A firm like Bart Mart Pty Ltd may sell its stock assets, such as workplace furniture, a building, or land, while conducting business. Additionally, it has the option of using a portion of its trading stock to pay for items other than currency. Property sales proceeds are regarded as generating an assessable profit. Bart Mart Pty Ltd sold a depreciating piece of property that it had bought in 1984 and made a profit of $450,000 on it. According to Section 6-5(1) of the revenue Tax Assessment Act of 1997 (ITAA97), any revenue derived from ordinary concepts—also known as ordinary income—is included in a company's assessable income. The under section 6-5(2) assessable profit refers to any taxable income that a company is payable after determining the admissible deductions. Assessable profit helps to calculate a company’s taxable income depending on the losses or gains of capitals.
In the case involve Bart Mart Pty Ltd, the profit acquired from the sale of land is assessable profit include the amount acquired after selling any depreciating assets. It also includes net capital profit from sales of some capital assets such as buildings and land. Based on the provisions of Income Tax Assessment Act of 1997 when a firm trades on a depreciated land, it becomes an assessable profit if the business disposes it for higher amount than its depreciated value. The legislation point out that when a business sell a depreciated property, any acquired profit acquired from depreciated worth is considered a capital gain. Therefore, in the case of Bart Mart Pty Ltd, the company gained $450,000 from the sale of depreciated land, which is categorized as an assessable tax. The value of market in any transaction that does not involve cash is also included in assessable profits such as barter trade.
Moreover, payment acquired from isolated business especially those from outside the operations of business. For instance, some of the rulings in Australia that dealt with assessable income on depreciating value of assets include TR 98/1, which ruled on the income, earnings and receipts, and TR 92/3, which determined whether profits gained on isolated businesses are assessable income. Moreover, various cases in Australia ruled on the issue of assessable income and profits. Some of these cases include Commissioner of Taxation (NSW) v. Cam and Sons Ltd in 2003, the Commissioner of Taxes (SA) v. Executor Trustee and Agency Company of SA Ltd in 2001 and FC of T v. Montgomery in 1999. Precisely, TR 92/3 ruling offers direction in defining whether returns from isolated business are assessable income and hence calculable pursuant to the Income Tax Assessment Act 1936 under section 25(1). The ruling suggested that ‘isolated dealings’ refer to any businesses separate from the normal course of trade of a taxpayer running on a business.
However, the TR 2001/12 on capital gain tax and income tax ruled that a business that sells a depreciating asset and gain a profit it should benefit from depreciation recapture. More importantly, Mart Bart Pty Ltd would be charged a tax on depreciation recapture because it sold its property than its devaluation price. Depreciation recapture is a break or deductions from the normal capital gain in case of depreciation.
Question 2
Why does the Commonwealth Parliament enact different kinds of Assessment Acts and Taxing Acts instead of one General Taxation Act?
Commonwealth Parliament or Federal Parliament has constitutional powers to enact different kind of law in regards to taxation. The powers of this parliament are derived from the Australian constitution under Section 96, 55, 53, 90 and 51(ii). However, pursuant to Section 51(ii) of Australian Constitution, the commonwealth parliament is barred from making laws that discriminate against some parts of the states or different states. The broad powers of the Commonwealth Parliament to impose taxation should be applied based on Section 51. The powers of Australian parliament under Section 51(ii) should work in partnership with Section 90. The Commonwealth Parliament legislate various types of Assessment act and taxing act because when it has recommended to charge a tax on any matter of taxation it must undertake that objective through two acts, which are Taxing Acts and Assessment Acts. In this respect, the Assessment Act helps the legislature to essentially levy the tax and imposes the tax rate. On the other hand, the Taxing Act offers for the collection, assessment and incidence of tax. For this reason, the General Taxation Act would not provide a chance for tax rate enactment, collection and incidence.
Moreover, Section 90 of the Australian Constitution empowers the Commonwealth to impose custom duties and excise. Therefore, any particular state that enacts a tax legislation that can be described as an excise or custom duty is considered unconstitutional. For this reason, General Taxation acts would not accomplish the objectives and goals of a federation such as equitable and non-discriminatory taxation between the states in Australia. Furthermore, the Commonwealth enact different types of Assessment Acts and Taxing Acts in order to avoid imposing taxation of properties owned by the state. In this respect, the Commonwealth establishes exceptions on taxes that apply on some states.
