Table of Contents
Calculation of Taxable Income
Calculation of Taxable Income:
Man of the match award
Less: Stolen amount
(105,800- 58,00)= 100,000
Rent from Melbourne unit
Less: Expense and deductions
Agent fees for signing
Personal assistance fees
Cleaning and repairs cost
Property management fees
The following are the assumptions made for the calculation of net tax payable by Payne:
Marginal tax rate: 45%
This means for an annual income of $393,770 Payne will pay:
No tax on income between $1 - $18,200 $0
19c for every dollar between $18,201 - $37,000 $3,572
32.5c for every dollar between $37,001 - $90,000 $17,225
37c for every dollar between $90,001 - $180,000 $33,300
45c for every dollar over $180,000 $96,196
Income tax payable $150,293
The above calculation is done on the basis of Australian progressive tax rates where the Medicare levy is not included as due to the fact that Payne himself does not want to opt for any Medicare scheme. In addition to that, Payne can offset the loss amount that was lost as his personal assistant stole $5800 from his endorsement earnings. However, he cannot offset the amount that he paid as interest for late filing of income tax return along with cost paid to the firm for filing the same.
Taxpayers also get compensation payments if they are experiencing commercial and other damages. The character of a receipt of compensation will typically depend on what the sum is earned for. Payments that cover, cover or compensate a taxpayer for loss of income products, or sums that would have been received on an income report, are usually payroll-type. Compensation earned in the form of 'interest' for the temporary loss of money usage would usually be of a type of revenue. In Federal Wharf Co Ltd v Federal Commissioner of Taxation, the High Court held that interest paid on a amount of money owed to a corporation under the Harbors Act 1913 (SA) as compensation for the compulsory acquisition of its land was revenue. "The Act measured interest" from the time the Minister joined the profession to the time when compensation was received. Rich J described the interest as a receipt of income on the grounds that it was a 'reward for lack of capital use during a time in which it earned income. In Riches v Westminster Bank Ltd, where a court granted taxpayer damages in relation to a dispute over a sum of money, a similar decision was drawn. The awards contained interest on the money from the date on which the object of the case occurred until the judgement date. The House of Lords found that the interest was of a revenue nature. The Court, however, held that 'post-judgment interest' owed on the remaining balance of the judgement was reasonably defined as income-related, because it was detached from the underlying personal injury action.
In this case, if Winning Dream Casino Ltd receives the compensation through the orders of court amounting to $3million and additional $1 million, that income will be considered as ordinary income under section 6-5 of ITAA 1997 and will be assessable to be taxed under ITAA 1997 and 1936. The intangible rights are eligible to be protected such as reputation and goodwill and loss of such rights can be compensated by other parties. Such compensation according to common law rule and precedent is said to be an income which implies the income tax treatment accordingly. Subsequently, in case Winning Dream Casino is not awarded damages by the court the above principles will not be applicable and will have to borne the damages by themselves for the public health safety as prescribed by the Australian courts.
Federal Commissioner of Taxation v Rowe is the leading Australian case concerned with reimbursements. This case involved a taxpayer who had received an ex gratia payout from the government of Queensland to compensate him for legal expenses incurred by him in connexion with a successful suit he had brought for unfair dismissal against the local council. The argument before the High Court was whether his assessable income should include the reimbursement of those expenses. The Court held that the reimbursement was not of an income type, since it was not a compensation for its services in any way. Whether such expenses are income or capital in nature is the key problem that occurs under the general deduction clause in relation to legal expenses. This problem arose, for example, in Hallstroms Pty Ltd v FC of T, where the taxpayer, a refrigerator maker, incurred legal expenses in challenging the application of a rival maker to expand its refrigerator patent. When it expired, the taxpayer was preparing to manufacture refrigerators based on this patent. In some subsequent cases dealing with the deductibility of legal expenditures, the business entity test, which was relied on by the minority at Hallstroms, was applied. In Broken Hill Theatres Pty Ltd v FC of T, for example, a taxpayer running a Broken Hill theatre was refused deductions for legal costs incurred in successfully challenging a rival 's application for a theatre licence. The High Court relied on the business entity test to conclude that capital in nature was the benefit of being free from competition. In this case, the expenditure was incurred for the purpose of maintaining and maintaining the profit of the company, according to the Court. The fact that the legal costs did not produce for the taxpayer any new assets did not preclude the expenditure from being regarded as capital.
However, all these principles were rejected when the intention and nexus test was brought into action through the case of Ronpibon Tin NL v FC of T, where the court held that it is important to consider whether the cost was incurred that would help the company or individual to earn more assessable income. If the answer is yes then it must be deductible under positive limbs of section 8-1 of ITAA 1997. Therefore from the application of this principle, it can be said that, the legal fees paid by Winning Dream Casino Ltd is deductible as it was incurred to defend their reputation and goodwill which will bring them more customer leading to more earning of assessable income.
