Taxation Law and Practice: Analyzing Tax Implications for Rod McLean

This report provides a detailed analysis of taxation laws in Australia and Hong Kong, focusing on income tax assessment for individuals. It begins with an introduction to the Income Tax Assessment Act 1936 and 1997 in Australia and the Salaries Tax in Hong Kong. The main body of the report presents a case study of Rod McLean, a computer system engineer, and assesses his tax liabilities based on his income earned in both countries. The report examines relevant sections of the Income Tax Assessment Act, including those related to assessable income, deductions, and tax rates. It also explores the provisions of Hong Kong's Salaries Tax, including the rates and exemptions. The conclusion summarizes the tax implications for Rod McLean and highlights the key findings of the study. References include books, journals, and online resources related to taxation law and practice. The report provides a comprehensive overview of the tax implications for individuals earning income in multiple jurisdictions. The report is contributed by a student to be published on the website Desklib. Desklib is a platform which provides all the necessary AI based study tools for students.

TAXATION LAW
AND PRACTICE

Table of Contents
INTRODUCTION...........................................................................................................................3
MAIN BODY...................................................................................................................................3
CONCLUSION................................................................................................................................8
REFERENCES................................................................................................................................9

INTRODUCTION
This report highlights the study of Taxation Laws, Australia which is being imposed on
the income of company and individuals which is taxable by the federal government. It comes
under two acts Income Tax Assessment Act 1936 and 1997. And also Hong Kong's Salaries Tax
is mentioned for the assessment of income. Taxable income of any individual can be calculated
by difference between the income assessed and the deductions allowed according to the
provisions. The progressive criteria for rate is being used for individuals which can be from 0-
45% in addition with levy of 2% for medicare in Australia. In Hong Kong it is 2% - !7% or !5%
standard, whichever is lower.
This report mentions the case of Rod McLean who lives in manly and works at Soft
micro Ltd. Company having its office at Macquarie Park as a computer system engineer. In
2017, he was appointed for some job work at RST Ltd., Hong Kong for installation of computer
system, and on successful completion of task he got a holiday trip for Paris along with expenses
and on returning he was offered a job at RST Ltd with higher salary along with incentives and
Rod accepted the offer on September and now seeking advice for assessment of his income.
MAIN BODY
In case of Rod McLean who is 37, lives in Manly and is a computer system engineer in
Soft Micro Ltd which is situated at Macquarie Park Office. In 2017, The Company won the
tender for installation of the computer system at RST Ltd, Hong Kong for which Rod McLean
was appointed for a month. His salary for the month of April was duly deposited in his account
of Westpac Bank account in Manly, which amounted to $8,000. Further, from May 2017, Rod's
salary was deposited in his HSBC Bank Account which Rod opened at Kowloon Branch, Hong
Kong. But the project took 3 months for completion due to some technical problems. And, on
successful completion of the task, Rod McLean was given a holiday package for Paris along with
the expenses voucher of $8,000 and then RST Ltd. Also offered the job for consulting for three
years with a salary of $100,000 annually together with some incentive which included a car and
$40,000 as compensation in two installments, that is $20,000 on joining and $20,000 on
completing one year, to be paid to the Soft Micro Company. This offer was accepted by Rod
McLean on September 2017, and now advise is to be given on his accessibility of income tax.

Income Tax means payment of taxes on the earned income under the Income Tax
Assessment Act which came into force on 1st July 1997, and according to Section 1(4) is
extended to all the extended territories of Australia(Thuronyi and Brooks, 2016). Income Tax
law means the rules, regulations, provisions of the above mentioned Act which calculates the
extent of liability of an individual for payment of tax, imposition of Medicare, withholding tax,
and the tax payable under various sections, such as 276-340(2), 276-820(6),276-410(2), etc.
Section 3(5)
According to Section 3(5), every year individuals who are the residents of Australia and
other entities and corporates are liable to pay the tax on their annual income for the assessment
year, which is imposed under income Tax Act, 1986(Sakurai and Braithwaite, 2019).
Here, in the case of Rod he is liable to pay the tax under the above section as he is the
resident of Australia for the financial year 2017 – 18 in which the month covered will be only
March and April as the income was generated in these two months and then was appointed to
Hong Kong(Jimenez and Iyer, 2016).
Section 3(10)
According to the provisions of this act, Section 3(10), states the obligations of the tax
payers under law, that is, the assessee has to inform and provide all the necessary information
together with lodging the returns for tax to the department(Braithwaite, Reinhart and McCrae,
2019).
Section 4(10)
The tax should be paid fro each financial year on the taxable income earned during that
year. The formula for calculation of the tax on the income earned in a financial year is; Income
Tax = (Taxable Income* Rate)- Tax of Facts(Marr, Duke and Huang, 2018).
Section 4 (15)
Taxable income for the income year can be calculated by adding up all the assessable
income earned during the whole year and finding out the deductions and then deducting the
deductions from the income(Marr, Duke and Huang, 2018). If the amount is negative then there
is loss in tax and positive amount shows the final tax to be paid. Therefore, the formula for the
same is; Taxable Income = Assessable Income- Deductions.
Section 6

