Taxation Law: Analysis of Case Facts and Tax Advice for Elwood

TAXATION LAW
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Introduction
The objective in this case is to critically analyse the case facts of the various scenarios
presented and to apply the applicable case laws and relevant legislations in order to provide
tax advice to Elwood.
Part 1- Starting a new business
As per s.6(1) ITAA 1936, atleast one condition listed below ought to be satisfied for
company being categorised as tax resident of Australia (Barkoczy, 2015).
 Place of incorporation being Australia
 Company needs to have some business based in Australia along with satisfying atleast
one of the conditions mentioned below.
1) Location of control and central management to be based in Australia
2) Australian residents having voting power control.
Place of Incorporation is Singapore and hence the incorporation test is failed.
Also, the voting power test would also fail in this case since there are four directors and each
of them have an equal stake in the company. All directors with the noticeable exception of
Elwood are foreign residents. Thus, 75% of the voting rights are with foreign residents.
With regards to control and decision making, the key factor is the place of meeting of
directors as the decisions are taken in such meetings. Based on the given information, these
meetings are held in Singapore which would serve as the place of central control. Etwood
only executes the contract in Sydney but it does not imply that the enactment of these
contracts is decided by him. Also, the managing director position is not limited to Etwood but
remains but all the other directors also on a rotating basis for three months at a time. As a
result, it would be fair to conclude that the central control of the company is not based in
Australia and hence it is a foreign tax resident.
Part 2- Sale of Assets

1) Exemption of car from fold of CGT (Capital Gains Tax) exist under s. 118-5 ITAA 1997.
Further, sale proceeds non-taxable since capital receipts (Woellner, 2014). Hence, no amount
to report.
2) Vacant land is a pre-CGT asset as per s.149-10 ITAA 1997 as it was purchased prior to
September 20, 1984 when CGT was not applicable (Sadiq et. al., 2016). Hence, no amount to
report.
3) Shares acquisition cost = $ 80,000
Shares sale proceeds = $ 175,000
Capital gains on shares = 175000 -80000 = $ 95,000
However, since the holding period exceeded one year, hence in accordance with s. 115-25(1),
only half the capital gains i.e. $ 47,500 would be taxable and reported in tax returns (CCH,
2013).
4) As per s. 104-5 ITAA 1997, disposal of capital asset leads to an event A1 (Gilders et. al.,
2016).
Antique purchase cost = $ 15,000
Antique selling price = $ 5,000
Since the selling price of antique is lower than the cost price, hence capital loss would result.
Antique related capital loss = 15000 – 5000 = $ 10,000
Since, no capital gains are being derived from collectibles in this year, thus this capital loss
would be carried forward for adjustment in the next tax year.
5) Taking into consideration that jewellery was utilised in personal use, thus, capital losses
are not considered in accordance with s.108-20(1) ITAA 1997, Therefore, the capital loss on
jewellery is ignored and cannot be used for adjusting against the capital gains (CCH, 2013).
6) Share acquisition cost = $ 41,500
Share sale proceeds = $ 45,000
Capital gains on shares= 45000 -41500= $ 3,500