For the purpose of taxation, it is first essential to determine the residential status of an individual which will determine the the tax liability or the form of tax payable by the taxpayer. In the given factual scenario, Herman who has been offered a 24 month employment contract in Papua New Guinea will become a non-resident of Australia in case he accepts the offer of employment from WHO. Now, there are multiple tests for determining the the residency of a person. First is the resides test, which says that an individual is a resident if he has permanent dwelling place according to the ordinary meaning of dictionary. In the end, the place where a individual resides is a matter of fact as decided by the case of Federal Commissioner of Taxation v Miller. This must be calculated by comparison to all of the case's circumstances. In TR 98/17 the Commissioner claimed that the nature and character of a person's actions while in Australia would help to decide where he or she resides. The following considerations will be analysed by the Commissioner:
Another example is found in IRC v Lysaght, which concerned a taxpayer who retired as an English company's managing director and moved from England to Ireland with his family to live on a large estate. The taxpayer was subsequently appointed as the English company's advisory director and was expected to visit England each month for approximately one week. The taxpayer lived in hotels or at his brother's house while they were in England. The House of Lords again held that, on the facts of the case, it was open to the Inland Revenue Commissioners to regard the taxpayer as the UK's 'usual citizen.'
Herman according to these principles, intends to move to Papua New Guinea by selling his existing home in Australia which will change his place of dwelling imparting new citizenship of a country. The family of Herman will also move to Papua New Guinea with him for his job. After sale of Australian properties Herman will not have ties with Australia therefore becoming a non-resident. After starting to live in a new country Herman and his family will start to have new social and living relationship in Papua New Guinea which will negate their Australian residency.
Permanent Place of Abode test:
According to the case of R v Hammond, residency can also be decided according to the place of abode of an individual. In a variety of cases, it has been deemed whether or not a place of abode is 'permanent.' The cases show that the word "permanent" is not taken to mean "eternal," but rather "more than temporary or transitory." The authority for this concept comes from Federal Commissioner of Taxation v Applegate, which involved an Australian lawyer who had been appointed by his firm to set up a subsidiary in the New Hebrides. Even if a taxpayer's stay outside Australia is for a fixed time only, the taxpayer can still have a permanent place of residence outside Australia, as long as the stay is for a significant duration. This is illustrated in Federal Commissioner of Taxation v Jenkins, where a bank officer with his wife and family had been moved from Australia to work in the New Hebrides office of the bank for a three year period. The Supreme Court of Queensland, relying on Applegate, ruled that the taxpayer's permanent place of residence was in that country rather than Australia for the time that he served in the New Hebrides. Therefore, from the application of this principle, Herman will have his permanent place of abode changed from Australia to Papua New Guinea.
The 183 days test:
An person is a citizen of Australia if he has been permanently or intermittently in Australia for more than half of the year of income, unless the Commissioner is satisfied that his normal place of residence is outside Australia and that he does not wish to reside in Australia given in section 6(1)(a)(ii) of ITAA 1997. A taxpayer basically has to complete atleast 183 days in the country to become liable for paying income tax in Australia. But in this case when Herman will not be staying for 183 days since his leave from the country, no income tax implication will arise.
An person is an Australian citizen whether he or she is a:
Broken Hill Theatres Pty Ltd v FC of T (1952) 85 CLR 423
Federal Commissioner of Taxation v Jenkins 82 ATC 4098
Federal Commissioner of Taxation v Applegate 79 ATC 4307
FC of T v Rowe 97 ATC 4317
IRC v Lysaght  AC 234
Jarrold v. Boustead (1963) 41 TC 701
Federal Commissioner of Taxation v Miller (1946) 73 CLR 93
Hallstroms Pty Ltd v FC of T (1946) 72 CLR 634
Federal Wharf Co Ltd v FC of T (1930) 44 CLR 24
Federal Commissioner of Taxation v. Dixon (1952) 86 CLR 540
R v Hammond (1852) 117 ER 1477
Riches v Westminster Bank Ltd  AC 390
Ronpibon Tin NL v FC of T (1949) 78 CLR 47
Scott v. Federal Commissioner of Taxation (1996) 117 CLR 514
Pickford v. Federal Commissioner of Taxation (1998) 40 ATR 1078
Taxation Ruling: 1999/17: Income tax: sports people - receipts and other benefits obtained from involvement in sport
Taxation Ruling: 98/17: Income tax: residency status of individuals entering Australia
Remember, at the center of any academic work, lies clarity and evidence. Should you need further assistance, do look up to our Law Assignment Help
Proofreading and Editing$9.00Per Page
Consultation with Expert$35.00Per Hour
Live Session 1-on-1$40.00Per 30 min.
Doing your Assignment with our resources is simple, take Expert assistance to ensure HD Grades. Here you Go....