Interest In Growing Organic Vegetables

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Interest In Growing Organic Vegetables

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Question:
Discuss about the Interest in Growing Organic Vegetables.

Answer:

Introduction
In the given case, Mandy Johnson was born and was residing in Sydney. She studied commerce and worked in several accounting firms in Sydney. Mandy apart from meeting is professional goals how interest in growing organic vegetables. She purchased semi urban land in Sydney in order to meet out her interest. The organic vegetables and fruits that have been produced in the land have been sold to small vegetables and fruits stores.
In the year 2016, Mandy decided to leave Australia for certain years and started working United States. She signed a contract for working in United States and sold her semi urban land which is used to utilize for growing organic vegetables. In order to make out the sale of the semi urban land, Mandy was required to make certain additional expenditures in terms of legal fees and agent cost worth $15,000. August 2016, Mandy started living in California I was working with PWC San Francisco office. She was intending to return to Australia in the year 2020. In order to continue her working in PWC, she took an apartment for 3 years lease in San Francisco city.
Her house in occupied by her niece and nephew during her stay in San Francisco. Mandy was not charging any interest from her niece and nephew during their stay in his house at Sydney. In the year 2009, Mandy was inherited an apartment from her grandmother. Since year 2016, the apartment was let out to a tenant for a rent worth $700 per week. In order to maintain the property at Sydney she has hired an agent who received 5% Commission on the rent received. Apart from the commission amount, Mandy is required to bear council rates fees and body corporate fees worth $1100 every Quarter.

In the year 2016-17, Mandy acquired certain shares listed in Australian Stock Exchange. She told to share during the year and earned income. The profit that has been on buy her from trading of shares during the year will be taxable as per the provision of Australian tax laws.
In order to determine the taxability in Australia it is important to determine the residential status of a person in the country. Through the help of the Residential status of an individual we can determine the personal tax liability in his hand. The residential status test has the following points that need to consider:
The person has been staying for the entire year in the country, Australia. If the person clears this test, he would not be required to pass any other residential status test in the country.
If the person fails to meet out the above condition he would require to meet out any of the following three conditions to pass the residential status test in the country:

The person should be staying for at least 183 days in the country Australia. This can be in continuation or can be in parts.
The permanent residence of the individual has been proved to be there in Australia.
If the person has been employed by the Australian government and due to his/her employment he/she has been deputed in some other country outside Australia, he would be considered as a resident of Australia.

If an individual is able to meet any of the above three conditions he would be considered as a residence of Australia for the purpose of tax computation.
In the given case, Mandy for the year 2016-17, was doing living in San Francisco and was doing job in PWC San Francisco office. Considering the provision of residential status, she was not staying in the country Australia for 183 days during the financial year. However, she has a permanent residence in Australia where her niece and nephew were staying during her stay in San Francisco. Thus, considering the provision of Australian tax laws, for the purpose of determining residential status, Mandy been holding a permanent residence in Sydney Australia, is considered to be a resident in Australia for the purpose of tax calculations for the financial year 2016-17. Being, in the above case, Mandy has been declared as a resident in Australia, all income that has been earned by her either in Australia or in any part of the world will be taxed as per the provision of Australian tax laws. However all the special threshold benefits those are applicable on a resident for the purpose of tax calculation will be provided to her.
In light to the above provision, all the income earned by a resident in Australia will be taxed with in the country itself. Thus all the income i.e. salary and dividend income of Mandy will be taxed in Australia. Along with the above taxes, Mandy is liable to pay Medicare levy amount on the income. This amount is required to be paid by a resident to the Australian government. (ATO)
As per the provision of Australian tax laws, any income that has been earned by resident in Australia or outside Australia will be taxed as per the provision of Australian tax laws. In the given case, Mandy being holding a permanent residence in Australia will be considered as a resident of Australia does any income that she is on in United States while working in PWC San Francisco office will be considered as income earned in Australia and will be taxed accordingly.

