Taxation Law Answer : Assignment

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
Answer to 1:...............................................................................................................................2
Answer to 2:...............................................................................................................................6
Answer to question 2:.................................................................................................................7
Answer to requirement 1:...........................................................................................................7
Answer to requirement 2:...........................................................................................................8
Reference List:.........................................................................................................................12

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Answer to Question 1:
Answer to 1:
The taxation ruling of 98/17 provides the interpretation of the commissioner relating
to the ordinary connotation of the term resides that are inside the definition of the term
resident under “subsection 6 (1) of the ITAA 1936”. The taxation ruling of 98/17 is
associated with those people that are entering Australia and includes people that are migrants
or workers that comes to Australia with the pre-arranged agreements of employment (Murphy
and Higgins 2016). The “Income Taxation Ruling of IT 2681” relates to the determination
of the residency status of people that are business migrants. The ruling usually takes account
of people that are business migrants will be held as an Australian resident for taxation
purpose under “subsection 6 (1) of the ITAA 1936” (Schenk 2017). The present
circumstances of Nida provides that she is a native of Vietnam and carried business. Nida,
arrived to Australia with her family originally to migrate here and being business. To live
with her family and children Nida bought a house in Melbourne.
The residency question is considered as the degree of fact, forming the central criteria
that ascertains a person’s income tax liability. The liability to impose tax is generally
determined each year (Hoffman et al. 2014). As held in “FCT v Applegate (1979)” events
following the year of income might help in determining a person’s status of residency.
“Section 6-5 (3) (a) and 6-10 (5) (a) of the ITAA 1997” explains that tax liability arises for
visitors of foreign residents or those individuals that are non-resident of Australia on the basis
of their statutory or ordinary income generated from most of the Australian income sources.
According to the “section 995-1 of the Act”, “Resident of Australia” represents those
persons that are Australian resident within the meaning of the ITAA 1936 Act (Hill and
Mancino 2014). According to the “Income Taxation Ruling of IT 2681” a business migrant

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is held as the resident for assessment purpose under the following test stated under
“subsection 6 (1) of the ITAA 1936”. The test includes
a. Resident under ordinary sense
b. Domicile Test
c. 183 Days Test
Denoting from the state of affairs of Nida, reference to “subsection 6 (1) of the ITAA
1936” is applied for to conclude whether Nida will be considered Australian resident within
in the purpose of the ITAA 1936 Act.
Resident under Ordinary Sense:
The ordinary sense of the expression “reside” is held as large enough to include people
that arrives in Australia as the migrant to live permanently and the person that are dwelling in
Australia for a substantial time (Thomas 2018). A migrant that arrives here in Australia
planning to live here permanently is held as resident from arrival. To help in determining
during the income year whether the people migrating for business purpose is regarded
resident under the ordinary sense certain factors must be accounted. This includes whether
the persons return to the nation of origin, the frequency, regularity and duration of those trips
along with the purpose forms the decisive factor (Woellner et al. 2016). This also include a
person business ties and family relation in Australia and the native state. The factors also take
account of whether the person abode is maintained in the state of origin or it is available for
an individual use while away from there.
The judgement of law court in “FC of T v Miller (1946)” stated that to question of fact
should be determined necessarily that surrounds the situations (Bloom and Joyce 2014). The
ordinary sense test also considers the behaviour of the person while they are present in

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Australia. The “taxation ruling of 98/17” explains that all the facts helps in explaining a
person’s behaviour in Australia are relevant (Samansky and Smith 2017). This includes;
a. Purpose of presence in Australia
b. Employment or business relations
c. Living arrangements
d. Location and maintenance of assets
In determining whether the business migrant is living in Australia proper weightage
must be paid to each of the above defined factors. Denoting from the current situation of
Nida, the primary purpose of migrating was to commence business in Australia. Indications
from the case study explains that she purchases house to live with her family. The taxation
commissioner in “Macrea v Macrea (1949)” explains that migrants arriving in Australia with
the possible purpose of settling with their family is regarded as Australian resident from the
time they came to Australia (McDaniel 2017). The federal court in its decision explained that
a person’s business ties or private interest may require to be out of Australia for certain time.
Furthermore, a person that performing business activities in the country of their origin and
coming to Australia is regarded as the resident of Australia.
The case study of Nida provides that she came with the original purpose of migrating
in Australia in order to start business and eventually live with her husband and children. She
returns to Hanoi as the active business partner in her business that forces her to be out of
Australia for a certain time in 2018/17. Conclusively, Nida under the ordinary sense is not an
Australian resident for the year 2017-18. The residency taken in Australia was not on
permanent basis. Nida and her family residence status is a separate and independent matter. It
would appear that she and her family are Australian resident but they are not a resident for
assessment purpose.

