Taxation Implications for ABC Ltd, Peter and his Wife

This case study discusses the income tax implications for ABC Ltd, Peter and his wife. It determines whether they would be considered as an Australian resident for income tax purpose. The ruling of TR 2017/D2 determines whether a company will be considered as an inhabitant of Australia under the central management and control test of residency. The ruling also defines the nature of the company’s activities and the business which defines the types of acts and decisions are exercised as the central organisation and regulatory of the corporation. The case concludes that ABC Ltd will be considered as an Australian resident company since the central management and control was situated in Sydney. Additionally, Peter and his wife will be regarded as the Australian resident under the “section 995-1” as Peter has satisfied the criteria of Domicile test.

Running head: TAXATION
Taxation
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Table of Contents
Issue:..........................................................................................................................................2
Rule:...........................................................................................................................................2
Application:................................................................................................................................4
Conclusion:................................................................................................................................6
Reference List:...........................................................................................................................7

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Issue:
The existing issue is based on determining the income tax implications for ABC Ltd,
Peter and his wife. The issue is determines whether ABC Ltd, Peter and his wife would be
considered as an Australian resident for income tax purpose.
Rule:
The “taxation ruling of TR 2017/D2” determines whether a company will be
considered as occupant or a inhabitant of Australia under the central management and control
test of residency. According to the “Taxation ruling of TR 2017/D2” a corporation will be
company will be held as an Australian inhabitant if it performs the trade in Australia and has
the central organization and control situated in Australia (Woellner et al. 2016). The ruling
defines that to consider a company as the Australian inhabitant under the central
administration and control test, the corporation should carry on the trade in Australia. On
noticing that if the corporation has the central organization and governance situated in
Australia and it is carrying on the trade, it would be carrying on the trade in Australian inside
the denotation of the central organisation and regulatory test of residency.
The ruling also defines the nature of the company’s activities and the business which
defines the types of acts and decisions are exercised as the central organisation and regulatory
of the corporation. According to the taxation ruling of “TR 2017/D2” it identifies who
exercises the central management and control (Robin and Barkoczy 2018). The ruling
provides the question of fact to consider is where the central control of the company is
situated. The federal court in “Federal Commissioner of Taxation v Malayan Shipping Co
Ltd (1946)” stated that if the actual high level judgement procedure are executed in Australia
or where the monitoring of the inclusive business performance occurs in Australia the
company will be considered as the Australian resident.

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Referring to “Bywater Investment Ltd & Ors v Federal Commissioner of Taxation
(2016)” the high court in its judgement held that the appellants were considered as Australian
resident for income tax purpose during the relevant years and would be held liable to tax in
Australia (Barkoczy 2016.). The judge in its verdict held that the central management and
control of every applicant was located in Australia in respect of “section 6 (1) of the ITAA
1997”. Therefore, each of the appellant would therefore be considered for income tax
purpose as the Australian resident.
“Section 6-5 (2) of the ITAA 1997” defines that an individual who is a occupant of
Australia will be held for taxation on their ordinary source of income and statutory source of
income (Zummo, McCredie and Sadiq 2017). Under the domicile test “section 995-1 of the
ITAA 1997” defines resident or the resident of Australia if the person who has been residing
in Australia and includes an individual that has their domicile in Australia will be regarded as
Australian resident (Cao et al. 2015). An exemption to the law is that an individual may not
be held as occupant of Australia unless is it recognised that a person’s perpetual place of
residence is out of Australia.
The “taxation ruling of IT 2650” ascertains whether the individual has the perpetual
place of residence out of Australia. The ruling is usually applied on those individuals that
more overseas but does not change their domicile (Tan, Braithwaite and Reinhart 2016). The
court of law in “Jenkins v Federal Commissioner of Taxation (1982)” held that an
individuals estimated and the real span of stay in the foreign nation along with the purpose to
live in the foreign state either permanently or temporary is a question of fact.
Another instances of “Applegate v Federal Commissioner of Taxation (1979)”
where the court of law stated that permanent does not represents everlasting or forever and it
is measured objectively every year (Braithwaite 2017). The taxpayer was found to have the

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perpetual place of residence out of Australia however the taxpayer returned to Australia after
being ill. In the context of the current case, it is illusory to take account of whether an
individual has developed the intent of living or residing or having a perpetual place of
residence out of Australia forever without the purpose of ever coming back to Australia in the
probable future. Perhaps an important matter of fact is whether a person has abandoned any
dwelling or place of residence he or she may have held in Australia.
An Australian occupant are usually taxed based on their wide-reaching source of
revenue. The federal court in “FCT v French (1957)” defined service where the performance
of service takes place (Saad 2014). “Section 6-5 of the ITAA 1936” states that income from
private exertion represents proceeds from salaries, wages, fees etc. in respect to any service
given or the proceeds of any trade performed on by taxpayer.
Application:
As evident from the current case study ABC Ltd in spite of being incorporated in
Hong Kong carried the central management and control operations from Australia. The
majority of board of directors were residing in Australia and conducted meeting on monthly
basis to management the corporate affairs and policy of the company. ABC Ltd will
considered as Australian resident company. Evidences obtained from the case study suggest
that ABC Ltd has the central organization and control situated in Australia and it is executing
the business in Australia.
The board of directors exercises the over-all and business affairs to give direction to
the company operation in Australia. Additionally it has been found that Peter who is
Australian resident was hired to make decisions of the company’s operations and decide to do
things in the best interest of the company. The board of directors are also found to be setting

