Advanced Australian International Taxation

This document discusses the tax implications for different persons in Australia as per the Income Tax Assessment Act 1997. It covers rules, taxable income, and tax liability of individuals and corporations. The document also provides an application of these provisions to the financial transactions of Kross, Benny, B Trust, Bobo, Lenny, Jenni, and Bennys mum. Subject: Taxation Law, Course Code: TLAW202, University: Australian National University

Running head: ADVANCED AUSTRALIAN INTERNATIONAL TAXATION
Advanced Australian International Taxation
Name of the Student:
Name of the University:
Authors Note:

1ADVANCED AUSTRALIAN INTERNATIONAL TAXATION
Contents
Introduction:....................................................................................................................................2
Issues:..............................................................................................................................................2
Rules:...............................................................................................................................................2
Application:.....................................................................................................................................6
Conclusion:....................................................................................................................................15
References:....................................................................................................................................17

2ADVANCED AUSTRALIAN INTERNATIONAL TAXATION
Introduction:
In Australia, the income tax provisions are governed by the Income Tax Assessment Act
1997 (ITAA). Taking into consideration the provisions of ITAA a detailed discussion has been
made in the document to help the readers to evaluate the tax implications for different persons
mentioned in the case study.
Issues:
The issue here is to determine the tax implications on different persons as per the Income Tax
Assessment Act 1997. As per the facts provided in the case the tax implications of the following
persons shall be explained and discussed in the document below:
1. Kross.
2. Benny.
3. B Trust.
4. Bobo.
5. Lenny.
6. Jenni.
7. Bennys mum.
Rules:
Firstly it is important to evaluate the residential status of a person in Australia to determine
his tax liability in the country as per the Income Tax Assessment Act 1997. As per residential
status rules of ITAA a person in case of an individual, is said to be an Australian resident for
income tax purposes as per the ITAA 1997 if he or she resides in Australia. Even if the person
does not reside in Australia the person will still be a resident for the income tax purposes only if
any or more of the following conditions are satisfied1.
1 Bruce, Max. "Multinational Anti-Avoidance Law (MAAL) and Pt IVA—a Critical Analysis of
the Tax Laws Amendment (Combating Multinational Tax Avoidance) Bill 2015 (Cth) and

3ADVANCED AUSTRALIAN INTERNATIONAL TAXATION
I. Domiciled in Australia, i.e. have a permanent home in the country.
II. 183 days test: Have lived in Australia for more than183 days in total in last financial year
with or without breaks.
III. Superannuation test. According to the superannuation test a person will be an Australian
resident even without satisfying any of the above conditions if he is an employee of
Australian Government working for the country in any place outside Australia.
In case of a corporation, it shall be considered as an Australian resident if it has its registered
office situated in the country. Even if the corporation does not have its registered head office
situated in the country, it shall still be considered as Australian resident if any of the following
conditions are satisfied:
I. The management of the entity is in Australia or,
II. The entity is controlled by the managers and directors within the country.
The reason it is important to evaluate the residential status of an individual is because the
liability to income tax in Australia would be dependent largely to the extent of a person’s
residential status in the country for the tax purpose2. A person resident of Australia for tax
purposes as per the ITAA is liable to pay income tax on all of his income whereas a non-resident
Australia is only liable to be assessed for the income earned or received or both in the country.
Tax implications and taxable income:
Treasury Laws Amendment (Combating Multinational Tax Avoidance) Bill 2017 (Cth) and
Comparison with General Anti-Avoidance Provisions." (2018).
2 McGregor-Lowndes, Myles, and Marie Crittall. An examination of tax-deductible donations
made by individual Australian taxpayers in 2014-15. Australian Centre for Philanthropy and
Nonprofit Studies, Queensland University of Technology, 2017.