The financial year 2016-17 will begin from 1st July 2016 and will end on 30th June 2017. Thus any income that has been earned by Mandy before 1sy July 2016 will not be considered will computing the income for the financial year 2016-17. Mandy was engaged in the business of selling organic vegetables. The last batch of vegetables was sold in May 2016. Thus, any income that has been generated from the sale of organic vegetables in not be considered while computing the income for the financial year 2016-17, being the same was pertaining to last year. During the financial year 2016-17, Mandy earned salary worth $180,000 while working in United States for PWC San Francisco office. Further, on 1st July 2016, she sold the semi rural land which she purchased in the year 2009. The profit that has been made from sale of land will be considered as capital gain and will be taxable in the hands of Mandy. During the same financial year, she earned rental income from the apartment which has been inherited to her from her grandmother. Further, during the year, Mandy was engaged in trading of securities and shares. She made considerable amount of profit while doing the trading activities. Any income that has been generated from trading of securities will be considered as taxable income in will be taxable as per the provision of Australian tax laws.
Thus, considering the provision Australian tax laws, salary which Mandy has earned in United States worth $180,000 will be taxable in Australia. Thus $225,000 ($180,000 US Dollars * 1.25) will be taxable in Australia.
Any income that has been made by a person from sale of shares will be considered as capital gain when will be taxed as per the provision of Australian tax laws. However if a person is doing a business of selling and buying of shares then in that case the profit that has been cost will be considered as ordinary income and will be taxed accordingly. In the given case, Mandy was dealing in buying and selling of shares, in this scenario the selling of shares will be considered as a capital gain or loss activity and profit and loss from such transaction will be eligible for capital gain tax.

Date of Purchase

Company

Number of Shares

Purchase Price

Amount

Number of Shares Sold

Sales price

Amount

Profit/(Loss)

April 17

Sirtex Medical Ltd

500

32

16000

500

16

8000

-8000

June 17

A2 Milk Company Ltd

5000

1.75

8750

5000

3.5

17500

8750

Aug 15

CSL Ltd

100

92

9200

100

135

13500

4300

5050

Any capital loss it has been booked by Mandy in the previous year can be set off from capital gain made in coming years. Any brokerage that has been paid on buying and selling of shares will also be allowed as deduction. In the given case, Mandy as in curd capital loss worth $3,000 in the previous year, the loss will be carried forward and will be set off from the capital gain made in the current year. Further, she incurred brokerage worth $100 in the current year on the sale and purchase of shares. It will be considered as allowable deduction and will be deducted from the capital gain so made

As per the working, Mandy has made a profit of $5050 in the current financial year; the profit so made will be considered as capital gain and will be kept separate from the ordinary income. The capital loss of $3000 and brokerage worth $100 will be deducted from this amount making the net capital gain worth $1,950.
Mandy in the year 2009 in order to meet out her interest in growing organic vegetables has acquired or semi rural land worth $400,000. She spent additional $20,000 on stamp duty and on other charges. She sold the parcel of land for $650,000 incurred additional $15,000 charges on legal fees in relation to the sale. The profit that has been made by her on sale of land will be considered as captain again and will be tax accordingly. The indexation benefit will be provided to Mandy up on the capital gain made on sale of land which is subject to 50% of the capital gain made by her.

Particular

Amount

Purchase price of land

$ 400,000

Add: Stamp duty and legal cost

$ 20,000

Total cost

$ 420,000

Sales price of the land

$ 650,000

Less: Legal cost

$ (15,000)

$ 635,000

Capital gain

$ 215,000

50% discount indexation

$ 107,500

Net capital gain

$ 107,500

The house that has been inherited to Mandy from her grandmother has been let out for $700 per month. She pays 5% of the rent received as Commission to the broker. Further she is required to pay $300 per quarter on Council rates and $800 for quarter as corporate fees. The rental amount so received is taxable in the hands of Mandy. However she will be entitled to claim deduction for the council rates and corporate fees along with the commission that she is paid to the agent.

