Taxation Law Issue Australia Question Answer 2022

Running head: TAXATION LAW
Taxation Law
Name of the Student
Name of the University
Authors Note
Course ID

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Table of Contents
Answer to question 1:.................................................................................................................2
Issues:.....................................................................................................................................2
Rule:.......................................................................................................................................2
Application:............................................................................................................................4
Conclusion:............................................................................................................................5
Answer to question 2:.................................................................................................................6
Issues:.....................................................................................................................................6
Rule:.......................................................................................................................................6
Application:............................................................................................................................7
Conclusion:............................................................................................................................7
Answer to question 3:.................................................................................................................8
Issues:.....................................................................................................................................8
Law:........................................................................................................................................8
Application:............................................................................................................................9
Conclusion:............................................................................................................................9
Answer to question 4:...............................................................................................................10
References:...............................................................................................................................12

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Answer to question 1:
Issues:
The issue addressed in this question is associated with ascertaining the residential
status of Adam based on the law making provision of “section 6 (1), ITAA 1936”.
Rule:
Under the definition of “section 995-1, ITAA 1997” an individual is said to be an
Australian dweller that is an inhabitant of Australia for the purpose of “ITAA 1936” (Saad,
2014). Denoting the description under “section 6 (1) ITAA 1936” an inhabitant of Australia
includes those individual that resides in Australia and has the permanent home in Australia
excepting when tax official is comfortable that an individual has the perpetual home in
foreign country. There are four alternative test that is given under “section 6 (1) ITAA 1936”,
for individual resident and they are;
a. The common law test
b. The domicile test
c. The 183-day test
d. The superannuation test
The common Law Test:
A taxpayer is said to be occupant of Australia for tax purpose if they are really present
in Australia, unrelatedly of their ethnic group and locality of their stable residence. In view of
that, whether or not a person is treated as “resides” is reliant on particular circumstances.
Relevant consideration such as behaviour at the time of residing in Australia along with the
intention or employment ties are relevant factors (Lang et al., 2018). Appropriate weightage
must be given to each factor. A tax payer is said to be living in Australia given their

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behaviour over the time portray a mark of continuity, habit or routine which is treated as
consistent with living here. As found in “The Engineering Manager v FCT (2014)” an
engineer working under the one-year contract in Oman which was reviewed on yearly basis
was not treated as Australian resident even though his spouse and kids remained in Australia
and came back yearly to meet them.
The Domicile Test:
An individual’s home establishes a lawful relation with the country through which a
person is able to invoke the laws of country as their own. An individual home represents their
permanent home instead of where the person lives (Woellner et al., 2016). In “sec 6 (1),
ITAA 1997” a tax payer is held to Australian resident if they are having the Australian home
excluding when the taxpayer can prove that they have set up their permanent home in foreign
nation (Gordon & Kopczuk, 2014). The court in “Applegate v FCT (1979)” found that
regardless of the taxpayer has retained the Australian dwelling, he has set up the permanent
dwelling somewhere else.
As per ruling of “IT 2650” it explains the factor which should be considered to treat a
tax payer that leaves Australia momentarily to be present in foreign country and obtains the
permanent foreign place of residence and hence ceases to be an Australian occupant during
the absence (Pogge & Mehta, 2016). This includes the intention and length of stay in foreign
nation or whether they have set up the fixed home out of Australia.
183-Days Test:
A ta payer that is present in Australia for greater than 183 days in the income year
will be held as Australian occupant unless it is agreed that their usual place of abode is
outside Australia (Barkoczy, 2016).

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Superannuation Test:
This test is generally designed for individuals that are having the membership of
specified superannuation scheme.
Application:
As evident Adam was employed in Dubai from 1st November 2017 till 1st April 2018
and lived in an apartment which leased by his company. While in May 2018 Adam shifted to
Dubai with his wife Narelle for an indefinite period. With respect to “sec 6 (1), ITAA 1936”
the individual residency status of Adam is outlined below;
Resides Test: As evident, Adam has his place of dwelling in Australia where he resided with
his family but this aspect does not weightage to ascertain Adam residency status. During the
first half of 2017/18 Adam did not resided in Australia and lived in the temporary leased
apartment in Dubai which was provided by his company. Whereas in 2018/19 he signed the
contract of relocating to Dubai for indefinite time period (Chirelstein & Zelenak, 2018).
Citing the case of The Engineering Manager v FCT (2014)” Adam will not be held as
Australia dweller because he was not present here physically and visited periodically to meet
his family in Australia.
Domicile Test:
Accordingly, from 1st November to 1st April 2017/18, while he was employed in
Dubai and lived in house that his given has provided for temporary purpose. On denoting
this, it can be stated that Adam has not set up any fixed place of dwelling outside Australia
when he was employed in Dubai. The house in which he resided was temporary in nature and
lacked any durability of association. Therefore, Adam is an Australian resident under