Question 3
The residency of a taxpayer is very important to the operation of Pt. 3-1. Explain
What is the consequence of being a non-resident
A non-resident can decides to have investment in the country by purchasing stakes in an Australian company. Common commercial exercise may be to analyse the tax policy consequences in Australia based on the investment particularly those pertaining to treatment of profits or gain generated from any successive interest disposal. The Income Tax Assessment Act 1997 offers general provisions under Pt. 3-1, which concern the capital profits generated by taxpayers in case the capital assets are sold off after September 1985. Moreover, a non-resident can only gain a capital profit or loss in case a Capital Gain Tax event occurs to a Capital Gains Tax (CGT) asset that has the important link with Australia. Therefore, a non-resident is supposed to pay tax from interests or shares from a domestic private company. Similarly, he/she should pay taxes accrued from shares portfolio of exceeding 10 per cent of the allotted value of shares in a domestic public firm. Precisely, the “Capital Gains Tax event” occurs to a “Capital Gain Tax asset” in circumstances where a non-residence sells of stakes in Australian company. An increase in capital may occur based on the sellable profits. Supposing the non-dweller is ostensibly applicable to CGT, the sales profits repatriation to the individual’s residing country can lead to double duty. Therefore, a Double Taxation Agreement (DTA) can be used to assess the rights of taxing.
What happens when a taxpayer changes residency?
When a person stops being an Australian resident after leaving the country, the Australian Tax Office deems some of his/her assets especially those not regarded taxable assets to have been sold for Capital Gain Tax reasons. Therefore, the person becomes accountable to pay tax under CGT. The person can also decide not to have this assumed disposal apply. However, if he/she do subsequently sells of the asset, the Australian Tax Office take into account the entire time of ownership including the time when he/she ceased to an Australian dweller, hence it can assess a loss or gain for CGT reasons.
Moreover, if an Australian changes residence and subsequently cancel his/her private medical insurance while moving abroad he/she may be accountable for the levy charged to cover Medicare in cases where the income surpasses the appropriate threshold. Similarly, the person travelling abroad but has debt accrued from trade support as well as loans from higher education, he/she would be liable to the same repayment regulation as people living in the country. This is applicable if the person already stays or intends to live abroad for more than half a year in any 12-month time. Furthermore, his/her family dependants should have patient medical cover in order to evade paying the extra charge. When a person changes residence, he/she suspends or cancels his/her cover, the family dependants may be responsible of extra charges if the threshold of income is exceeded.
Bibliography
Australian Taxation Office. "When You Leave Australia". Ato.Gov.Au, 2017. https://www.ato.gov.au/individuals/international-tax-for-individuals/going-overseas/when-you-leave-australia/.
Australian Taxation Office. "Assessable Income". Ato.Gov.Au, 2017. https://www.ato.gov.au/business/income-and-deductions-for-business/assessable-income/.
Australian Taxation Office. "Taxation Ruling TR 92/3 Income Tax: Whether Profits On Isolated Transactions Are Income". Ato.Gov.Au, 2017. https://www.ato.gov.au/law/view/document?DocID=TXR/TR923/NAT/ATO/00001.
Australian Taxation Office. "Taxation Ruling TR 2001/12 Income Tax And Capital Gains Tax: Capital Gains In Pre-CGT Tax Treaties". Australian Government, 2017. http://law.ato.gov.au/atolaw/view.htm?locid=TXR/TR200112/NAT/ATO&PiT=20061004000001.
Australian Taxation Office. "What To Include In Your Assessable Income". Ato.Gov.Au, 2017. https://www.ato.gov.au/Business/Income-and-deductions-for-business/Assessable-income/What-to-include-in-your-assessable-income/.
Lane, Dianna. "Australia's Double Tax Agreements: Gains From The Sale Of Shares By Non-Residents.", 2010. http://AUSTRALIA'S DOUBLE TAX AGREEMENTS: GAINS FROM THE SALE OF SHARES BY NON-RESIDENTS.
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