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Domicile Test:
According to the “Income Tax Ruling of IT 2681” a business migrant is regarded as
the Australian resident in respect of the domicile test given that person has the place of
residence in Australia unless it is content that a person perpetual place of residence is out of
Australia (Schmalbeck, Zelenak and Lawsky 2015). Within the “Domicile Act 1982”, an
individual that acquires the domicile of the respective choice in Australia given the individual
undertakes the decision of making their residence in Australia for indefinite purpose (Burke
2016). The commissioner in “Henderson v Henderson (1965)” held that a person retains the
domicile of their origin until the person obtained the domicile of their choice in another
nation or by the operation of law.
The case study provides Nida’s permanent place of dwelling is in Vietnam. Nida
actually arrived in Australia with the purpose of living in Australia and start a new business.
Nida, to live with her family purchase a house in Melbourne nevertheless the time of
existence in Australia was irregular and in breaks (Raabe et al. 2015). Referring the leading
case of “Applegate v F.C of T (1979)” Nida has not abandoned her place of residence in
Australia and returns to Australia after performing the business in Hanoi.
The commissioner in “Bell v Kennedy (1868)” explained that a person retains the
residence of the country in which they are born except in the circumstances of acquiring the
domicile in another country or by the operation of law (Willbanks 2015). Evidently, Nida
case study provides the evidence that Nida is not an Australian resident under the Domicile
Test. It would appear that Nida and her family is an Australian resident but the status of
Residency for Nida and her children is regarded as the independent and separate subject for
the income year 2017-18. With respect to “Domicile Act 1982” Nida would not be held as
Australian Resident for income tax purpose.

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183 days Test:
The taxation ruling of IT 2681 provides that a business migrant that are present in
Australia for greater than 183 days, usually speaking is held as the Australian resident under
the 183 days test. According to the 183 days’ test if a person is living in Australia then
irrespective of the nationality, citizenship or domicile the person is considered as the
Australian resident within the purpose of the act (McNulty and McCouch 2015). To be held
as Australian resident a person should be in Australia for 183 days or more. As evident from
the current situation of Nida she has been present in Australia for only 120 days.
Consequently, Nida will not be held as the Australian resident since she only remained in
australia for 120 days. Her status of residence is held as independent and separate matter.
Answer to 2:
According to the decision of court in “FCT v Nathan (1918)” stated that determining
the actual income sources is regarded as the practical and hard question (Handelman and Ellis
2016). The commissioner in “United Aircraft Corp (1943)”, explained that business income
constitutes the place from where the business is performed or selling of goods is carried on.
As evident from the current situation of Nida, on performing the above stated test it
was noticed that she was not regarded as the resident of Australia based on the relevant test
during the income year of 2017-18. Nida is a foreign resident since the amount of time that
has elapsed is only for 120 days and the behaviour of her stay does not reflects a habit of
continuity. The income or the profits that are obtained from the business activities of Hanoi
would be accounted for the taxation purpose. Nida, being the overseas resident is under the
obligation of paying income tax for the sum of earnings derived from the Australian sources.

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Answer to question 2:
Answer to requirement 1:
Numerous instances have been bought forward where the owners of land have the
opportunity of subdividing the land and selling the land which they own for long time period.
This kind of occurrence is regarded as the common phenomenon where the land owners owns
the land out of the town and the expansion of land constitute a better use of the land by
building residential property for the purpose of residency rather than using it for farming
(Smith et al. 2014). There are circumstances, the property developments are held as
substantial in getting large amount of profits from the construction on land.
The case study Hassan provides a small family farm was inherited that valued
$600,000. The evidences suggest that Hassan undertook the decision of permanently retiring
from the farming activates and use the land that is inherited by him for construction of town
house. The prevailing issue of Hassan is relatively related with ascertaining whether the
revenue that is obtained from the sale of the town house is regarded for assessment with
respect to ITAA provision.
The discussion from the preceding paragraph provides that small and medium
subdivision complies with the requirement of realisation of land when the project is used for
deriving profit. According to the decision in “Commissioner of Taxation v Westfield
Limited (1991)” explains that the sale of asset that is not acquired for the purpose of resale at
profit or development of land fulfils the obligation of capital receipt (Miller and Oats 2016).
Denoting from the circumstances of Hassan subdivision of land used for agriculture and
construction of town house on the land and selling it possess significant relation in derivation
of huge amount of profit from building townhouse. Considering the example of Hassan,

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certain alternatives provides that revenue that are obtained from the sale of townhouse is
regarded as the assessable income under the provision of ITAA. They are as follows;
 Capital asset which is regarded as the mere realisation on the event when the land
meets the requirement of subdivision.
 The degree to which the carrying the business represents the way that the property
was held for the purpose of development by the taxpayer.
 The land development go further than the sense of mere realisation of the land
(Barkoczy 2016). However, the activities of land development may be short of
circumstances of conducting the business of land development. Consequently, this
may be categorized as the profit derive undertakings.
Answer to requirement 2:
Denoting from the alternatives that has been provided above, the alternatives can be
implemented to understand the consequences of taxes from the sale of townhouse by Hassan
under the provision of ITAA 1997. The alternatives that is explained above the mere
realization of capital asset alternative is applied in the situation of Hassan.
The court of law in “Allied Pastoral Holdings v Commissioner of Taxation (1983)”
evidently explained the fundamental principles that governs the concept of mere realization
of capital asset (Cao et al. 2015). The judgement handed by the court to the taxpayer that had
the land is observed as the capital asset and construction on the land in a profitable manner is
regarded as the mere realisation of asset to derive profit.
Prior to developing a thorough examination of the situation of Hassan in obtaining a
better understanding that construction of the townhouse on the land establishes the mere
realisation of the land whether the land is purchased by Hassan with the intent of reselling
and making profit. Notwithstanding, of the situation that the sale of land, the profit that is

