Taxation Law: Residency, Income, and Deductions

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
Part A:........................................................................................................................................2
Issues:.....................................................................................................................................2
Laws:......................................................................................................................................2
Discussion..............................................................................................................................2
Conclusion:............................................................................................................................6
Part B: Deductions:....................................................................................................................7
Introduction:...............................................................................................................................7
Concerns related to current arrangements:.................................................................................8
Rising burden of Compliance:...................................................................................................8
Deduction Level:........................................................................................................................9
Technological developments and broader improvements:.......................................................11
International comparisons: New Zealand.................................................................................14
Tax system in New Zealand:................................................................................................14
Conclusion:..............................................................................................................................16
References:...............................................................................................................................18

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Part A:
Issues:
a. Will John and Jenny be held Australian resident under “section 6 (1), ITAA 1997”?
b. Is the salary income and dividends received will be considered taxable under the
ordinary meaning of “section 6-5, ITAA 1997”?
c. Is the sale of land and the amounts derived will be included into the taxable income of
John and Jenny?
Laws:
 Section 6 (1), ITAA 1997
 “FCT v Miller (1946)”
 “Applegate v FCT (1979)”
 “section 6-5, ITAA 1997”
 “section 44 (1) of the ITAA 1936”
 “section 104-10, ITAA 1997”
 “Moana Sand Pty Ltd v FC of F (1988)”
 “section 25 (1) and 26 (a)”
 “FC of T v Adelaide Fruit and Produce Exchange Co Ltd (1932)”
Discussion
As understood Australian resident is required to pay tax on the income that is obtained
from all sources. Accordingly, to ascertain the residency status of the taxpayers there are four
relevant test of residency but only one of the four test should be met by an individual to treat
the person as the resident of Australia under legislative provision of “section 6 (1), ITAA
1936”1.
1 Woellner, Robin, et al. "Australian Taxation Law 2016." OUP Catalogue (2016).

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Whether a taxpayer is living in Australia forms the necessary element in determining
residency test. An individual is regarded as the Australian resident for the purpose of tax if
the taxpayer is actually living in Australia, notwithstanding of their citizenship, nationality or
location of their fixed home. The court of law in the case of “FCT v Miller (1946)” held that
to ascertain an individual’s resident is regarded as the matter of fact. Important factors such
as the amount of time spend and the intention of coming to Australia is important2.
The domicile test is another test that explains that an individual will be regarded as
the Australian resident only when the taxation commissioner is content that the taxpayer has
their domicile in overseas country and not in Australia. The decision handed by law court in
“Applegate v FCT (1979)” noticed that even though the taxpayer has retained the Australian
residency, the taxpayer evidently proved that his fixed location of residence was out of
Australia3. Most importantly, the term permanent does not signifies forever and the
objectivity is assessed each year. While the 183 day’s test explains that a person is an
Australian resident if the person has been living in Australia for more than 183 days or one
half of the income year. And lastly, the superannuation test explains that a person is an
Australian resident if he or she is the member of commonwealth superannuation fund.
In case of John and Jenny both came to Australia with the pre-arranged contract of
employment for a period of eighteen months. However, under the ordinary concepts Jane and
Jenny cannot be treated as Australian resident under this test. While under the domicile test it
is evidently understood that you are not the Australian occupant as your fixed place of
residence is in overseas. Nevertheless, Jane and Jenny have been present in Australian for
more than one half of the eighteen months you have met the criteria of 183 days’ test. In
2 Barkoczy, Stephen. "Foundations of taxation law 2016." OUP Catalogue (2016).
3 Sadiq, Kerrie. Australian Tax Law Cases 2018. Thomson Reuters, 2018.

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other words, Jane and Jenny have been physically present in Australia from 1st December
2018 and signifies that they are present in Australia for more than six months. The main
purpose arriving in Australia was for employment purpose. Additionally, a significant
amount of time has been spend by Jane and Jenny which should be viewed as to consistent
with living in Australia.
Receipts derived from personal exertion in the form of employment income or
rendering of personal services is held taxable for the individual. A connection with the receipt
obtained from the taxpayer from the personal service is assessable as ordinary income under
“section 6-5, ITAA 1997”4. As Jenny derived the salary of $130,000 from her employment
with Total Financial Services Pty Ltd it will be considered as taxable income under the
ordinary concepts.
John has also reported your own salary income of $38,000 in Australia by taking up
accounting contract in Australia. Similarly, the salary derived from accounting services gives
rise to nexus with the personal service income. As a result, John will be considered taxable
for his salary income under the ordinary meaning of “section 6-5, ITAA 1997”.
In the year 2018 both Jane and Jenny held several investment in the US stock markets.
Jane and Jenny both obtained dividends which stood $5,000 AUD in October 2018 and in
March 2019. In this matter it can be stated that the dividends and gains originating from the
shares are held as statutory income under the section “section 6 (1), ITAA 1936”. The
dividends which is received by Jane and Jenny must be included in your assessable income
under legislative provision of “section 44 (1) of the ITAA 1936”. Later in 2019, Jenny also
purchased some shares in a listed company of Australia and the dividend was paid to Jenny
4 Robin, H. Australian Taxation Law 2019. Oxford University Press, 2019.

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on 10 July 2019. As the dividends are paid to Jenny in the later income year of 2019,
therefore it will not be considered as taxable income.
In the later part of the year in February 2019, John acquired a land that costs $200,000
and you further spend $8,000 for redevelopment purpose. John initially bought the land for
building petrol stations and service centre but changes in the local plan of local council
resulted in the abandonment of project. John later sold the land at profit for $230,000. Based
on the transaction reported it should be noted that the land is a CGT asset and the sale of land
by John should be viewed as “CGT event A1” under “section 104-10, ITAA 1997”.
Accordingly, on noticing that the sale of land gives rise to the business or a part of
business then the income derived from such sale is considered assessable within the ordinary
meaning of “section 6-5, ITAA 1997”. Referring to the case of “Moana Sand Pty Ltd v FC
of F (1988)” altogether “section 25 (1) and 26 (a)” was implemented to take into the account
the receipts as taxable income following the deduction of costs to consider profits assessable5.
Referring to the above stated judgement, it should be stated the tax consequences from the
sale of land originates. With reference to above case, the profits that is earned by John from
the sale of land will be considered taxable income under the ordinary concepts of “section 6-
5, ITAA 1997”.
On a final note, John, based on the information supplied it is noticed that a
commercial property was rented out by him in Brisbane. He also received the rent in advance
as lump sum. Referring to the decision made by the court of law in “FC of T v Adelaide
Fruit and Produce Exchange Co Ltd (1932)” rent that is received from the sub-letting of
property is held as ordinary income under the regular flow concept6. Despite the rent was
5 Robin & Barkoczy Woellner (Stephen & Murphy, Shirley Et Al.). Australian Taxation Law Select 2019: Legislation and
Commentary. OXFORD University Press, 2019.
6 Sadiq, Kerrie, and Adrian Sawyer. "New Zealand’s ‘experience’with capital gains taxation and policy choice lessons from
Australia." eJournal of Tax Research 16.2 (2019): 362-392.