Particular

Amount

Rental Income

$8,400

Less: Commission paid

($420)

Less: Council rates

($1,200)

Less: Corporate rates

($3,200)

Capital gain on sale of shares

$3,580

The final tax liability of Mandy will be calculated keeping the ordinary income separate from the capital gain income. The ordinary income will be taxed as per the Tax slab. There is no specific capital gain tax rate. The capital gain so calculated as per the above method will be added to the taxable income and will be taxed accordingly as per the marginal rate applicable on the individual.

The taxation rates applicable on Australian residents are as follows:

Taxable income

Tax on this income

$18,201 – $37,000

19c for each $1 over $18,200

$37,001 – $87,000

$3,572 plus 32.5c for each $1 over $37,000

$87,001 – $180,000

$19,822 plus 37c for each $1 over $87,000

$180,001 and over

$54,232 plus 45c for each $1 over $180,000

Particular

Amount

Salary received by Mandy in United States

$225,000

Capital gain on sale of land

$107,500

Capital gain on sale of shares

$1,950

Rental income

$3,580

Total income

$338,030

Taxable income

Tax on this income

Tax

$18,201 – $37,000

19c for each $1 over $18,200

$ –

$37,001 – $87,000

$3,572 plus 32.5c for each $1 over $37,000

$3,572

$87,001 – $180,000

$19,822 plus 37c for each $1 over $87,000

$19,822

$180,001 and over

$54,232 plus 45c for each $1 over $180,000

$125,346

Tax

$148,740

Medical levy

$6,761

Total tax

$155,500

While Mandy was staying overseas, she continued to pay her Australian Private Health Insurance Premium. The amount so contributed by Mandy will be considered as eligible for a rebate irrespective of her residential status in Australia if the policy that she has taken is covered under the insurance policies which are registered with the Australian government, are eligible for Medicare. In this case it is required that the salary of the taxpayer should be less than the threshold provided in tier 3 income threshold.
Mandy was holding the residential status of Australia because of her permanent residence in the country. If after her return she decides to sell the permanent residence, there might be a probability that she might not hold the residential status of Australia. This will impact the taxability provisions of Mandy in Australia in the financial year in which she returns back to the country. In normal scenario, by any means, Mandy was able to maintain the residential status in Australia; she would capital gain on sale of her permanent residence and would be taxable as per the provision of Australian tax laws.
In case Mandy, during her stay in United States decides to leave out the house two tenants at market rate rather than giving it to her niece and nephew, rental income that she would have won would be considered as other income and will be added to her taxable income. The computation of tax will be calculated considering the provision of Australian tax law.

References
Ato.gov.au_ working out tax residency, viewed on 27th Aug 2017, Retrieved from
https://www.ato.gov.au/individuals/international-tax-for-individuals/work-out-your-tax-residency/residency-tests/
ATO.gov.au, Shares, units and similar investments, viewed on 27th Aug 2017, Retrieved from https://www.ato.gov.au/general/capital-gains-tax/shares,-units-and-similar-investments/
ATO.gov.au, Your home and other real estate, viewed on 27th Aug 2017, Retrieved from https://www.ato.gov.au/General/Capital-gains-tax/Your-home-and-other-real-estate/
ATO.gov.au, working out your capital gain, viewed on 27th Aug 2017, Retrieved from https://www.ato.gov.au/General/Capital-gains-tax/Working-out-your-capital-gain-or-loss/Working-out-your-capital-gain/
ATO tax rates, Capital Gains Tax, viewed on 27th Aug 2017, Retrieved from https://atotaxrates.info/capital-gains-tax/
ATO.gov.au, Private health insurance rebate eligibility, viewed on 27th Aug 2017, Retrieved from https://www.ato.gov.au/individuals/medicare-levy/private-health-insurance-rebate/private-health-insurance-rebate-eligibility/

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