4ADVANCED AUSTRALIAN INTERNATIONAL TAXATION
As already mentioned that the tax implications of financial transactions of a person in Australia
would be dependent on the residential status of the person in the country. Accordingly, the rules
in relation to tax implications taxable income and tax liability of a person have been discussed
here3.
According to s6-5 of the ITAA a resident Australian is liable to pay income tax on the income
defined as ordinary income in this particular section. Thus, according to s6-5 of the act the
ordinary income has been defined4.
Section 6-10 of the act has outlined the statutory income which shall be taxable in the hands of
the tax payer in the country. The statutory income is different from ordinary income these are
income which have been specifically outlined as statutory income as per the Income Tax
Assessment Act 1997 and shall be taxable5.
3 Tran-Nam, Binh. "Tax Reform and Tax Simplification: Conceptual and Measurement Issues
and Australian Experiences." In The Complexity of Tax Simplification, pp. 11-44. Palgrave
Macmillan, London, 2016.
4 Enste, Dominik H. "The shadow economy in OECD and EU accession countries–empirical
evidence for the influence of institutions, liberalization, taxation and regulation." In Size, Causes
and Consequences of the Underground Economy, pp. 135-150. Routledge, 2018.
5 Tran-Nam, Binh. "Tax Reform and Tax Simplification: Conceptual and Measurement Issues
and Australian Experiences." In The Complexity of Tax Simplification, pp. 11-44. Palgrave
Macmillan, London, 2016.

5ADVANCED AUSTRALIAN INTERNATIONAL TAXATION
Section 6-15 of the act has discussed in detail regarding the income which are not assessable for
tax purpose in the country. Thus, these are the Income which neither a resident nor a non-
resident person require to pay tax in the country6.
The act also outlines the incomes which are exempt income as per the ITAA. These are exempt
income irrespective of one’s residential status. Thus, even if a person is resident he does not
require to pay tax on the amount of income which are exempt income as per the s10-20 of the
act.
Section 6-23 of the act has further outlined the concept of non-assessable and non-exempt
income. These are the income which is neither assessable as taxable income nor exempt for tax
purposes. Thus these amounts must be properly assessed for income tax purposes in the country7.
Section 8-1 of the act explains the general deductions available to a person while computing the
taxable income. Thus these are general deductions which have to be deducted from assessable
income to compute the taxable income of a person. These are general deductions as these are
available to all the tax payers in calculating the taxable income of a tax payer in the country8.
6 Gordon, Robert. "Increasing use of tax-transparent entities by private groups due to
BEPS." Tax Specialist 21, no. 4 (2018): 136.
7 James, Simon, Adrian Sawyer, and Ian Wallschutzky. "Tax simplification: A review of
initiatives in Australia, New Zealand and the United Kingdom." eJournal of Tax Research 13,
no. 1 (2015).
8 Australia, C. C. H. Australian Master Tax Guide: 2016. CCH Australia, 2016.

6ADVANCED AUSTRALIAN INTERNATIONAL TAXATION
Income Tax Assessment Act 1997 (ITAA) further explains the specific deductions allowed to tax
payers for computation of taxable income and resultant income tax liability of the person under
s8-5 of the act.
It has also been made clear in the act that no deductions shall be allowed more than once for
calculation of taxable income of a tax payer. Thus no double deduction is available to a tax payer
as per s8-10 of ITAA9.
Application:
Taking into consideration the rules provided in the income tax assessment act 1997 as
enumerated above a detailed application of these provisions have been made in this part of the
document to discuss the tax implications of the following persons in relation to the financial
transactions provided in the facts of the case:
1. Kross.
2. Benny.
3. B Trust.
4. Bobo.
5. Lenny.
6. Jenni.
7. Bennys mum.
Kross PL:
Kross PL is a company incorporated in a country called Falco and since information does not
show that the company is either controlled or managed from Australia it is clear that the
9 Sharkey, Nolan. "Coming to Australia: Cross border and Australian income tax complexities
with a focus on dual residence and DTAs and those from China, Singapore and Hong Kong-Part
1." Brief 42, no. 10 (2015): 10.

