Tax Treatment of Executor Commission †Free Samples to Students

Question: Discuss about the Tax Treatment of Executor Commission. Answer: Introduction: In this case, Johanna has received gift worth $5230 from her parent on behalf of her daughter. She has also received $2000 for opening bank account where her parents contributed $50 per week for the education of Chloe. However, the bank account is in the name of Johanna. Therefore, the issue in here is to ascertain whether the amount and gift received by Johanna from her parent on behalf of her daughter Chloe is taxable in the hands of Johanna. The Income Tax Assessment Act 1997 in section 4-15 states that taxable income of a taxpayer is calculated by subtracting allowable deduction from the assessable income. The act classifies the assessable income as Ordinary income and statutory income[1]. The section 6-5 of the Income Tax Assessment Act 1997 provides that income that is considered ordinary in the general concept should be included in the assessable income as an ordinary income. The section 6-10 of the Income Tax Assessment Act 1997 provides that income other than ordinary income should be included in the assessable income as statutory income[2]. However, amount received does not automatically becomes taxable as the income that is not included in the ordinary or statutory income is not part of assessable income as per section 6-15 of the Income tax Assessment Act 1997. There are three types of amount that are not taxable they are exempt income(section 6-20 of the ITAA 1997), non-assessable nonexempt income (6-23 of the ITAA 1997) and other amounts that are not taxable[3]. The gift that are small in amount and are not related to business activity is not an assessable income so it is not taxable. In addition to this contribution made for education of child is an also a gift that is not related to business activity hence it is not taxable[4]. However, the Taxation Determination 2017/11 in Para 2 provides that for the income tax purpose interest amount received from bank account is taxable in the hands of the person who owns the money in the bank account beneficially. The Para 5 of the TD 2017/11 provides that if the parent maintains a savings bank account on behalf of the child then it is taxable in the hands of the parent[5]. However if the commissioner is satisfied that the beneficially owned by the child then it is taxable in the hands of the child. In this case, it can be said that the gifts of gold bracelet and contribution for education received from parent on behalf of the Chloe will not be taxable, as the gift is not related to business activity. However, the interest income that is received from the saving account of Chloe will be taxable in the hands of Johanna as the account is in her name and if the commissioner is not satisfied that the child beneficially owns the amount. In this case, Suka is engaged in business in number of city and purchases wide range of goods from the suppliers. The suppliers provides various offers and incentives to him like ticket to the Melbourne Grand Prix and the Australian Tennis. One of the suppliers also provided Chloe a free return trip from New Zealand. This are examples of gifts and incentives received by Suka from the suppliers. The issue here is to identify whether the gifts and incentives provided are taxable. In order to start assessing the tax position of a person it is important to determine whether the money that have been earned is subject to tax under the Income Tax Assessment Act 1997. The ITAA 1997 provides that for a resident income derived from business or employment activity is taxable. In the business, activity gifts or discounts are often received from the suppliers in order to promote their business. It can be seen that ordinarily gifts are exempted from tax. However, if the gift is received as a part of business activity or in relation to income earning activity as an employer or contractor then it should be taxable[6]. In the current case, Suka has received the gifts or incentives from the suppliers. Therefore, the gifts received is part of the business related activity.Hence,the amount of gift received from suppliersare not exempted and should be included in the assessable for the purpose of tax. In this case, Bin is planning to settle in Australia. He brought his family and sent children to school that is nearby to the shop and resident. He then flew back to Honk Kong for settling the matters and has not returned until July. The issue here is to ascertain the residential status for the purpose of tax. The section 995-1 of the Income Tax Assessment Act 1936 provides that Australian Resident is a person who is resident of Australia for the purpose of tax. The section 6-1 of the Income Tax Assessment Act 1936 explains the term resident or resident of Australia for person other than a company. The Para 32 of the Taxation Ruling 98/17 states that from the definition four tests is obtained to determine the residential status of an individual. These are: Test of Residency; Test of Domicile; 183 days test and Test based on superannuation ; The residency test is called the primary test for tax residency. If the individual is a resident of Australia then the generally individual is also a resident for the purpose of tax. The individual not satisfying the residency test is required to determine the residential status by performing three statutory test[7]. The individual satisfying any one of the statutory test will be considered as resident. In the domicile test, is states that if an individual has a permanent place of abode in Australia then the person is considered as resident for the purpose of tax. In case of 183 days test an individual is regarded as resident for the purpose of tax if the individual is residing in Australia for 183 days or more. The superannuation test is there to ensure that government employee that are posted overseas are treated as resident for the tax purpose[8]. In this case. Bin is from Hong Kong so he is not a tax resident according to the residency test. That means his residential status will be determined by conducting the statutory test. Bin does not have a place of abode permanently in Australia so he is not a resident for the purpose of tax as per the domicile test. In this case, he has entered Australia in January and left in March. It is assumed that he has entered at the first day of January. It is further assumed Bin has left Australia in the last day of March. The calculation shows that he has resided in Australia for 90 days. Therefore, he has satisfied the 183 days and he will be regarded as resident of Australia for the purpose of tax. Reference Chang, Jeffrey. "Foreign resident CGT withholding."Taxation in Australia50, no. 11 (2016): 664. King, Darwin, and Carl Case. "AN INTERNATIONAL INDIVIDUAL INCOME TAX COMPARSION: THE UNITED STATES, AUSTRALIA, AND UNITED KINGDOM."Business Studies Journal7, no. 2 (2015). Peiros, Katerina, and Christine Smyth. "Successful succession: Tax treatment of executor's commission."Taxation in Australia51, no. 7 (2017): 394. Silver, Natalie S. "Beyond the water's edge: Re-thinking the tax treatment of Australian cross-border donations." PhD diss., Queensland University of Technology, 2016. Silver, Natalie, Myles McGregor-Lowndes, and Julie-Anne Tarr. "Delineating the fiscal borders of Australia's non-profit tax concessions." (2017). Silver, Natalie, Myles McGregor-Lowndes, and Julie-Anne Tarr. "Should tax incentives for charitable giving stop at Australia's borders?." (2017). Smith, Fiona, Kate Smillie, James Fitzsimons, Bruce Lindsay, Gary Wells, Victoria Marles, Jane Hutchinson, Ben OHara, Tom Perrigo, and Ian Atkinson. "Reforms required to the Australian tax system to improve biodiversity conservation on private land."Environmental and planning law journal33, no. 5 (2016): 443-450. Warren, Neil. "e?filing and compliance risk: evidence from Australian personal income tax deductions." (2016).