大三下合作课税法part b lecture2sem

1、Part BResidency, source and derivationImportance:Determines Australias jurisdiction to tax a persons e.Who can be taxed? What is taxed?Example:Marie, a French citizen, who lives in Paris, receives:Salary from her accountancy job in Paris; andRent from an investment property she owns in Melbourne.Ask

2、 yourself: What can Australia tax?RESIDENCY AND SOURCE23DERIVATIONWhy is derivation important?It determines in what year a persons e is to bebrought to account for tax purposesExample:Acme Pty Ltd sells a customer a machine on 1 Mayfor $100,000. Payment is to be made in 30 days butthe customer does

3、not pay until 1 July (the start ofthe next financial year).Ask yourself: When is the payment derived by Acmefor tax purposes?4RESIDENCE: residents v non-residentsDifferent treatment for residents and non-residents. For example:1)KEY DIFFERENCE: Residents are taxed on e from all sources; non-resident

4、s only on e with a source in Australia: (s.6-5).Tax rates vary.Non-residents do not pay the Medicare levy.Section 6-5(2):Australian residents assessable e includes ordinary e derived directly or indirectly from all sourcesSection 6-5(3):Non Australian residents assessable e includes ordinary e deriv

5、ed directly or indirectly from Australian sourcesRESIDENCY & SOURCE56Residence test: individuals7Residence test: individuals common law testThe person must reside in Australia. Will reside where the person:dwells permanently or for a considerable time; orhas their settled or usual place of abode.In

6、determining this issue the Australian courts take a number of factors into account. None of these is decisive, but collectively build up a picture of a persons residency. Physical presence of the person in Australia for some part of the yearThe nationality of the personThe persons history of residen

7、ce and movementsThe persons mode of lifeIf the person is a visitor to Australia, the frequency, regularity, duration and purpose of the visit(s)Where a person visits for more than two years they will be seen as a resident: TR 98/17If a person is outside Australia for part of the year, the length and

8、 purpose of the absence.The persons family and business ties in Australia.Whether the person maintains a place of abode in Australia or elsewhere. RESIDE : individuals common law test - factors to consider89Residence test: individuals statutory testsIf individual is not a resident under the mon law

9、test, they may be aresident under the statutory tests.The main statutory tests are:The domicile testThe 183 day test10Residence test: individuals statutory testsStatutory domicile test Domicile is (prima facie) proof of residence UNLESS Commissioner is satisfied that the persons permanent place of a

10、bode is outside AustraliaDomicile - the place the person regards as their home (even if they do not live there)Can be domicile of origin or of choiceUnder s 10 of the Domicile Act in order to acquire a domicile of choice in a country, the person must have the intention to make their home “indefinite

11、ly” in that country.Domicile test - the exception:Domicile is Australia but the person has a “permanent place of abode outside Australia”Permanent does not mean foreverFCT v Applegate; IT 2650. Residence test: individuals statutory tests1112Residence test: individuals statutory testsStatutory 183 da

12、y test:Must be physically in Australia for at least 183 daysWill be a resident UNLESS Commissioner is satisfied that (a) the persons usual place of abode is outside Australia AND (b) they have no intention of taking up residence in Australia13Residence test: companiesFIRST QUESTION:Is the company in

13、corporated inAustralia?If YES: it is a resident of Australia for taxpurposes.If NO: go to the second question.14Residence test: companies SECOND QUESTION: If the company is not incorporated in Australia (thatis, the answer to the first question is no) ASK: Does the company carry on business in Austr

14、alia? If it does not, it is NOT a resident. If it does it WILL BE A RESIDENT if EITHER:(a)Its central management and control is in Australia; OR(b)Its voting power is controlled by Australian residents.15Residence test: companiesIncorporated in Australia?YesNo A resident Carries on business in Austr

15、alia?YesNoControl or voting power in Not a residentAustralia?YesNo A resident Not a residentThe ATO has a site dedicated to explaining the meaning of resident. RESIDENCY ATO guide16Double taxationDual residencyTemporary residence17Residence other issues18Residence: double taxationOur system of taxin

16、g e from allsources can lead to the possibility ofdouble taxation.Ask yourself: How can this occur and (importantly) how can it be prevented?19Residence: double taxationDouble taxation can occur where:A resident receives foreign sourced e which is taxed in the country of sourceA non-resident with Au

17、stralian sourced e is also taxed on that e in their country of residence20Residence: double taxationWhat can be done to prevent it?Effect is nullified by:(A) Foreign tax credit system (B) Double tax agreements (DTA)(C) Specific exemptions21Residence: double taxation(A) Foreign tax credit systemWhere

18、 an Australian resident pays foreigntax on non-Australian sourced e,the resident receives in Australia a creditfor the foreign tax paid.22Residence: double taxation(B) Double tax agreementsTaxing rights over certain classes of e are reserved exclusively for the country of residence.All other e can a