7ADVANCED AUSTRALIAN INTERNATIONAL TAXATION
corporation i.e. Kross is not a resident corporation for tax purposes in Australia. As per the facts
Kross PL is a company incorporated in a country called Falco. It is involved in assembling
electronic devices for its customers10. The assemblies are done in assembling facilities in Falco.
The employees of the company assemble the electronic devices in Falco. It is important to note
that the materials needed for assembling are supplied by the customers thus. Kross mainly carries
out assembling with the supplies of the customers. No materials are purchased by Kross PL to
carry out the assembling procedures in the country11.
Once the electronic devices are assembled and ready to be sent to the customers to their desired
destinations these are held in the warehouse of Falco. Once the customers asked these to be
delivered in their desired addresses the goods are despatched to the destinations from the
warehouse of the company in Falco. As per the agreements with the customers, the ownership on
the goods before, during and after assembling rest with the customers. The customers only pay
the assembling charges to Kross PLC. As per the information the company has customers from
different parts of the world including Australia, New Zealand, Singapore, and China. The
country earns equal amount revenue from each of these countries12.
10 Cassidy, Julie, and A. Cheng. "Legislative Responses to GST Tax Avoidance in Australia and
New Zealand: Lessons for China?." In 2017 International Conference of Chinese Tax and
Policy: The Function of Tax in the New Wave of Economic Development in China. 2017.
11 Phillips, Ben, and Miranda Stewart. "Fact Check: is 50% of all Income Tax in Australia Paid
by 10% of the Working Population?." The Conversation 28 (2015).
12 Butler, Terri, and Andrew Giles. "Tax and inequality." Australian Options 88 (2018): 10.

8ADVANCED AUSTRALIAN INTERNATIONAL TAXATION
The shareholding pattern of Kross is as following:
I. 40% of the total shares of the company are held by Benny Trust. The trust is governed as per
the provisions of Cayman Island.
II. 20% of the total shares of the company are held by Jenni who has never visited Australia and
a permanent resident of Falco.
III. 29% of the total share capital of the company is held by Lenny who is also a permanent
resident of Falco and has never been to Australia.
IV. 11% of the shares of the company are held by Bobo Pty Ltd which is managed and controlled
from Australia.
It is clear from the above that Kross PL is not managed or controlled from Australia thus, it is not
a resident Australian corporation for income tax purposes as per the provisions of Income Tax
Assessment Act 1997. As per the 11% shares held by a company which is controlled and
managed from Australia since for managing and controlling purposes at-least 51% of the shares
of the company is considered thus the 11% shareholding by Bobo Pty Ltd will not alter the non-
residential status of the company in the country13.
Thus, in case of Kross PL only the income which is earned from Australian customers shall be
assessable as taxable income in Australia for income tax purposes and the company is liable to
pay income tax on the taxable profit from business to the extent it is derived from Australian
customers. For the taxable profit on the income generated from customers of New Zealand,
Singapore and China the company is not liable to pay income tax in Australia as it is a no-
resident company in Australia for income tax purposes.
The company however, was controlled from Australia since July 2019 thus, the management and
control of the company is in Australia from the above mentioned period. However, the income
13 Bajada, Christopher. Australia's Cash Economy: A Troubling Issue for Policymakers: A
Troubling Issue for Policymakers. Routledge, 2017.

9ADVANCED AUSTRALIAN INTERNATIONAL TAXATION
earned by the company from customer of New Zealand, Singapore and China prior to that shall
not be liable to be taxed in Australia. Since the management and control of the company has
been shifted to Australia subsequent to the permanent move of Benny in Australia and cessation
of directorships of Lenny and Jenni, the company shall be a resident Australian company and
thus shall be liable to pay income tax on all the income earned by the company, whether earned
from customers of New Zealand, Singapore and China14.
Benny:
Benny is an individual born and brought up in Falco however, in 2017 he visited Australia for
business purpose. Thus, it is to be calculated whether Benny has fulfilled the 183 days test for
residential purpose in Australia. Benny went to Australia on January 01, 2017 and returned to
Falco on July 02, 2017. Thus, he stayed in total 181 days in Australia in 2017. Hence, Benny
despite staying half of 2017 in Australia will still not be considered as an Australia resident for
income tax purposes in the country15. The calculation of number of days Benny spent in
Australia in 2017 is calculated as below:
Month Number of days
January 31
14 Saad, Natrah. "Tax knowledge, tax complexity and tax compliance: Taxpayers’
view." Procedia-Social and Behavioral Sciences 109 (2014): 1069-1075.
15 Awasthi, Atul. "Transformation of Tax Laws: A Global Perspective." Intertax 45, no. 2 (2017):
175-181.