According to Section 6 of The Income Tax Assessment Act, 1977, the assessable income
consists of two parts, namely; Ordinary Income and Statutory Income. Some of the incomes are
exempt from tax which are not assessable and can include the above mentioned both the
incomes(Nechaev and Antipina, 2016). But, sometimes, both the incomes, that is, ordinary and
statutory are neither exempted nor assessable. Also, according to Section 6(5), the ordinary
income is the one which is derived in the financial year from all the sources of Australia by its
resident in or out of Australia whether earned directly or indirectly and the same is with the
statutory income(Marr, Duke and Huang, 2018).
Section 15(2)
According to this section, the assessable income of an assessee also includes the values
and amounts provided by the employer for rendering the services in course of employment and
which shall include; allowances, compensation, benefits, gratitude, etc. whether in money or
other form(Barkoczy, 2016).
Rod can take benefits of deductions according to the provisions of law, if any was
provided to him from Soft Micro Ltd in calculation of tax on the income earned from Australia.
Section 28
The provisions of the act under Section 28(13), says that if the assessee owns any car
then, deduction can be taken for its expenses. The car expenses includes any loss or decline in its
value due to its usage or any activity done for car operating(Jimenez and Iyer, 2016). But is does
not include any loss or payment outside Australia or in regard to a car fare or taxi services.
Here, the assessee owned no car and the employer of Australia also has not provided any
car to Rod, therefore, benefit cannot be taken of the deduction while calculation of tax.

Illustration 1: Resident tax rates 2018–19, 2019–20, Australia
Source: (Individual income tax rates, 2019).
Salaries tax of Hong Kong
Income tax is being referred to as Salaries tax in Hong Kong and is the lowest tax
imposed in the world. Progressive rate of tax is being levied having marginal tax brackets which
includes 2%, 6%, 10%, 14%, 17% or the standard rate for the individuals net income is of 15%,
whichever is lower from the above(Oladipupo, and Obazee, 2016). Total Income of the assessee
includes salaries, wages, commissions, allowances, perquisites, tips, etc. and deductions include
charitable donations, interest paid on house loan, etc.
According to the provisions of law, Rod will be liable to pay tax in Hong Kong under
Salaries Tax for the year 2018- 19 and 2019- 20 as the offer is accepted of the consulting job for
3 years in RST Ltd., Hong Kong(Spiro, 2018).

Illustration 2: Personal Income Tax Rates, Hong Kong
Source: (Hong Kong Salaries Tax, 2019).
Income Earned in Hong Kong
If any person has rendered services in Hong Kong then the full income will be chargeable
to tax(Oladipupo and Obazee, 2016). However, there are chances to take partial or full
exemption from tax during a year, under following situations:
 If the services are rendered outside Hong Kong whole year, then in that case income will
be fully exempted from tax(Frecknall-Hughes and Kirchler, 2015).
 Income which is earned in Hong Kong through VISITS, then in that case, the income will
be exempted only when the visit is of not exceeding 60 days.
 Partial exemption can be claimed for the tax payable in Hong Kong if the part of income
tax is charged in some other country, but for the same evidence has to be given of
payment of foreign tax(Braithwaite, Reinhart and McCrae, 2019).
 In case of appointed in Hong Kong by any overseas country for few days and source of
employment is not in Hong Kong, then in that case, the tax will be calculated on the
income earned for giving services in Hong Kong(Spiro, 2018).
From the above stated provisions of Salaries Tax it is concluded that Rod can take benefit
of the holiday expenses and the car provided by the employer for the year 2018- 19 and 2019-20

respectively in Hong Kong and not in Australia and there will be standard rate of tax of 15%
(Barkoczy, 2016). Also, the exemption of tax for the salary of April month can be taken for the
year 2017 as it would already be charged to tax in Australia.
CONCLUSION
In accordance to the above study it has been identified that Rod McLean will be liable to
pay the tax on the income earned in Australia for the year 2017- 18 and from May 2017, the tax
will be imposed in Hong Kong along with availing the exemptions as Rod is rendering services
there and not in Australia. And also, as RST Ltd has made the appointment in September 2017,
therefore the tax will be imposed by Hong Kong Salaries Tax for the remaining year, that is
September 2017 to March 2018, 2018-19 and 2019-20, as the contract for job consulting is of
three years between Rod McLean and RST Ltd.

REFERENCES
Books & Journals
Barkoczy, S. 2016. Foundations of taxation law 2016. OUP Catalogue.
Braithwaite, V., Reinhart, M. and McCrae, J. 2019. Game playing with tax law.
Frecknall-Hughes, J. and Kirchler, E. 2015. Towards a general theory of tax practice. Social &
Legal Studies. 24(2). pp.289-312.
Jimenez, P. and Iyer, G. S. 2016. Tax compliance in a social setting: The influence of social
norms, trust in government, and perceived fairness on taxpayer compliance. Advances in
accounting. 34. pp.17-26.
Marr, C., Duke, B. and Huang, C.C. 2018. New Tax Law Is Fundamentally Flawed and Will
Require Basic Restructuring.Center on Budget and Policy Priorities.
Nechaev, A. and Antipina, O. 2016. Analysis of the Impact of Taxation of Business Entities on
the Innovative Development of the Country. European Research Studies. 19(1). p.71.
Oladipupo, A. O. and Obazee, U. 2016. Tax knowledge, penalties and tax compliance in small
and medium scale enterprises in Nigeria. Ibusiness. 8(01). p.1.
Sakurai, Y. and Braithwaite, V. 2019. Taxpayers' perceptions of the ideal tax adviser: Playing
safe or saving dollars?. Centre for Tax System Integrity (CTSI), Research School of
Social Sciences, The Australian National University.
Spiro, P.S. 2018. Tax policy and the underground economy. In Size, causes and consequences of
the underground economy. (pp. 179-201). Routledge.
Thuronyi, V. and Brooks, K. 2016. Comparative tax law. Kluwer Law International BV.
Online
Hong Kong Salaries Tax. 2019. Online Available
Through:<https://www.guidemehongkong.com/business-guides/staffing-your-
business/hong-kong-salaries-tax-guide>.
Individual income tax rates. 2019. Online Available
Through:<https://www.ato.gov.au/Rates/Individual-income-tax-rates/>.