Determination Of The Residential Status Of ABC Ltd - Samples

Question: Discuss about the Determination Of The Residential Status Of ABC Ltd And Peter And His Wife. Answer: Issues: The current issue is concerned with the determination of the residential status of ABC Ltd and Peter and his wife. The company in the current situation is incorporated in Brunei with major part of the shareholder residing in Australia. However, all the members of the board were residing in Australia with central and management and control is exercised from Australia. Additionally, the situation also highlights that Peter who is a resident of Australia is appointed as the plant manager for ABC Ltd and was offered with the contract of two years to shift from Australia to Brunei. Additionally, Peters wife accompanied him to Brunei and while he was in Brunei she took a part time employment as the English teacher. Rule: To determine the residential status of a company there are certain criteria that need to be considered under section 6 (1) of the ITAA 1936. To determine the residential status of a company it is necessary to take account of place of incorporation test as under this test company that is incorporated in Australia is considered as the Australian resident notwithstanding of any factors (Barkoczy 2014). The taxation ruling of TR 2017/D2 defines the concept of central management and control. The ruling provides two limb test to determine who exercises the central management and control. Furthermore, the ruling provides where the central management and control is exercised. As held in the case of Bywater Investment Ltd Ors v Federal Commissioner of Taxation (2016) the court oflaw stated that the plaintiffs were regarded as the resident of Australia relating to income tax purpose during the applicable years and will be considered liable to tax in Australia. With respect to section 6 (1) of the ITAA 1997 the judgement passed by the court of law stated that the central management and control for each of the applicant was situated in Australia (Brokelind 2014). Hence, each of the plaintiff would be held as Australian resident for income tax purpose. To ascertain the residential status of a person for taxation purpose the taxation ruling of TR 98/17 provides guidance. Under the ordinary test of residence, a person is regarded as the Australian resident if it is found that person resides in Australia (Coleman and Sadiq 2013). There is no such single test to ascertain whether an individual is considered as the Australian resident. The 183-day test is performed on the person that have been present in Australia for more than one half of the income year either continuously or in breaks unless it is found that the person does not have the intention of taking up the permanent place of abode in Australia (Grange et al. 2014). The person would be said to have the constructive resident in Australia. Domicile Test is applied on those people that are the resident of Australian and have their domicile in Australia. Unless, it is considered that the person place of abode is outside Australia and does not have the intention of taking up the residency in Australia. The domicile of the individual is ascertained under the Domicile Act 1982 (James 2015). An individual acquires the domicile of their origin by birth. An individual also acquires the domicile by the operation oflaw or by their own choice indefinitely. As held in the case of Applegate v Federal Commissioner of Taxation (1979) the court oflaw held that permanent cannot be considered as everlasting or forever and measures the objectivity each year (Jover-Ledesma 2014). The taxpayer in this case had the permanent place of abode outside Australia and after falling the taxpayer had to return to Australia. Therefore, in respect to this case it is not real to consider whether the person has formed the intention of residing or having the permanent place of abode outside Australia for an indefinite period without the intention of returning to Australian in the foreseeable future. Conceivably the most vital element is whether the person has uninhibited any residence or the place of abode that he or she held in Australia. The Superannuation test is taken into the consideration to determine the residential status for government employees of Australia that are posted in overseas nation and will be considered as the Australian resident (Kenny 2013). Section 6-5 of the ITAA 1997 defines income from personal exertion as the income derived from salaries, wages, fees or income from services provided or proceeds derived from business carried on by the taxpayer (Krever 2013). On noticing that a person is held as the overseas resident then the ordinary income and the statutory income would be held assessable that is earned from Australian sources. An Australia resident are held liable for tax for all source of income. As held in the case of Federal Commissioner of Taxation v French (1957) the definition of service refers to the performance of service. The court has also defined dividend in Nominees Ltd v Federal Commissioner of taxation (1973) as the place from where a company derives profit. Application: As evident in the current situation of ABC Ltd it is found that the company is incorporated outside Australia in Brunei. Furthermore, the operations of the ABC Ltd are executed outside of Australia in Brunei. Therefore, the company fails under the first test. However, an important consideration is that the central management and operations of the company is located in Australia as during the year 2015 the board of directors are found to be taking decisions that governs the operation and policy of the company in its board meetings. The board of directors meet each month in Sydney to decide upon the operational policy and management of the company. In respect to ABC Ltd the company meets the criteria of central management and operations of the company is situated in Australia as Board of directors are found to be taking to decisions from Sydney. Following the considerations of the implications or the effects the decision made by the board of directors, it can be stated that the central management and control of ABC Ltd resided in Australia for the year 2015. Referring to the Federal Commissioner of Taxation v Malayan Shipping Co Ltd (1946) the genuine business decisions were made by ABC Ltd in Australia (Krever 2015). The nature of business activities advocates that monitoring of overall business functions took place in Australia. Additionally, referring to Bywater Investment Ltd Ors v Federal Commissioner of Taxation (2016) ABC Ltd and its directors would be regarded as the Australian resident for the purpose income tax during the applicable year of 2015 and will be considered liable for assessment in Australia. For the year ended 2016 it is noticed that one of the board members have has shifted to Brunei so that the member would be to corporate with the functions of the business together with the plant manager. The case study evidently provides that decisions that are taken by the board of directors will be regarded as the tentative (Morgan, Mortimer and Pinto 2013). The same requires to be effectively analysed based on the fact that functional scale in Brunei has expanded and the manager are forced to determine the personal contact for performing the business activities. This evidently suggest that the period of 2016 onwards the place of central management and control for ABC Ltd was located outside Australia. On the other hand, Peter, a residency test is performed to determine the residential status sensibly. In the ordinary sense there are numerous factors that applied in determining the residential status (Sadiq et al. 2014). Considering the situation of Peter, it can be stated that he travelled to Brunei and accompanied his wife and daughter with himself. During his absence from Australia Peter rented out his residence and took a lease house in Brunei. To ascertain the residential status of Peter domicile Test is performed with respect to Domicile Act 1982. As evident from the current case study it can be stated that the permanent place of residence or abode was in Australia before deciding to move in Brunei on a two-year employment agreement with ABC Ltd. In spite of the fact that ABC Ltd provided peter with a one-year extension of contract following the second year of employment contract. However, peter declined the extension of contract and expressed his intention of returning to Au stralia with his wife and daughter. Taking account of the Taxation ruling of IT 2650, a reference to Section 995-1 of the ITAA 1997 can be made relating to the domicile of Peter origin and would held as the Australian resident under the Domicile Test (Woellner 2013). Additionally, peter did not express the intention of staying in Brunei or establishing a permanent place of residence out of Australia. While his stay in Brunei Peter had rented out his Melbourne home and derived rental income. He also derived interest income into his Australian Bank account. Referring to the case of Applegate v Federal Commissioner of Taxation (1979) it can be stated that Pater maintained the permanent place of abode in Australia during his absence for employment purpose (Woellner et al. 2014). Additionally, Peter has not abandoned any of his residential place or dwelling which he held in Australia. Citing the reference of Jenkins v Federal Commissioner of Taxation (1982) Peter evidently expressed his intentions of not staying in Brunei as he turned down the intention of staying in overseas nation despite being provided with the extension contract (Blakelock and King 2017). Hence, Peter has passed the criteria of Domicile Test and will be regarded as the Australian resident. The 183 days and the superannuation test is not applicable on Peter. As under the 183 days test Peter did not resided in Australia for a period of two years that ranged from 2015 to 2017. Furthermore, the superannuation test is also not applicable in relation to Peter since he is not the government employee. On the other hand, Peters wife accompanied with him to Brunei. There is may be factors that may reflect that for the period of two years she undertook the decision of residing outside of Australia but cannot that intended to permanently abandoned the place of residence in Australia. though she took the part time job as the English teacher during her stay in Brunei but would be regarded as the Australian resident under the domicile test with respect to Domicile Act 1982. The 183 days cannot be applied on Peters wife as she was not present in Australia for 183 days during her stay in Brunei. Furthermore, the superannuation test is not applicable on Peters as she is not a government employee. Section 6-5 of the ITAA 1997 defines income from personal exertion as the income derived from incomes, salaries, fees or income from services provided or proceeds derived from business carried on by the taxpayer. On returning to Australia, Peter started to business of practicing accountant in Melbourne. He received fees from his practice which would be held taxable under section 6-5 of the ITAA 1997 as the income from personal exertion. Citing the reference of FCT v French (1957) the receipt of fee income represented business income that was carried on by the taxpayer and the same will be held taxable under section 6-5 of the ITAA 1936 (Robin, Barkoczy and Woellner 2018). Peter also derived rental income and dividend from the Australian sources. Referring to the case of Nominees Ltd v Federal Commissioner of taxation (1973) it can be stated the Australian sourced income derived by Peter will be considered taxable under section 6-5 of the ITAA 1936. Conclusion: The case study can be concluded by stating that ABC Ltd will be regarded as the Australian resident company for the year 2015 since the control and operations of the company was carried out in Australia. The company has satisfied the central management and control operations for 2015 and will be considered as resident company for taxation purpose. However, in 2016 and 2017 it would not be regarded as Australian resident company since one of its board members have moved to Brunei to manage company affairs. Similarly, Peter and his wife will be regarded as Australian resident since he satisfies the domicile test under domicile act 1982. References: Barkoczy, S. 2014. Foundations of taxation law. Brokelind, C. 2014.Principles of law: function, status and impact in EU tax law. Amsterdam: IBFD. Coleman, C. and Sadiq, K. 2013.Principles of taxation law. Grange, J., Jover-Ledesma, G. and Maydew, G. 2014 principles of business taxation. James, M. 2015.Taxation of small businesses. 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