Taxation Law: Starting a new business, Sale of Assets, General Deductions

TAXATION LAW
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Part 1- Starting a new business
The tax residency of corporations has been dealt with in accordance with s.6(1) ITAA 1936
which states the conditions out of which at a minimum one has to be fulfilled for the
company to be considered Australian tax resident. These are highlighted below (Woellner,
2014).
Condition 1: The company has been incorporated in Australia
Condition 2: Company has some Australia based business and also satisfies at a minimum
one condition out of the below mentioned two conditions.
 Central management and control location should be in Australia
 The voting power control should rest with Australian residents.
The company in question is an international shipping company which is based in Singapore.
As a result, it would be appropriate to conclude that the incorporation place for the company
in Singapore and not Australia. As a result, the first condition of tax residency is failed by the
company.
With regards to voting power, the given facts state that there are four directors and each
director has a 25% ownership in the company. Besides, it is known that only one director i.e.
Elwood is located in Australia while the other three directors are located outside Australia.
Thus, it is apparent that the voting power control does not rest with Australian residents.
It is apparent that the company has business in Australia owing to shipping between Sydney
and Africa. The key aspect is to determine whether central management control and central
location is in Australia or not. In this regards, a relevant case law is Huq Wang Bank Berhad
v Commissioner of Taxation [2016] HCA 45. It was highlighted in this case that central
control lies in the place where the decisions are made irrespective of where the meetings of
the directors are held (Barkoczy, 2017). Even in the given case even though the meetings are
held in Singapore and Africa, the contracts are executed in Australia only by Elwood who is
an Australia resident. As a result, it would be correct to assume that central control of the
business lies in Australia and therefore the company would be an Australian tax resident.

Part 2- Sale of Assets
1) In accordance with s. 204-430 ITAA 1997, there is no capital gains tax on any capital
gains or losses derived from the sale of car. Further, considering that car is a capital asset,
hence the receipts from sale of car would not be taxable (Woellner, 2014). As a result, no
amount would be reported on the tax returns owing to this transaction.
2) Any capital asset which has been bought before September 20, 1985 would be considered
a pre-CGT asset and no CGT would be applicable on the same in accordance with s. 149-10
ITAA 1997. The given vacant land has been bought in 1984 and hence no CGT implications
would arise related to the vacant land block (Sadiq et. al., 2016). As a result, no amount
would be reported on the tax returns owing to this transaction.
3) The given asset is not a pre-CGT asset since it has been purchased after September 20,
1985. Shares in this case are not pre-CGT asset and correspond to event A1 as per s. 104-5
ITAA 1997. Hence, the capital gains would be computed by subtracting the cost base of
shares from the proceeds of sale of shares.
Cost of purchase of shares = $ 80,000
Proceeds generated from the sale of shares= $ 175,000
Capital gains derived from sale of shares = 175000 -80000 = $ 95,000
Additionally, it is apparent that the shares have been held for more than one year and hence
would be classified as long term capital gains on which 50% discount would be available as
per ss. 115-25(1) ITAA 1997. Thus, the CGT would apply to 50% of the capital gains
computed above or (0.5*95000) = $ 47,500 (CCH, 2013). This would be reported in the tax
returns for the taxpayer.
4) There has been an event A1 in accordance with s. 104-5 ITAA 1997 (Gilders et. al., 2016).
Acquisition cost of antique = $ 15,000
Selling price of antiques = $ 5,000
Hence, capital losses on antique = 15000 – 5000 = $ 10,000
This capital loss can be adjusted against any capital gains in the current year arising from
collectibles only or carried forward to the next year.