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“section 6 (1), ITAA 1936” for the year ended 2017/18 as he satisfies the permanent place of
abode test.
Moving forward to 2018/19, Adam relocated to Dubai for the indefinite period. He
also did not exclusively demonstrate his intention of returning to Australia nor did he provide
any conclusive evidence of choosing his domicile in Australia. Adam after moving to Dubai
bought an apartment which shows that he has set up a fixed dwelling in foreign state. Citing
“Applegate v FCT (1979)” Adam has established a permanent abode in Dubai and only
visited periodically to meet his children (Freudenberg et al., 2017). Therefore, under “section
6 (1), ITAA 1936” he will be held as non-resident of Australia for 2018/19.
183-Days Test:
In the relevant income year of 2017/18 and 2018/19 Adam did not lived in Australia
for more than 183-days. So he is a non-resident of Australia under this test.
Superannuation Test:
The superannuation test is irrelevant in the position of Adam because he has no
membership to super fund.
Conclusion:
The case can be concluded by stating that for 2017/18 Adam will be held as
Australian occupant because he has met the Domicile Test by not setting up any fixed home
of residence out of Australia. Whereas, for 2018/19, Adam has validated that his choice of
residence is out of Australia and passed all the above outlined residency test. So he is non-
resident of Australia under the definition of “section 6 (1), ITAA 1936”.

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Answer to question 2:
Issues:
The issue surrounding the case involves determining the tax liability of rental income
that is earned from renting the townhouse to Airbnb. The second issue which will be
discussed is the requirement relating to GST registration for renting out the townhouse for
Airbnb.
Rule:
As per the “section 6, ITAA 1936” income obtained from the rental property or
income earned from property represents all income but not the income from personal
exertion. The term rent denotes the right for using the another person’s property (Braithwaite,
2017). As per “section 6-5, ITAA 1997” rent is regarded as the ordinary income. Rental and
other associated earnings represent the entire amount of rent that is received or a taxpayer
becomes entitled to when the property is rented out them. The taxpayer should include their
share of full rent they earn in their tax return.
A taxpayer is permitted to claim for income tax deduction for the certain rental
outflow that is incurred when the property is sub-let or it is accessible for rent (Sadiq, 2019).
Nevertheless, the taxpayer cannot claim the expenditure that are capital or private in nature.
As per the ATO the sharing economy is regarded as the economic activity through
which a digital platform where the people share their assets or services in exchange of fee
(Butler, 2019). Some property sharing economy activity includes the renting out the house or
a unit for short-term period through digital platform such as Airbnb, HomeAway or Flipkey.

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According to the ATO, when a taxpayer rents out all or the portion of their residential house
or unit through the digital platform such as Airbnb or Flipkey, they are required to keep
records for all the income made and state the same while filing for tax return. The taxpayers
are also required to keep the records of expenditure which they can claim as deductions and
do not need to pay GST on the sum of housing rent they earn (Murray et al., 2018). GST is
not applicable to residential rent and they are not liable for GST relating to rent which they
charge.
Application:
As evident, Orpheus has rented the ground floor of his townhouse. The property was
rented under the sharing economy digital platform of Airbnb for a period of 150 days.
Referring to “section 6-5, ITAA 1997” the rent which is received by Orpheus constitutes an
ordinary income because it involves the circular income flow (Morgan et al., 2018). In view
of that, Orpheus would only be permitted to a tax deduction for the expenditure up to 150
days only since the townhouse was rented out for that period only. It is assumed that the
Orpheus has kept the record of expenses relating to income property to claim an income tax
deduction. Orpheus should include the full amount of rent they share in his tax return.
On the other hand, as Orpheus has rented out his townhouse under sharing economy
platform of Airbnb, Orpheus is not required to register for GST because no GST is payable
on the amount of residential rent received (Liu, 2018). GST is not applied on the residential
rent and Orpheus is not conducting any business activity.
Conclusion:
To conclude with, the rental income earned by Orpheus will be considered as ordinary
income under the ordinary concepts of “section 6-5, ITAA 1997” while renting out the
property on Airbnb does not GST obligations since no GST is payable on rent.

