Tax Law Take Home Assignment - Mary's Residency Status, Capital Gain and Taxable Income under Australian Tax Law

TAX LAW-TAKE HOME ASSIGNMENT
Question 1
For the 2017/2018 income year only, discuss Mary’s residency status under Australian tax
law. Provide explanations, and cite relevant law.
In terms of Section 6 subsection 5 (1), 10(1) and 10(2) OF Income Tax Assessment Act, 1997
of Australian Income Tax Law for a resident pan world income is taxable while for a non-
resident only Australian sourced income taxable.
Further, Section 995-1 of Income Tax Assessment Act 1997 defines the term resident which
includes any person who is Australian resident under Income Tax Assessment Act 36.
Besides above, ITAA 36 provides 4 measures for determining of residency. The same has
been highlighted here-in-below:
(a) Resides Test: Under this test, the Australian Tax Office (ATO) looks at dwelling of
individual or one’s settlement or abode. The same has been detailed in the judgement of
Levene v IRC [1928] AC 217, IRC v Lysaght [1928] AC 234http://law.ato.gov.and
TR98/17.
(b) Domicile Test: Under this test, permanent abode is taken into consideration for
determining the residency. The relevant case laws detailing the term permanent
includesFCT v Applegate 79 ATC 4307; see also FCT v Jenkins (1982) 12 ATR 745 ;
(c) 183 Days test: Under this test, ATO generally harps on the day count. If the day count,
exceed 183 days then the individual is considered a tax resident. The said test holds good
unless the permanent abode is outside Australia and the person does not intend to take
up residence within Australia. The same has been detailed in Case S19 85 ATC 225;
(d) Commonwealth Superannuation Test: Under this test, generally employees of Australian
government working abroad are considered.
In the present circumstance, Mary moved to Sydney in 2010 to attend a University and she
purchased a dwelling in Sydney for a permanent abode in Sydney with an intention to reside.
Post house purchase, she purchased a rural land in Australia.
After graduation, Mary joined an accounting firm in Sydney and late took a transfer to
London renting her abode. During the stay, Mary rented a property in London without any
intention to sell Australian property or purchase any property in London. Further, during the
current financial year, Mary returned to Australia and started working afresh.
In snapshot, Mary qualifies the residency test as she always had an intention to return back to
Australia. Further her stay in Australia during the year from January 1 to June 30 tantamount

to half an year. (Commonwealth of Australia)The same has been ruled in the TR98/17
whereby the commissioner highlighted the following elements:
(a) Intention or the purpose for which the tax payer is present;
(b) Living and any social arrangement;
(c) Ties in the form of family or business;
(d) Asset location and maintenance.
The commissioner further concluded that the behaviour is an important constraint in
determining residency and on the basis of behaviour of Mary she is a resident.
Question 2
Does Mary have a net capital gain under Australian tax law in 2017/2018? Discuss, providing
full reasons for your answer, and cite relevant law. (TD 1999/71, 1999) If you consider that
she has a net capital gain, calculate this. Explain all your steps.
Computation of Capital Gain
Name Mary
Status Resident
Resident
FY 2017-18
SL No. Particulars Amount Amount
1 Sale of Land 600000
2 Expenses Associated with sale 500
3 Cost of Acquisition of land 413500
4 Income from sale 186000
5 Sale of House 2000000
6 Expenses Associated with sale 1000
7 Cost of Acquisition of House 1200000
8 Income from sale 799000
9 Share sale consideration 63000
10 Expenses Associated with sale 60
11 Purchase consideration for shares 65060
12 Loss from sale -2120
13 Net Capital Gain (4+12) 183880
14 Discounting of 50% 91940
15 Taxable Net Capital Gain 91940
Since Mary is a resident of Australia and the capital gain arises in Australia during captioned
FY, the same is taxable in Australia. The property has been purchased post 20th September,
1985, the same is liable to CGT. Further, all the property have been purchased post sunset