10ADVANCED AUSTRALIAN INTERNATIONAL TAXATION
February 28
March 31
April 30
May 31
June 30
July NA
Total 181
Thus, since Benny has stayed only 181 days Benny is not an Australian resident of Australian in
2017 for income tax purposes in the country as per the Income Tax Assessment Act 1997.
Thus, Benny will be liable to pay income tax in Australia for the income earned or received or
earned and received both in Australia. Any income accrued and received by Benny outside
Australia will not be subjected to income tax in Australia16.
For 2017-18 income year Benny however, is an Australia resident as he has stayed for more than
183 days in Australia during the period from 1st July 2017 to 30th June 2018. Thus, for the
16 Basak, Sayan. "Equalization Levy: A New Perspective of E-Commerce Taxation." Intertax 44,
no. 11 (2016): 845-852.

11ADVANCED AUSTRALIAN INTERNATIONAL TAXATION
income year 2017-18 Benny will be liable to pay income tax for all of his taxable income
whether earned in Australia or any other place in the world. Subsequent to 2016-17 Benny has
moved permanently to Australia after marrying Kerrie thus, Benny is an Australia resident
subsequent to 2016-17 and thus shall be liable to pay income tax on all his income whether
earned in Australia or any place else.
The salaries received by Benny from Kross PL in the income year 2016-17 will not be liable to
be taxed in Australia as per the Income Tax Assessment Act 1997. Subsequent to 2016-17 all the
income of Benny however, shall be subjected to the income tax liability in Australia as he has
permanently moved to Australia after marrying Kerrie17.
B Trust:
B Trust is a trust operated by Benny hence, the taxable provisions applicable to Benny are
equally applicable to B Trust. Thus, similar to Benny B Trust is not a resident of Australia for the
income year 2016-17 however, subsequent to the year 2016-17 B Trust will be considered as an
Australian resident just like Benny. Hence, B Trust will be considered as an Australian resident
for tax purposes subsequent to year 2016-17.
Bobo:
17 Lang, Michael, Alexander Rust, Jeffrey Owens, Pasquale Pistone, Josef Schuch, Claus
Staringer, Alfred Storck, Peter ESSERS, Daniel Smit, and Eric Kemmeren, eds. Tax Treaty Case
Law around the Globe 2017: Schriftenreihe IStR Band 108. Vol. 108. Linde Verlag GmbH,
2018.

12ADVANCED AUSTRALIAN INTERNATIONAL TAXATION
Bobo Pty Ltd is company incorporated in Australia and it is also centrally managed from
Australia thus, the company is an Australia resident and accordingly, shall be liable to pay
income tax on all of his income whether earned in Australia or other parts of the world.
With retail outlets in all the major cities in Australia, Bobo Pty Ltd sells the assembled products
of Kross PL thus, profit earned by Bobo is subjected to income tax liability in Australia as per
the income tax rules in Australia18.
Lenny:
Born and brought up in Falco, Lenny has never visited Australia as per the information provided
in the case study. Thus, Lenny is a non-resident Australian and is not liable to pay tax on any
income that accrues to him from sources outside Australia. Since, Lenny was director of Kross
PL till the company was controlled and managed from Falco hence, no portion of Lenny’s
income has accrued or received in Australia. Thus, Lenny is not subjected to the income
provisions of Income Tax assessment Act 1997 for the amount of income earned by him from
Kross PL.
The amount of profit distributed by Kross PL to Lenny as shareholder of 29% shares of the
company till the company was managed and controlled from Falco is not subjected to income tax
liability in Australia. However, from the time the central management and control of the
company has shifted to Australia, any distribution to its shareholders including Lenny will be
subjected to the income tax liability as per the Income Tax Assessment Act 1997. Thus, Lenny
18 Gurran, Nicole, and Peter Phibbs. "Are governments really interested in fixing the housing
problem? Policy capture and busy work in Australia." Housing studies 30, no. 5 (2015): 711-729.

