capital assets and whether the profits generated from the disposal of land can be exploited for the sale of minerals, which was taxable as ordinary income or regarded as capital. Debatably, taxpayer was held assessable for the tax arising due to the income from the sale of land (Newman 2016). The court in its verdict stated by quoting that the actual intent of the taxpayer was to generate income from the sale of land. Hence, the sum of capital, which the taxpayer had it with himself, was for no reason considered to be enough to commence the activities of mining upon the land. Therefore, the court ruled that the sale of land could not be considered as a simply substituting one investment for another however, the sale of land constituted trading transactions.

II. Scottish Australian Mining Co Ltd v FC of T (1950) 81 CLR 188

The current case study states that the taxpayer executed the business of mining on a land near Newcastle, which was bought by him during late 1860. The study depicts the issue linked with the business income and whether the subdivision or sale of land that used by the mining company will constitute as assessable income or simply a realisation of asset that was capital in nature (Gambiza and Pinto 2016). The court ruled that the taxpayer derived enormous amount of profit from the disposal of land and the commissioner assessed the taxpayer based on the income from the sale of land. The commissioner asserted that the taxpayer was held taxable as defined in section “Section 26 (a)” from the profit for carrying out the profit from undertaking the scheme.

III. FC of T v Whitfords Beach Pty Ltd (1982) 150 CLR

The following case study is based on the determination of whether the subdivision and sale of land was capital asset. The rulings provides direction in evaluating the profits derived from “Isolated transactions” are regarded as income and hence taxable under “Section 25 (1) of the Income Tax Assessment Act 1936”. As evident, the taxpayer bought forward its argument by stating his activities could not be considered as capital realisation and its profit is not assessable (Evans, Minas and Lim 2015).  The court declared by stating that the taxpayer activities of land development and income generated from such activities must be assessed in compliance with the general accounting principles.

IV. Statham &Anor v FC of T 89 ATC 4070

The following  case puts forward the query of  net income derived from the sale of sub-divided land can be held for assessment under “section 25 (1) or 26 (a)of the ITAA 1936”. The taxpayer argued by stating that the land could not be used to execute business activities since the deceased did not enter into any kind of profit making scheme (Barkoczy 2016). The court in its outcome stated that realisation of land did not cover business activities and stated that subdivision of land that took place reflected that the taxpayer did not indulge in any profit making scheme.

V. Casimaty v FC of T 97 ATC 5135

The following study is based on ascertaining whether the sale of parts of land will be held for assessment under “section 25 (1) or 25 A if ITAA 1936”. The taxpayer had obtained 988 acre of land to commence the farming activities under action view. According to the outcome of Federal court Action view was obtained by the taxpayer with purpose that any income generated from the sale of land would be held assessable and complied with the first limb defined “under section 25A (1)”. The second limb of the sub-section did not had any repercussion since the disposal of land did not happen within the business course or from profit making undertakings (Taylor and Richardson 2013).

VI. Moana Sand Pty Ltd v FC of T 88 ATC 4897

The following study is based on determination of assessable profit arising out of “Isolated Transactions” under “Section 25 (1) of the Income Tax Assessment Act 1936”. According to the judgement of federal court section 25 (1) and 26 (a) was put into use for determination of income received by the taxpayer for profits derived from selling of land (Sackmanet al. 2016). Referring to the judgement passed under “FC of T v The Emporium Ltd 87 ATC 4363” the court outcome stated that taxpayers profit constituted income under the ordinary concepts and would be held for assessment.

VII. Crow v FC of T 88 ATC 4620

The case deals with sale of land under “Subsection 25 (1) or sec 26 (a) of the ITAA 1936” as the income of taxpayer. The court in its outcome evidently stated that the taxpayer will be held assessable for income earned from the execution of business activities of land development (Auerbach and Hassett 2015). Although the court acknowledged that, the land was initially used for faming however; growing debt forced the taxpayer to sell the land. The court in its judgement stated that transactions were recurring in nature that symbolized the features of containing business of land development.

VIII. McCurry &Anor v FC of T 98 ATC 4487

The following case is associated with the study of taxpayers who are brothers in this case and used their funds together with their bank loan to build townhouse. The taxpayer later sold off the land and generated the net income of $75,811. The court in its outcome stated that the income derived by the brothers will be held for taxation under section 25 (1) as profit making scheme generated from undertakings of commercial in nature (Kaldor 2014). The venture of brothers formed the part of trading activities and generated expected amount of profit. Hence, the activities of the taxpayer constituted commercial in nature and had indulged in land development activities.

Reference list:

Auerbach, A.J. and Hassett, K., 2015. Capital taxation in the twenty-first century. The American Economic Review, 105(5), pp.38-42.

Barkoczy, S., 2016. Foundations of Taxation Law 2016. OUP Catalogue.

Bond, D. and Wright, A., 2017. A Snapshot of the Australian Taxpayer.

Buckley, C. and Jackson, T., 2014. Dividend access shares: The ATO clarifies its position. Taxation in Australia, 49(2), p.74.

Evans, C., Minas, J. and Lim, Y., 2015. Taxing personal capital gains in Australia: an alternative way forward.

Gambiza, T.M. and Pinto, D., 2016. Sharing the rides but are we sharing the profits?. Tax Specialist, 19(5), p.187.

James, K., 2016. The Australian Taxation Office perspective on work-related travel expense deductions for academics. International Journal of Critical Accounting, 8(5-6), pp.345-362.

JONES, D., PASSANT, J. and MCLAREN, J., 2016. DOUBTS ABOUT THE CENTRAL MANAGEMENT AND CONTROL RESIDENCY TEST FOR COMPANIES?. Journal of Australian Taxation, 18, pp.121-143.

Kaldor, N., 2014. Expenditure tax. Routledge.

Kenny, P., Blissenden, M. and Villios, S., 2015. Residency and Australians working overseas: can be an expensive lesson in tax Law. Australian Tax Law Bulletin, 2(9-10), p.188.

Lam, D. and Whitney, A., 2016. Taxation and property: Practical aspects of the new foreign resident CGT witholding tax. LSJ: Law Society of NSW Journal, (21), p.84.

Newman, S., 2016. The new CGT withholding regime: More than meets the eye. Proctor, The, 36(5), p.18.

Sackman, J., Van Brunt, R., Rohan, P.J. and Reskin, M., 2016. Tax Issues in Condemnation Cases (Vol. 7). Nichols on Eminent Domain.

Taylor, G. and Richardson, G., 2013. The determinants of thinly capitalized tax avoidance structures: Evidence from Australian firms. Journal of International Accounting, Auditing and Taxation, 22(1), pp.12-25.

Tran-Nam, B., Evans, C. and Lignier, P., 2014. Personal taxpayer compliance costs: Recent evidence from Australia. Austl. Tax F., 29, p.137.

Yinger, J., Bloom, H.S. and Boersch-Supan, A., 2016. Property taxes and house values: The theory and estimation of intrajurisdictional property tax capitalization. Elsevier.