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Analyze the Australian tax consequences for Rosemarrie Alexander stemming from her financial transactions related to her move to Singapore, including her borrowing to purchase shares in Global AIH Ltd, the rental income received from her Australian home, and her dividends from the company. Include relevant legislation and case law, particularly focusing on the tax implications of dividends paid to residents and non-residents.

Assess the tax implications of Rosemarrie’s rental income of $5,000 after deductions and the fully franked dividends amounting to $2,500 received from Global AIH Ltd. Discuss the deductibility of the interest payments of $5,650 on her Commonwealth Bank loan used to purchase shares. Consider the principles of Australian taxation law, especially concerning source, residency, and franked dividends, supported by case law references such as FCT v. Duke (1959), and relevant provisions under the Income Tax Assessment Act 1936 and 1997.

Sample Paper For Above instruction

Introduction

Globalization has significantly impacted the tax obligations of individuals involved in international transactions and cross-border income flows. Australian residents and non-residents are subject to different tax regulations concerning income sourced domestically and abroad. This paper examines the Australian tax implications arising from the financial transactions of Rosemarrie Alexander, who, upon relocating to Singapore for a five-year period, engaged in activities that have specific tax consequences under Australian law.

Background and Context

In July 2015, Jarrold Alexander was transferred to Singapore by his employer, Global AIH Ltd, for an extended period, bringing his spouse, Rosemarrie. During this period, Rosemarrie borrowed funds to purchase shares in the company and received income from rental properties and dividends. The key issues involve the tax treatment of rental income, dividends, and interest payments, especially considering her non-resident status during part of this period.

Tax Residency Status of Rosemarrie

The determination of Rosemarrie’s residency for Australian tax purposes hinges on the statutory tests outlined in the Income Tax Assessment Act 1936 (ITAA 1936) and relevant case law, including FCT v. Payne [1981] and FCT v. Duke (1959). The main criteria consider the intention, domicile, and the nature and extent of her ties to Australia. Despite her relocation, her ongoing Australian sources of income and property, along with her proportional ties, may impact her residency status for tax purposes. Under section 6(1) of the ITAA 1936, residency is not automatically lost unless the individual abandons domicile or demonstrates clear intent to reside outside Australia permanently.

Taxation of Rental Income

Rosemarrie’s receipt of $5,000 net rental income from her Australian home entails assessable income consideration. As an Australian resident for tax purposes, all worldwide income, including rental income earned from property located in Australia, is assessable (section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997)). The expenses incurred, particularly the interest on her loan, are deductible under section 8-1 of the ITAA 1997. The loan interest of $5,650 related to the rental property is deductible against the rental income, aligning with case law such as Knight (Inspector of Taxes) v. Ker-Sey [1920] and Goodman v. Federal Commissioner of Taxation (1951). The net effect is that her rental income, after deducting allowable expenses, is assessable, with interest expenses directly related to producing assessable income being deductible.

Taxation of Dividends

The dividends received by Rosemarrie from Global AIH Ltd, amounting to $2,500 fully franked, have specific tax implications. Franked dividends include a franking credit, which represents the tax already paid by the company. Under section 202-45 of the ITAA 1997, residents are entitled to a franking credit, which can be used to offset their tax liability. However, the franked dividends paid to non-residents are generally subject to withholding tax at a flat rate of 30% unless a double taxation agreement (DTA) specifies a reduced rate. Since Rosemarrie is a non-resident for Australian tax purposes during her non-resident period, the dividend income may be subject to withholding tax, impacting her overall tax liability.

Implications of International Aspects and Legislation

The income from dividends, rental income, and interest must be considered in light of Australia’s DTA with Singapore, which may alter withholding tax rates and reporting obligations. The source of income, her residency status, and the residence of the payer determine withholding obligations under Division 12 of the ITAA 1936. Furthermore, the impact of the "residency" rules under the International Tax Agreements Act 1953 must be considered to determine her tax obligations in Australia.

Conclusion

In conclusion, Rosemarrie’s Australian tax liabilities are primarily based on her residency status, the source of her income, and the nature of her transactions. Despite her physical presence in Singapore, her Australian-source rental income and dividends retain assessable status under Australian law, with applicable deductions and withholding provisions. Proper application of relevant legislation, along with case law such as FCT v. Duke and Knight v. Ker-Sey, confirms that her interest payments are deductible expenses. A comprehensive review of the relevant double taxation agreement and Australian taxation laws affirms her obligations, and professional advice is recommended to ensure compliance and strategic tax planning.

References

• Australian Taxation Office. (2023). Income Tax Assessment Act 1936.
• Australian Taxation Office. (2023). Income Tax Assessment Act 1997.
• FCT v. Duke (1959) 102 CLR 209.
• FCT v. Payne (1981) 147 CLR 559.
• Gautam, D. (2019). International Taxation and Cross-border Income. Journal of International Taxation, 30(2), 45-63.
• Prabhakaran, P. (2020). Tax Implications for Non-residents in Australia. Tax Journal, 45(5), 385-410.
• Revenue Ruling IT 2627, Australian Taxation Office.
• Tham, J. (2018). Dividends and Franking Credits: An Australian Perspective. Australian Tax Review, 47(3), 220-235.
• Wang, L. (2021). Residency and International Tax Agreements. International Tax Journal, 48(1), 55-70.
• Wilson, K. (2022). Taxation of Rental Income for Non-residents and Residents. Taxation in Australia, 55(4), 15-29.