13ADVANCED AUSTRALIAN INTERNATIONAL TAXATION
will be liable to pay income tax on the amount of profits distributed to Lenny0 by Kross PL
subsequent to the management and control of the company form Australia19.
Jenni:
Similar to Lenny, Jenni has never been to Australia and is a domiciled of Falco hence, Jenni is
also a non-resident Australian for income tax purposes as per the provisions of Income Tax
Assessment Act 1997. Jenni being a director of Kross PL is not liable to pay any income tax on
the income earned by her as she was the director of the company till the company was fully
controlled and managed from Falco. Thus, annual profits distributed by the company to the
shareholders till the financial year 2017-18 is not subjected to income tax in Australia. However,
subsequent to the financial year 2017-18, i.e. from 2018-19 the distributions made by the
company to Jenni as a shareholders will be subjected to income tax in Australia as the company
is now an Australian company for tax purposes as is management and control has also shifted to
Australia subsequent to the cessation of office of directorships by both Jenni and Lenny20.
19 Foster, Sarah, Paula Hooper, Matthew Knuiman, Fiona Bull, and Billie Giles-Corti. "Are
liveable neighbourhoods safer neighbourhoods? Testing the rhetoric on new urbanism and safety
from crime in Perth, Western Australia." Social Science & Medicine 164 (2016): 150-157.
20 Picard, Robert, Valerie Belair-Gagnon, Sofia Ranchordás, Adam Aptowitzer, Roderick Flynn,
Franco Papandrea, and Judith Townend. "The impact of charity and tax law and regulation on
not-for-profit news organizations." (2016).

14ADVANCED AUSTRALIAN INTERNATIONAL TAXATION
Bennys mum:
Benny’s mum will not be liable to pay tax in Australia as per ITAA on the amount of income
received from the B Trust till the trust is a non-resident Australian trust. However, subsequent to
the trust becoming an Australian trust, i.e. subsequent to the permanent move of Benny to
Australia the amount of income, 80% of B Trust which is paid to Benny’s mom will attract the
income tax liability as per the ITAA21.
Thus, Benny’s mum even though a non-resident Australian for income tax purposes will be
liable to pay income tax on the amount of received from the trust subsequent to the trust
becoming a resident Australian for tax purposes as per ITAA22.
Conclusion:
Taking into consideration the detailed discussion and as per the income tax provisions as
enumerated under different sections of Income Tax Assessment Act 1997 (ITAA) it is clear that
the most important factor to be considered for determining the liability of a person to pay income
tax in Australia is to determine the residential status of the person. Whether the person is an
individual or an entity the liability to pay income tax as per the ITAA shall be dependent on the
residential status of the person as per the ITAA.
21 Burkhauser, Richard V., Markus H. Hahn, and Roger Wilkins. "Measuring top incomes using
tax record data: A cautionary tale from Australia." The Journal of Economic Inequality 13, no. 2
(2015): 181-205.
22 Hoopes, Jeffrey L., Leslie Robinson, and Joel Slemrod. "Public tax-return disclosure." Journal
of Accounting and Economics (2018).