19、lso be taxed by the country of source; but if also taxed by the country of residence, the latter must give a tax credit for the tax paid in the source country. 23Residence: double taxationExample of a DTA:Clause 19: Australia/Germany DTA“Remuneration which a professor or teacher who is resident of a

20、 Contracting State and who visits theother Contracting State for a period not exceeding 2years for the purposes of study/research/teaching at auni/college/school receives shall not be taxed in thatother State”.Ask yourself: what is clause 19 doing?24Residence: double taxation(c) Specific ExemptionsS

21、ee, for example, s 23AG ITAA 1936 which (subject to certain conditions) exempts from Australian tax the foreign employment e of an Australian resident individual who was engaged in certain foreign service for a period of not less than 91 days.25Residence test: dual residency Can a taxpayer be a resi

22、dent of more than onecountry?YES. In such cases relief from double taxation is normally found in a DTA. Most DTA have tie-breaker rules for these situations (eg: for individuals it is the place where they have their permanent home; if that doesnt decide, it is where they have closer personal or econ

23、omic relations)If no DTA applies, the foreign tax credit system mayprovide relief.26Residence : temporary residencyTemporary resident basically a personwho holds a temporary visa and is not aresident under the Social Security Act1991 and does not have a residentSpouse: s 995-1 ITAA 1997Generally the

24、y are taxed on the same basis asnon-residents: see s -915 ITAA1997.Importance of source:Basis of governments right to tax based on residency e sourced in Australia can be taxed by governmentRemember:(a) s 6-5 ITAA 1997(b) Double Tax AgreementsSOURCE OF E2728Source of e: how is it determined?(1) No g

25、eneral definition of source in the ITAA(2) Specific direction given for particular types of e.For example:(a)S.6C ITAA 1936: e in the form of royalty payments which are an outgoing of an Australian business deemed to be sourced in Australia.(b) DTA have own source rules.29Source of e: how is it dete

26、rmined?Source is a question of factAs was noted by the court in Nathan v FCT :the ascertainment of the actual source of a given e is a practical, hard matter of fact.30Source of e: how is it determined?Principles for determining source:(1)Where e is derived solely from the acts of the taxpayer: Sour

27、ce is where the acts are performed(2)Where e arises from the possession of property : Source is where the property is situated.31Source of e: how is it determined?(C)Where the taxpayers act involves the performance of a contract:Must consider:(a) Place of performance(b) Place of payment(c) Where the

28、 contract was entered intoAsk yourself: What happens if these are all in adifferent country?Must balance the factors according to importance.Wages and salaries e generally where the services are performedBusiness e generally where the goods are sold or where the business is transactedInterest e usua

29、lly the place where the loan agreement is entered into and the money is lentDividend e generally the place where the profits of the company that pays the dividends are madeProperty e usually where the land is locatedNote: these are a guide only. It very much depends on the facts of the case (see, fo

30、r example, FCT v French and FCT v Mitchum) and legislation (see, for example, s 6C ITAA 1936).32Source types of e33Derivation of e: why is it important? S.6-5 ITAA 1997 brings to account e derived by the taxpayer.It is a timing concept it determines in which year the taxpayer should bring particular

31、 e to account for tax purposes.34Derivation of e: When does it occur?Depends on the tax accounting method adopted by the taxpayerNote:.(a) There are two choices(b) Derivation differs for each choice.35Derivation: tax accounting methods36Derivation: which method should be used?Taxpayer must choose th

32、e method which:is calculated to give a substantiallycorrect reflex of the taxpayers true eper: Dixon J in C of T (SA) v The ExecutorTrustee and Agency Co of SouthAustralia (Cardens case)37Derivation: cash receipts methodOccurs by the movement of cash or its equivalent to the control of the taxpayer.

33、Cash or equivalent must be received by the taxpayerThe receipt may be actual or constructive38Derivation: cash receipts methodACTUAL RECEIPTPhysical receipt the payment has beenphysically received.CONSTRUCTIVE RECEIPTTwo types:Payment credited to the taxpayer without restrictionReceipt under s. 6-5(

34、4) or s. 6-10(3) ITAA 199739Derivation: who uses cash receipts method?Normally used by employees and professionals whose e is derived from the personal provision of skill and knowledge.Applies to investment e.40Derivation: earnings/accruals methodDerivation occurs when the e is earned (which can occ

35、ur before payment is received).The e is earned when the taxpayer has the legal right to receive payment.This depends on the contractual arrangement between the taxpayer and the payer, the common law and any statutory provisions.41Derivation: who uses the earnings/accruals method?Used for business e involving trading or manufacturing.Used by professionals whose activity constitutes the running of a business.42Derivation: changing methodsTaxpayer is al