A Case Study Analysis of Carol McKendrick

On the basis of the documents provided, it is clear that Carol McKendrick spends more than half of her calendar year outside of the country. In this regard, the main issue regarding the taxation purposes would be to determine her residency. There are specific tests used by the Australian tax office to determine the residency of a person and whether or not they fall under its jurisdiction (Whiteford, 2010). The resides test, also known as the domicile test, under the subsection 6(1) of the Income Tax Assessment Act 1936 can be used to determine residency of Carol McKendrick (Federal Register of Legislation, 2019). The critical requirement of these tests is that the person should have a domicile or place of abode in Australia. Since she is a citizen of the country and runs her own business of importing widgets in Australia, it is clear that she has home in the country. This makes her a resident of the country. This was a significant issue because according to taxation laws, a person should spend more than 183 days in the country to be called as a resident. However, there is an exception to this law which also states that the person should have their own home in the country. Since Ms McKendrick fulfils this requirement, she can be considered a citizen of the country.

Another aspect in this situation is regarding calculating the tax liability under the Income Tax Act. According to the taxation law, there is a distinction between income and capital receipts (Grant, et al., 2013). Her taxable income can be computed based on her PAYG payments from Compass, capital assets gains from the sale of the estate, dividends received from WestPoint, income from the business for importing and distributing widgets in the country and for termination of the distribution. The PAYG system, tax is deducted from salary by the employer (Australian Taxation Office, 2019). However, since in this case, Ms McKendrick also runs her own business and has earned money through the sale of assets as well as from dividends, her taxable amount is more than $6000. Thus she will be required to file for income tax separately as well. The tax from her salary will be deducted and filed by her employer, i.e. Compass. This system also defines that if there is any non-salary income, then the concerned person will receive credit for the tax paid under PAYG (Australian Taxation Office, 2019).

Her payment of $629 will be deducted from the taxable amount. This is because she had to purchase such products because of her work as a flight attendant. It has been stated under the PAYG system that any work-related expenses such as uniforms, work-related travel, etc. should be deducted from the taxable amount (Uadiale, 2010). While on the other hand, dividends that she gained from WestPoint will be added to the total amount taxable. Herein the amount added will include both the flanked amount and flanking credits. This is to avoid the issue of double taxation. Similarly, the taxable amount will also consist of the debit card transactions, invoices for sale and purchase of both the property and for purchases made for widgets (Devos, 2013).

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REFERENCES

Australian Taxation Office, 2019. PAYG Installments. [Online]

[Accessed October 2019].

Whiteford, P., 2010. The Australian tax-transfer system: Architecture and outcomes. Economic Record, 86(275), pp. 528-544.

Grant, R., Grantley, T. & Lanis, R., 2013. The impact of board of director oversight characteristics on corporate tax aggressiveness: An empirical analysis. Journal of Accounting and Public Policy, 32(3), pp. 68-88.

Uadiale, O., 2010. An empirical study of the relationship between culture and personal income tax evasion in Nigeria. European Journal of Economics, Finance and Administrative Sciences, 20(1), pp. 116-126.

Devos, K., 2013. Do penalties and enforcement measures make taxpayes more compliant? The view of Australian tax evaders. Far East Journal of Psychology and Business, 12(1), pp. 1-9.