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Answer to question 3:
Issues:
Is the taxpayer liable for tax on profits that is earned from the sale subdivided land
under either “section 25 (1)” or under “section 26 (a)” or will the taxpayer was merely
realizing the capital asset.
Law:
A capital gains or capital loss may happen when the CGT events occurs to a CGT
asset. Agreeing to “section 108-5 (1), ITAA 1997” CGT asset includes the type of asset such
as the possessions or legitimate or justifiable right which is not the possessions (Miller &
Oats, 2016). Land is observed as CGT asset and its disposal will lead to CGT event A1. As
mentioned under “section 104-10, ITAA 1997”, CGT event A1 comes about to a taxpayer
when they sell the CGT asset.
Referring “section 104-10, ITAA 1997” subdivision do not give rise to sale of land.
Likewise, “Taxation Determination TD 97/3” explains that the result of recording the new
titles under subdivision is mainly for CGT legislations to divide the actual parcel in two or
more possessions (Malman et al., 2016). Commonly, if the sale of land give rise to trade or a
part of commercial activity, the revenue that is earned from that business is held taxable
earnings within the sense of “section 6-5, ITAA 1997”. Alternatively, if the disposal leads in
mere realisation of land, the profits will be held as capital sum.

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The commissioner in “FCT v Whitfords Beach Pty Ltd (1982)” judged the taxpayer
for the incomes made from selling the many lots (Qureshi & Kumar, 2019). As per view of
commissioner the profits were chargeable either under “section 25 (1), ITAA 1936” as profits
from carrying on the commercial activity of land development or under “section 26 (a)”, as
profit resulting from carrying the profit making scheme or undertaking. Correspondingly, in
another issue of “Crow v FCT (1988)” sale of subdivided land and making profit thereon was
considered taxable profit since the taxpayer was conducting the land development business.
Application:
As evident Joe sold the land that was kept as the retirement nest egg. The value of
land stood $700,000. However, when the real estate agent approached Joe with the offer of
doing construction of eight townhouses on the land, he accepted the offer and proceeded with
the construction of eight townhouses on the sub-divided land. He also used the real estate
agent service to sell each townhouse for a value of $650,000. The land was actually bought
by Joe for the long-term retirement nest egg. Referring to “FCT v Whitfords Beach Pty Ltd
(1982)” the sub-division and sale of townhouse by Joe represented carrying the commercial
activity of land development.
In light of this case, the extensive amount of improvement and subdivision by Joe was
greater than mere realisation of current asset. It represented that the work was done in the
course of business venture. Other factors such as including the scale as well as the magnitude
of subdivision and sale, resulted in the conclusion that the activities of Joe involved greater
than mere realisation of asset. Referring to “Crow v FCT (1988)” sale of subdivided land and
making profit thereon by Joe should be considered taxable profit since the taxpayer was
conducting the land development business. Therefore, Joe will be treated assessable under

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“section 25 (1)” for the profits because he went further a step in realizing the capital asset
and subdivision will be treated as carrying the commercial business of land development.
Conclusion:
Considering “section 25 (1), ITAA 1936” Joe will be held chargeable for the profits
that is obtained from disposing many lots, because he was carrying on the business of land
improvement since it amounted to profit making scheme.
Answer to question 4:
As defined in “section 104-10, ITAA 1997”, a CGT event A1 take place when the
taxpayer disposes the CGT asset. As explained in “Sara Lee Household & Body Care (Aust)
Pty Ltd v FCT (2000)” it was held that upon selling the asset, the time of contract is
determined when the CGT event occurs (Bankman et al., 2018). Apart from this, when the
asset is not sold under the contract, the CGT event happens when there is a change in the
ownership.
The case study provides explanation that, Harrison entered in the contract of selling
the investment property on 14th June 2018 for a sum of $1.3 million. Citing the decision made
in “Sara Lee Household & Body Care (Aust) Pty Ltd v FCT (2000)” the sale of investment
property by Harrison has given rise to CGT event A1 under “section 104-10, ITAA 1997”
(Buenker, 2018).
As per the ATO if the taxpayer sells the capital asset particularly the real estate or the
shares, they generally make the capital gains or loss (Oishi et al., 2018). The taxpayers in this
situation must report the capital gains and losses in their tax return and pay the taxes on
capital gains. As per the ATO, acquiring shares in an organization or trust units then it is
treated as capital asset similar to any other assets for the purpose of CGT. Capital gains tax is
applicable on shares when the CGT event take place or when the asset is sold by them.

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In October 1985 Harrison bought shares for $4 and sold the same in 2018 for $12.
Under “section 104-10” a CGT event A1 happens for Harrison when there is a change in
assets ownership that took place in 20th June. The original transfer happened on 10th July
2018. Consequently, the capital gains will form the part of calculable earnings of Harrison
during the income year 2019 because the transfer happened on 30th June 2018.

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taxation law 2018. Oxford University Press.

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Murray, I., Taylor, J., Walpole, M., Burton, M., & Ciro, T. (2018). Understanding Taxation
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