LAW505 CASE – 1428103

LAW505 CASE

Name

School Affiliation

Law505 Case

Issue

The first thing to note on the subject case is that Philip inherited the 151 Temple Street property from his deceased Aunt in 1st March 2012. The values of the property are also mentioned in the case and the loan Phillip took in the name of the property. Two years later, on September 2020, it can be noted that Phillip married Kim, and the couple had paid out the loan by April 2016. The next year, on 1st July 2017, they bought an adjacent property together, 153-155 Temple Street, one that was significantly larger using a loan and some of the savings they had and took a loan of $800, 000 at a rate of 4.7% per year with the loan that matured in 30 years using the equity in the renovated 151 Temple Street property. They continued residing in their original property of 153 Temple Street on 1st August 2019. There were expenses incurred in the renovations of the property, and they also rented 151 Temple at $759 per week to a cousin from 7th August 2019. The rent was around 10% below market price and the cousin was obligated to provide compensatory labor of renovation.

The couple now has the understandings that even with the rental income, the renovations is taking too long and have been considering selling the property to quickly raise funds to complete the work, and have been noted of the prices of 151 and 153 Temple Street properties. They decided not to sell any of the 151 and 153 Temple Street properties. They continued residing in 153 and renting 151 to Phillip’s cousin. They renovated 155 Temple Street and then sold it on 1st June 2020 at $150, 000. There are also Philip’s and Kim’s salaries and the involved expenditures and tax deductions to consider. Philip and Kim have private health insurance, with no dependents. Philip and Tax now need advice of their tax obligations, inclusive of the estimates of any refund or payable entitlement.

Rule

The Constitution of Australia equips the Commonwealth with the power of imposing taxation under the section 52 (ii) and in making laws with regards to taxes. Section 51 ii specifically, gives the Parliament power of making laws for order, peace as well as the Commonwealth government with regards to Taxation, but ensuring there is no discrimination between the states or even parts of the States (Dollery, Kitchen, McMillan, & Shah, 2020). A law such as the Income Tax Assessment Act 1997 has the assessment provisions, while the Income Tax Rates Act 1986 has the taxation rates imposed by the Government on the taxpayers for the subject financial year.  Section 99 also provides some limitations on the Government. Properties can also be registered as businesses by the Australian Securities and Investments Commission (ASIC), under the Corporations Act 2001 (Victoria University , 2020).

It is also necessary to note that in accordance to the sec. 55 in the Constitution of Australia, the Parliament of Commonwealth needs to make sure the laws that impose taxes only deal with an imposition that come with taxes as well as dealing with the aspect of tax solely. Resultantly, there may be various statutes at the level of Commonwealth, each that impose and regulate an aspect of tax, for instance, income tax, customs duties, exercise duties, property equalization taxes as well as other indirect taxes (Delloitte, 2020).

The major Commonwealth Acts Phillip and Kim’s case will have to include the payments of income tax by people and organizations. These include the Income Tax Assessment Act 1936, the Fringe Benefits Tax Assessment Act 1986, and the Income Tax Assessment Act 1997. The case will also have to consider the taxes imposed on the payment of services and goods; A New Tax System Act 1999 (Mangioni, 2018). There are also the Australian Federal Income Tax Reporter and the Australian Federal Tax Reporter.

 For the State and Territory Legislation, it will be necessary to note that the power of Territories and States in taxing is limited by the Australian Constitution, as a way of ensuring enough revenue levels; as such jurisdictions are likely to impose the other different taxes. Three main State and Territory tax approaches include the Land Tax, Stamp Duty, as well as Payroll Tax, ones the couple will also have to consider. It may also be necessary to note that all the eight Territory and State jurisdictions have their own respective powers of imposing taxes, as a way of ensuring the jurisdiction specific rules get to apply, as well as the taxes being administered by different revenue authorities to their respective by revenue authorities that pursue their own tax administration legislations (Fritz & Brits, 2020). Some of the Territory and State revenue authorities include the ACT Revenue Office, State Office Revenue, various Revenue Rulings, as well as Case summaries.

Analysis

With regards to the subject case, Philip may first not need to worry about any inheritance tax in the course of him inheriting 151 Temple Street from his Aunt on March 2012. The couple will also not need to worry about any net-worth tax, as there is necessarily no net-worth taxes imposed in Australia. However, the couple may need to worry about real property taxes. The different States and Territories in Australia place stamp duty in rates up to 7% in any transfers of the property other than business ones (even though the ultimate rate in a majority of the Territories and States does not necessary go above 5.8%).

Therefore, calculation of tax payable will be:

Stamp duty = 7/100 x 850,000 = $59, 500

Land tax = For Temple Street 151 = 3.8/100 x $370, 000 = $14, 060

                  (from March 2012 to June 2020) = (14, 060 x 98 months) = $1.37 million

                   For Temple Street 153-155 = 3.8/100 x $800,000 = $30, 400

                    (from July 2017 to June 2020) = (30, 400 x 36 months) = $1.1 million

Custom duty from renovations= 5/100 x $100,000 = $5, 000                           

Residence Tax = 30/100 x (759 x 4) = $910.8

                             (from August 2019 to June 2020) = (910.8 x 11months) = $10, 018.8

Least tax payable =

$59, 500 + 1.37 million + $1.1 million + $5, 000 + $10, 018.8 = 2.5 million

When it comes to the subject of Phillip’s and Kim’s employee earnings and deductions, it may be necessary to first note that the legal framework in the employment system of Australia is rather a complex setting of federal and state legislations, some that were mentioned in the rules section, the case laws from the law courts, the legally linking industrial instruments, as well as the decision made on the federal and state level (Fritz & Brits, 2020).  Employees employed by an incorporated entities, like Philip in this case, are usually covered in the federal system of workplace relations.