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generated from the sale of land will be held for taxation (Davison, Monotti and Wiseman
2015). At the time of providing advice to Hassan it is necessary to understand whether any
purpose of acquiring the property was to derive profit.
The court of law in the “Commissioner of Taxation v Reiger” reckoned the
comparable issue of the mere realisation of the capital asset. A disagreement was bought
forward by the taxpayer that explained the purpose of acquiring the land was to perform the
work of plantation (Saad 2014). The taxpayer asserted that the purpose of fixing palm tree
was to carry out the activities of plantation but did not executed any business activities. The
declaration of intention of related to subdividing the land for sale is viewed as the vital reason
for introducing the argument that described the intent of commercially realising the land.
The “taxation ruling of TR 92/3” explains the necessary issue that is related to the
determination of whether the individual is held for assessment relating to the activities
undertaken for the mere realisation of the capital asset (Robin and Barkoczy 2018). An
explanation of the mere realisation of the capital asset has been explained by taxation
commissioner in the case of “Californian Cooper Syndicates v Harris (1904)”. A detailed
explanation is provided in the determination of income tax where the taxpayer investment
was undertaken for mere realisation of land and deriving huge sum of profit from the land
was held as the mere realisation of the land as taxable income.
Another reference to the judgement was “Commissioner of Taxation v Westfield” the
verdict of the court stated that once it is clear that activities of the purchase and sale that
derived profit was not considered as the activity of ordinary business course (Robin 2017).
Alternatively, as the matter of ordinary incident of some other business activities constitutes
that the profit that is in question would be held as the portion of taxable income of the
appellant given the purpose of profit making was existent while making acquisition. In the

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later judgement the commissioner held that that the profit deriving scheme might have
deficiency regarding the specific detail or the mode of attaining the profit should be
contemplated by the taxpayer by a minimum of one profit making scheme that could be
realised.
Under the “Taxation Ruling of TR 92/3” the profit must ought to have from at least
one of the means of contemplated at the time of acquiring the property and the Australian
taxation office expressed inconsistent with the decision stated in the “Moana Sand Pty Ltd v
Federal Commissioner of Taxation” (Blakelock and King 2017). The position of the
taxation rulings provides that a taxable profits originates given the taxpayers enters into the
transition or operation with the objective of generating profit by one single means but
actually gains the profit through a different means.
As evident from the case study of Hassan it states that the whether the activities of the
land development that is undertaken by the owner of land contains the constituent of business
in or has the character of generating profit. By taking into the approach undertaken by the
“taxation ruling of TR 92/3”, the opinion of the ATO has remained dependent on the
viewpoint cited under “Miscellaneous Taxation Ruling of MT 2006/1” (Robin and
Barkoczy 2018). In ascertaining whether the profits generated through a solitary subdivision
of land, it is detained as the mere realization of the land or the profit generating scheme. The
views cited by the Australian taxation office bought forward number of factors with respect
to “Miscellaneous Taxation Ruling of MT 2006/1” that are enumerated below;
a. Whether there are any other purpose involved in holding the land?
b. Is there any form of arrangement made relating to the subdivision of land?
As stated by the “Australian Taxation Office” no solitary factor is held as the decisive
component. Opinions may vary that the subdivision of property into small pieces of land may

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be considered as the mere realisation of the land (Davison, Monotti and Wiseman 2015).
Conversely, under the case study of Hassan this is not the situation in applying the alternative
of mere realisation of land. The verdict of the court should be valued under some cases as it
demonstrates that the construction of building on land results in the mere realisation of the
capital asset.
The judgement of commissioner in “Casamity v FC of T (1997)” stated that the
subdivision of land into number of plots is regarded as the mere realisation of the capital asset
(Cao et al. 2015). The commissioner in its view stated that the property was used for farming
for several years and the decision of subdividing the land was primarily because of the
increasing amount of debt.
In other example of “Federal Commissioner of Taxation v McCorkell” the
judgement of the federal court denoted that the land that was earlier used for the farming and
subdividing the land into plots for sale constitutes a mere realisation of land (Smith et al.
2014). Alternatively, in “Federal Commissioner of Taxation v Statham (1989)” the taxpayer
constructed the 105 lands greater than four stages was not held as the mere realisation of
land. Considering the judgement of the court in numerous cases a decision can be arrived at
that subdividing the land by Hassan to construct townhouse is regarded as the mere
realisation of the land. The proceeds that is generated by Hassan from the sale of land is
regarded as the capital account and not under the revenue account.

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Davison, M., Monotti, A. and Wiseman, L., 2015. Australian intellectual property law.
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