15ADVANCED AUSTRALIAN INTERNATIONAL TAXATION

16ADVANCED AUSTRALIAN INTERNATIONAL TAXATION
References:
Australia, C. C. H. Australian Master Tax Guide: 2016. CCH Australia, 2016.
Awasthi, Atul. "Transformation of Tax Laws: A Global Perspective." Intertax 45, no. 2 (2017):
175-181.
Bajada, Christopher. Australia's Cash Economy: A Troubling Issue for Policymakers: A
Troubling Issue for Policymakers. Routledge, 2017.
Basak, Sayan. "Equalization Levy: A New Perspective of E-Commerce Taxation." Intertax 44,
no. 11 (2016): 845-852.
Bruce, Max. "Multinational Anti-Avoidance Law (MAAL) and Pt IVA—a Critical Analysis of
the Tax Laws Amendment (Combating Multinational Tax Avoidance) Bill 2015 (Cth) and
Treasury Laws Amendment (Combating Multinational Tax Avoidance) Bill 2017 (Cth) and
Comparison with General Anti-Avoidance Provisions." (2018).
Burkhauser, Richard V., Markus H. Hahn, and Roger Wilkins. "Measuring top incomes using tax
record data: A cautionary tale from Australia." The Journal of Economic Inequality 13, no. 2
(2015): 181-205.
Butler, Terri, and Andrew Giles. "Tax and inequality." Australian Options 88 (2018): 10.
Cassidy, Julie, and A. Cheng. "Legislative Responses to GST Tax Avoidance in Australia and
New Zealand: Lessons for China?." In 2017 International Conference of Chinese Tax and
Policy: The Function of Tax in the New Wave of Economic Development in China. 2017.

17ADVANCED AUSTRALIAN INTERNATIONAL TAXATION
Enste, Dominik H. "The shadow economy in OECD and EU accession countries–empirical
evidence for the influence of institutions, liberalization, taxation and regulation." In Size, Causes
and Consequences of the Underground Economy, pp. 135-150. Routledge, 2018.
Foster, Sarah, Paula Hooper, Matthew Knuiman, Fiona Bull, and Billie Giles-Corti. "Are
liveable neighbourhoods safer neighbourhoods? Testing the rhetoric on new urbanism and safety
from crime in Perth, Western Australia." Social Science & Medicine 164 (2016): 150-157.
Gordon, Robert. "Increasing use of tax-transparent entities by private groups due to BEPS." Tax
Specialist 21, no. 4 (2018): 136.
Gurran, Nicole, and Peter Phibbs. "Are governments really interested in fixing the housing
problem? Policy capture and busy work in Australia." Housing studies 30, no. 5 (2015): 711-729.
Hoopes, Jeffrey L., Leslie Robinson, and Joel Slemrod. "Public tax-return disclosure." Journal
of Accounting and Economics (2018).
James, Simon, Adrian Sawyer, and Ian Wallschutzky. "Tax simplification: A review of
initiatives in Australia, New Zealand and the United Kingdom." eJournal of Tax Research 13,
no. 1 (2015).
Lang, Michael, Alexander Rust, Jeffrey Owens, Pasquale Pistone, Josef Schuch, Claus Staringer,
Alfred Storck, Peter ESSERS, Daniel Smit, and Eric Kemmeren, eds. Tax Treaty Case Law
around the Globe 2017: Schriftenreihe IStR Band 108. Vol. 108. Linde Verlag GmbH, 2018.
McGregor-Lowndes, Myles, and Marie Crittall. An examination of tax-deductible donations
made by individual Australian taxpayers in 2014-15. Australian Centre for Philanthropy and
Nonprofit Studies, Queensland University of Technology, 2017.

18ADVANCED AUSTRALIAN INTERNATIONAL TAXATION
Phillips, Ben, and Miranda Stewart. "Fact Check: is 50% of all Income Tax in Australia Paid by
10% of the Working Population?." The Conversation 28 (2015).
Picard, Robert, Valerie Belair-Gagnon, Sofia Ranchordás, Adam Aptowitzer, Roderick Flynn,
Franco Papandrea, and Judith Townend. "The impact of charity and tax law and regulation on
not-for-profit news organizations." (2016).
Saad, Natrah. "Tax knowledge, tax complexity and tax compliance: Taxpayers’ view." Procedia-
Social and Behavioral Sciences 109 (2014): 1069-1075.
Sharkey, Nolan. "Coming to Australia: Cross border and Australian income tax complexities
with a focus on dual residence and DTAs and those from China, Singapore and Hong Kong-Part
1." Brief 42, no. 10 (2015): 10.
Tran-Nam, Binh. "Tax Reform and Tax Simplification: Conceptual and Measurement Issues and
Australian Experiences." In The Complexity of Tax Simplification, pp. 11-44. Palgrave
Macmillan, London, 2016.