 A majority of the state jurisdictions had signed an agreement in the year 2009 in referring their respective powers for the subject Commonwealth in the main goal of having to create a truly national system of industrial relations by a few employees that were for the creation of a truly national system of industrial relation. Since Kim was essentially employed by contractors, he may not fall under the category of the federal system.  In the calculations of their potential aggregate deductions, it will be necessary for Philip and Kim to keep in mind that the government of Australia has a super co-contribution system.

Conclusion

Although Philip may not have to cope with inheritance tax, the couple will have to cope with the calculated taxes of property transfer to the buyer, income tax on the rent payed by the cousin, and the potential labor taxes such for the renovations that were also conducted. There are employees taxes that the duel may need to cope with. The expenses Philip went through during his business trip and the renovation costs can be considered as deductions and reliefs (Berg & Davidson, 2017). The taxation process of Australia usually takes expenses as deductions in the case they are faced in producing or gaining assessable salary. Charitable donations in the charities that are Australian-registered can be regarded as tax deductible. The expenses in the private, capital and domestic nature may not necessary be deductible. Since the two are Australian residents, they may be allowed some tax offsets, inclusive of dependents (which they not have anyway), low-income earners as well as pensioners.

Letter to Philip and Kim Summarizing their Tax Position

The calculations of the least tax payable comes from, firstly, the fact that there will be a stamp duty imposed on the couple at the time they bought 153-155 Temple Street (Fritz & Brits, 2020). Since they bought this property at $850,000, the likely imposed tax with be $59, 500 at most (7%). Since they are not nonresidents, they will not need to worry about the surcharge of stamp duty that applies for the nonresidents purchasing property, as the leading rate is usually 13.5%.

There is also the fact that Municipal council in territories and states that levy rates as well as other charges on land owners in funding a couple of local services, infrastructures, and facilities. Council rates may be calculated with references to the valuation of property. All except some of the territories and states levy property tax in the subject land that owned in their jurisdiction. One of the exemptions may apply to some specific categories of land, inclusive of the individual’s residence. The land tax may general be calculated referring to the subject site and the value in the land (Mangioni, 2018). The fact that the property seems to be in a commercial area is a reason to worry about the accumulating land taxes. Graduated rates of land tax apply, and this will depend on the land value, with rates that vary between the different territories and states levying the tax (most high rates range from 1.23% to 3.8%). Therefore, this will be a subject of concern to the couple, together with the renovation processes that can be categorized as local services, infrastructures, and facilities.

The couple may also need to consider exercise and customs duties. The practice of customs duty can be payable on the goods imported to Australia, an aspect the couple may not need to worry about, although there exists many tariffs essentially duty free (Dollery, Kitchen, McMillan, & Shah, 2020). The most apparent duty rare that can be applied on dutiable goods is currently at 5%. Duty concessions may be availed in the situation where no manufacture is there of different substitutable services in the country, and according to various multilateral and bilateral free business agreements.

Also, since there was the instance when Philip and Kim rented 151 Temple Street to Philip’s cousin at $759 per week, there may be a need to be concerned about residence tax as well as taxable incomes and rates. A business is resident in Australia only in the case where it is included in the Australia or, in the case it may not necessarily be incorporated in the country, it carries on the business in the country and either practices central control and management in the country or in the case it has it power of votes by the shareholders that are Australia’s residents. In this case, the couple may not need to worry, as they are residents of the country (Mangioni, 2018). However, the location of the rented apartment as a central control and management will be a question of consideration, one that has to be determined in accordance to all the given circumstances and facts.

In principle, the rented property may be liable for the enterprise income taxes on its global income, even though there are types of foreign incomes that are exempted, ones the couple does not need to worry about. Generally, tax rates are the same in a majority of companies, inclusive of all the branches of foreign companies, even though there may be exceptions for specific situations, such as corporative enterprises, mutual ones as well as other companies of life insurance and also nonprofit organizations. The rented property may be imposed an income tax rate of 30% (Dollery, Kitchen, McMillan, & Shah, 2020).

References

Berg, C., & Davidson, S. (2017, January ). “Stop This Greed”: The Tax-Avoidance Political Campaign in the OECD and Australia. ECON JOURNAL WATCH, 14(1).

Delloitte. (2020). Taxation and Investment in Australia 2018. Retrieved Sept 28, 2020, from https://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=&cad=rja&uact=8&ved=2ahUKEwi39oL_5YzsAhVCQhoKHdyrATAQFjAMegQIBhAB&url=https%3A%2F%2Fwww2.deloitte.com%2Fcontent%2Fdam%2FDeloitte%2Fglobal%2FDocuments%2FTax%2Fdttl-tax-australiaguide-2018.pdf&us

Dollery, B., Kitchen, H., McMillan, M., & Shah, A. (2020, June 02 ). The Practice of Real Property Taxation in the World. Local Public, Fiscal and Financial Governance, 39-89 . Retrieved Sept 28, 2020

Fritz, C., & Brits, R. (2020, June 30). Does the ‘pay now, argue later’ approach in the Tax Administration Act 28 of 2011 infringe on a taxpayer’s right not to be deprived of property arbitrarily? South African Journal on Human Rights.

Mangioni, V. (2018). Improving taxpayer information in the assessment of land tax: a case study of Sydney, Australia. Journal of Property Tax Assessment & Administration, 15(2), 5-17.

Victoria University . (2020). Bachelor of Laws: Taxation Law. Retrieved Sept 29, 2020, from https://libraryguides.vu.edu.au/law/taxation-law