Tax Implications of Mining Operations


Added on  2019-09-25

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Question 1IssueFred is new in Australia for the purpose of setting up a branch of his own company. The housethat he is residing in during his stay, has been put on lease for 12 months by the owner. He isbeing accompanied by his wife, while he left his sons back home. So, will he be an Australianresident for taxation purposes?LawThe above scenario entails the laws that are applicable in Australia for the tax purposes. So, therelevant applicable laws are: Taxation Ruling 98/17, and ITAA 1936.ApplicationThe Ruling 98/17 explicitly talks about the residency and the “resides test” that is used to figureout whether anyone can reside in Australia (Smith and Richardson, 2005). This definition of theresidency for taxation purposes is also underlined by subsection 6(1) of Income Tax AssessmentAct (1936). The ruling spells out the meaning for resident of Australia in the following ways:a.Residency in Australia: an individual who is provided with a place to live in the country orhas been residing Australia for a long time.b.Domicile in the country: if the persons place of living is in the territory of the country andthat has been a permanent place of his stay. Also, it is required that there should be no otherplace to live other than Australia then only be the person considered a resident(Austaxpbr.com.au, n.d.).c.He/she has been residing in the country for more than half of the period of the taxation. Forthe purpose of taxation, the number of days to be counted should be counted from the veryfirst day of the financial year, which is 1st July of the current year and 30th June of the nextyear.d.Superannuation Fund Test can be used on the basis of his/her registration underSuperannuation Act, 1990. Employee test under Long Service Leave (CommonwealthEmployees) Act 1976. It is also tested that whether the person is a spouse or a child belowthe age of 16 years. The residency status is an important criteria that determines a person’s liability towardsAustralian Taxation. So, any individual who passes any of the above tests, shall be considered asa tax resident of Australia. Section 6(1) of ITAA clearly espouse that all the residents of thecountry are taxable for the incomes they earn in the country. The general meaning of the word “reside” even encompasses the people who are migratingpermanently as well those whose are coming to live for a considerable time. If the migrant comes
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for the purpose of permanent stay, his taxation shall start from the first day. However, for firsttest, Fred intends to reside for the period of 12 months and possess a place to live in the country.As for the second test, he doesn’t have domicile of country and his permanent place of residenceis outside the territory of Australia. He fulfills the third test as he has been living for more thanhalf of the period of taxation.ConclusionFred fulfills two out of four tests, so he is tax resident of Australia. Question 2Issue To determine the existence of the ordinary incomes in the following cases.Discussion1.Californian Copper Syndicate ltd v Harris (1904):The Taxation Ruling 92/3, is applicable in this case where a group of people constituted acompany for the purpose of buying a mining property. The clear intention behind their decisionof buying the minefield was making profit. However, no business was carried out from the mineand the purchase was a onetime event. Now, a personal exertion is required for the incomes to beable to become ordinary incomes. The ordinary income comprises of income from employment,income from business activity or income earned from renting a property or dividends (Prebble,n.d.). It also consists of certain transactions that were conducted just to make profit. The presentcase does not seem to be qualifying of having personal exertion in it as no operations were beingconducting in the mine and hence no business activity took place there. However, theobservations made by the court were that even if a onetime transaction was made, but thattransaction was made for the purpose of profit. Therefore, it had to fall under the category ofordinary incomes. Also, the proceedings from such sale of mining were to be assessed as perordinary income.2.Scottish Australian Mining co ltd v FC of TAs per the facts, a company made a decision of selling a property on which mining operationswere carried out. The memorandum of the company clearly mentioned that mining will remainthe main object of the company and it is deciding to buy the properties that are rich in mineralproduction. As the company is also involved in investment of the capital, so what it does itpurchases the property and use it completely till the time of exhaustion completes. The companyfared soundly in terms of output and the activity was done in a manner, which is suggestive ofbusiness. It was observed that the initial intentions of the company were not to make any profitby selling the land but only performing mining operations.
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In this case, no isolated transactions were made and therefore the sale will transpire to be a saleof capital asset (Pearson, 2009). Therefore, it was concluded by the court that the sale of landwill not be going raise any tax implications and the income earned in this manner shall not beassessed as per the rule of ordinary income. Incomes of this kind shall be taxable under headcapital gains. 3.FC of T v. Whit fords Beach Pty Ltd (1982)The facts say that a company was formed in order to acquire a land. After some time, when theshareholders of the company were changed, the land development took place and then sold. Lateron the company applied for rezoning in order to make the sub-divisions and finally selling it inthe market. The land was developed as per the requirements and the stakeholders involved in itwere expected to make profits. As per law, the operations are called business when the activities carried out in it allow thepeople to make profits. So, in this case the company was performing land development work andchanging its category into different zones as well as selling it again indicates that businessoperations were taking place. The given transaction, however, was not a onetime event and thenew stakeholders were those people who were in the business of developing and selling the land.Therefore, as per the court observation, the income was taxable or assessable as per ordinaryincome. 4.Statham & Anor v FC of T 89In this case, there were some taxpayers who were trustees of a diseased land. An acquisition ofthe piece of a land was made that was used for the purpose of farming. After few years, half ofthat land was sold to the people of a company and they were the members of the family of thedeceased. So, as the land acquired by these family members, was being used for raising cattle inpartnership. Finally, due to the non-performance of the partnership, the land was sub-divided andsold in the market. So, it was observed that the property was not bought with an intention of making profit and therewas no existence of isolated transaction. The family members were not involved in performingany type of business activity due to the fact that there was no existence of trade on a regularbasis. As we have already stated that income is usually assessed as per ordinary income, whichshould have generated either by making profit due to business activities or any form of isolatedtransaction. In this case, none of the above conditions were fulfilled. Therefore, the sale of land’sincome shall not be taxable as per the ordinary income. 5.Casimaty v FC of T 97
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