Essay of Australian Taxation Principles

Australian Taxation
Principles

Table of Contents
INTRODUCTION...........................................................................................................................3
QUESTION 1..................................................................................................................................3
(i). Residential status of Daniel for tax purpose for 2016/2017...................................................3
(ii) Calculation of tax payable by Daniel for 2016/17.................................................................4
(iii) Discussing Daniel’s tax consequences in 2017/18...............................................................6
QUESTION 2..................................................................................................................................7
(i) Analysis of the transactions and its determination whether it is FBT or income tax..............7
(ii) Calculation of fringe benefit tax liability...............................................................................8
b)(i) Advise to Escape Vacations of the tax implications............................................................8
(ii) Calculation of taxation liability of Escape Vacation..............................................................9
(iii) Advise to Escape Vacation about measures to reduce taxation liability...............................9
CONCLUSION..............................................................................................................................10
REFERENCES..............................................................................................................................11

INTRODUCTION
In Australia, Australian Taxation Office (ATO) is the main revenue collection agency
that collects taxes i.e. GST, income tax and other federal taxes as per applied tax rates. It owes
accountability to administer superannuation system, Australian federal system and many others.
The present research report key aim is to examine taxation provision and regulations covering
residential status, computation of tax payable and tax consequences as well. Besides this, various
transactions will be assessed to identify that whether they are the part of fringe benefit tax or
income tax.
QUESTION 1
(i). Residential status of Daniel for tax purpose for 2016/2017
Income tax is the tax duty that is levied by the government on the earnings received by an
individual in a given year (Woellner and et.al., 2016). Australian Income Tax Act (ITAA) 1961
covers residential test to identify the residential status of an individual. It covers certain specific
test such as domicile, 183-day and superannuation test explained underneath:
Domicile test: ITAA, Sec 6(1)(a)(i) of the law consider an individual as an Australian
citizen if he or she is domiciled in Australia. In other words, if a person own permanent home in
Australia then he or she will be treated as Australian citizen for the tax purpose. It covers 2
categories of domicile one is origin and another is choice. IT 2650 also includes intention of
permanent resident and migrating in Australia (Mirrlees and James 2010). In case law of FCT Vs
Applegate, 1979, individual was not treated as Australian resident because he had no intention of
permanent residency. In the given case, Daniel owns family home in Malaysia which is his
native place, therefore, he cannot be treated as an Australian resident.
183-day test: Income Tax Act, section 6(1)(a)(ii) depicts that if an individual is physically
resided in Australia in a year for 183 days or more (no need of continuity) then such person will
be considered resident in Australia (Anderson, Dickfos and Brown, 2016). In the given case, for
AY 2016/17, Daniel was treated as Australian resident because he came in Australian on 1st
November 2016 and resided here till the year end which satisfied 183-days test requirement. In

this regards, under Taxation Ruling 98/17, Commissioner considered “usual place of abode”
similarly to that of ‘reside’.
TR 98/17 also introduced for assessing residential status of an individual which applies
on migrants, academics & students studying in the country, visitors who come to spend holidays
and employees under the employment contract. Referring from the given case study, Daniel has
been offered with an opportunity to grow subsidiary firm’s operation in Australia. Thus, he came
Australia in his employment course.
Superannuation test: Section 6(1)(a)(iii) considers all the individual as Australian citizen
if he or she is a member of commonwealth fund (Miller and Oats, 2016). According to the case,
Daniel moved to Australia and employed in the subsidiary firm of Mining Capital Corporation.
Being an employee in the organization, firm offer them salary plus superannuation. Thus, being a
member of the fund, he satisfied the section requirement and must be treated as an Australian
resident for AY 2016/17.
According to the Income Tax case law, section 6-5(2), all the ordinary income that an
assess derives either directly or indirectly will be considered assessable income. In the given
case, being an Australian resident, Daniel’s annual salary worth 250,000AUD and rental income
of $40,000 from family home in Perth will be treated as his assessable income. Moreover, it
includes income received in the form of interest or dividend which will be taxed as per
applicable rates. However, as the couple has joint ownership with equal share in all saving and
investment, therefore, Daniel will be taxed only on his share of income @ 50%
(ii) Calculation of tax payable by Daniel for 2016/17
Tax payable is the total tax liability which an individual is liable or accountable to pay to
the ATO on the due date. Here, for the given case, Daniel’s tax obligations have been computed
as follows:
Table 1 Calculation of total taxable income of Daniel
Particulars AUD
Amount (In
AUD)
Section