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the policy on the disposal of trading stock of company which implies the acts of central
management and control in Australia.
Citing the reference of “Federal Commissioner of Taxation v Malayan Shipping Co
Ltd (1946)” the actual high level decision process of ABC Ltd are made in Australia. The
nature of ABC Ltd activities and business suggest that monitoring of the overall corporate
performance occurs in Australia.
Considering the example of “Bywater Investment Ltd & Ors v Federal
Commissioner of Taxation (2016)” ABC Ltd and its directors will be considered as
Australian resident for income tax purpose during the relevant years and would be held liable
to tax in Australia (Miller and Oats 2016). The central administration and control of ABC
Ltd was situated in Australia in respect of “section 6 (1) of the ITAA 1997”. Therefore, each
of the board of directors would therefore be considered for income tax purpose as the
Australian residents since corporate policy of the company was continuously made by the
board of directors in Sydney.
On the other hand, to determine the residency of Peter, Domicile Test is conducted in
respect to “Domicile Act 1982”. Evidences obtained suggest that Peter had the permanent
place of abode in Australia prior to moving Brunei on a two year work contract with ABC
Ltd. Though Peter was offered with the extension of one year on his contractual agreement
but later it was found that he rejected the possible extension and returned to Melbourne after
the end of contract with his wife and children.
With reference to “Taxation ruling IT 2650”, under “section 995-1” Peter retained
the domicile of his origin and will be considered as the Australian resident under the
Domicile Test. This is because Peter did not had the intention of staying in Brunei or setting a
permanent place of residence out of Australia. During his absence his house in Melbourne

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was rented out and received the interest money in his Australian bank account. Citing the
reference of “Applegate v Federal Commissioner of Taxation (1979)” the taxpayer was
found to have the permanent place of abode in Australia (Blakelock and King 2017). More
importantly Peter did not abandoned any dwelling or place of residence he had in Australia.
Considering the example of “Jenkins v Federal Commissioner of Taxation (1982)”
Peter also expressed that he does not have any intention to stay in the overseas country since
he rejected the extension of contract with ABC Ltd (Chardon, Brimble and Freudenberg
2017). Therefore Peter has met the criteria of Domicile Test and will be considered as an
Australian resident.
Evidence suggest that Peter derived income from rental property, salaries and
dividends from investment and also received dividends from his investment. Upon his return
to Melbourne started the business of practicing accountant and received fees. The receipt of
fees and other sources of income by Peter was considered as the income from personal
exertion which is held assessable under “section 6-5 of the ITAA 1936” (Pinto, Kendall and
Sadiq 2015). Referring to “FCT v French (1957)” the receipts of fees by Peter constituted
business income that was carried on by the taxpayer will be considered taxable under
“section 6-5 of the ITAA 1936”.
Conclusion:
On a conclusive note, ABC Ltd will be considered as an Australian resident company
since the central management and control was situated in Sydney. Additionally, Peter and his
wife will be regarded as the Australian resident under the “section 995-1” as Peter has
satisfied the criteria of Domicile test. The income derived by peter from various sources will
be included in his taxable income under “section 6-5 of the ITAA 1997” as the income
derived from personal exertion.

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Reference List:
Barkoczy, S., 2016. Foundations of taxation law 2016. OUP Catalogue.
Blakelock, S. and King, P., 2017. Taxation law: The advance of ATO data
matching. Proctor, The, 37(6), p.18.
Braithwaite, V. ed., 2017. Taxing democracy: Understanding tax avoidance and evasion.
Routledge.
Cao, L., Hosking, A., Kouparitsas, M., Mullaly, D., Rimmer, X., Shi, Q., Stark, W. and
Wende, S., 2015. Understanding the economy-wide efficiency and incidence of major
Australian taxes. Canberra: Treasury working paper, 2001.
Chardon, T., Brimble, M. and Freudenberg, B., 2017. Tax and superannuation literacy:
Australian and New Zealand perspectives [Part 1]. Taxation Today, (102), pp.17-25.
Miller, A. and Oats, L., 2016. Principles of international taxation. Bloomsbury Publishing.
Pinto, D., Kendall, K. and Sadiq, K., 2015. Fundamental Tax Legislation. Thomson Reuters.
ROBIN & BARKOCZY WOELLNER (STEPHEN & MURPHY, SHIRLEY ET AL.),
2018. AUSTRALIAN TAXATION LAW 2018. OXFORD University Press.
Saad, N., 2014. Tax knowledge, tax complexity and tax compliance: Taxpayers’
view. Procedia-Social and Behavioral Sciences, 109, pp.1069-1075.
Tan, L.M., Braithwaite, V. and Reinhart, M., 2016. Why do small business taxpayers stay
with their practitioners? Trust, competence and aggressive advice. International Small
Business Journal, 34(3), pp.329-344.
Woellner, R., Barkoczy, S., Murphy, S., Evans, C. and Pinto, D., 2016. Australian Taxation
Law 2016. OUP Catalogue.

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Zummo, H., McCredie, B. and Sadiq, K., 2017. Addressing aggressive tax planning through
mandatory corporate tax disclosures: An exploratory case study. eJournal of Tax
Research, 15(2), pp.359-383.