Taxation Law

This document provides expert guidance on taxation law in Australia. It discusses the rules and regulations for determining residency and assessibility of income. It also includes case studies and relevant case laws for better understanding.

Running head: TAXATION LAW
Taxation Law
Name of the Student
Name of the University
Author Note

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1.
To Harry,
Issue
Whether Harry can be treated as a resident for the purpose of taxation in Australia.
Whether his income that has been earned from America can be assessed as an exemption
under section 23AG of the ITAA 36. Determination of his source of income.
Rule
Section 995.1 of the Income Tax Assessment Act 1936 (Cth) – an individual will be
treated as a resident in Australia if he can be pointed as a resident under the ordinary
concepts.
Resides Test – under this section the resides test has been provided for the determination
of the residency of a taxpayer in Australia for a particular income year. This test renders an
individual taxpayer to be considered as a resident in Australia if under the normal concepts he
is considered as the same. This test needs an individual to reside in Australia during an
income year for the purpose of being rendered as a resident in Australia. This test is
applicable to a person who has been visiting Australia. For the purpose of this test the
physical presence is required to established. The same can be illustrated with the case of FC
of T v. Applegate 79 ATC 4307.
Section 6 of the Income Tax Assessment Act 1936 (Cth) – there are three tests under this
section for the purpose of determination of the residency of a person in Australia. These tests
includes the domicile tests, the 183 day test and the Superannuation Test.
Domicile Test – this test requires a person to have a domicile in Australia. To avail
recognition as a resident under this test, the person should have a permanent place of abode

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located not outside Australia. This test is applicable in case of person who has their origin in
Australia. This has been provided in the TR IT 2650. This test can further be illustrated with
the case of Bell v. Kennedy [1868] L.R.1 Sc.& Div. 307.
183 Day Test – any individual who has satisfied the previously mentioned two tests is
required to be residing in Australia for a period, which is not less than 183 days. This has
been provided under TR 98/17. This can be discussed with the case of FCT v Applegate
(1979) 9 ATR 899.
Superannuation Test – Government employees covered by the Superannuation Act 1976
are also considered as a resident along with their family.
Section 23AG of the Income Tax Assessment Act 1936 (Cth) – this provides an exemption
towards a resident individual while assessing their income that they have earned from
employment engaged in another foreign country for a period exceeding 90 days.
Application
In the present situation, Harry has a British origin who has migrated to Australia for his
employment in the Megabytes Pty Ltd. This requires the application of the resides test to the
assessment of his residency. The migrated to Australia with his family and has the intention
of residing there permanently. He stayed in Australia between 2009 and June 2015. Harry has
been residing in Australia during this period and he had moved in to Australia with his
family. Hence, he will be treated as a resident by virtue of the resides test in Australia as
under this section the resides test has been provided for the determination of the residency of
a taxpayer in Australia for a particular income year. This test renders an individual taxpayer
to be considered as a resident in Australia if under the normal concepts he is considered as
the same. The same can be illustrated with the case of Harding v Commissioner of Taxation
[2018] FCA 837. The application of the other test relating to residency will not be required.

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On the other hand, he has taken up an employment in America and worked there for a
period of 2 months. His bank account as well as employment contracts are created in
Australia. But the services has been rendered in America and it has been continued for less
than 90 days. Therefore, he will not be permitted and exemption u/s 23AG. This is because it
provides an exemption towards a resident individual while assessing their income that they
have earned from employment engaged in another foreign country for a period exceeding 90
days.
Conclusion
Harry can be treated as a resident for the purpose of taxation in Australia. His income that
has been earned from America can be assessed as an exemption under section 23AG of the
ITAA 36.
2.
To Peter,
Issue
Assessibility of the income of Peter for the tax purpose.
Rule
Section 6.1 of the Income Tax Assessment Act 1997 (Cth) – income accumulated from the
activity of business will be treated as an ordinary income with respect to the assessibility tax
liability.
Section 108.5 of the Income Tax Assessment Act 1997 (Cth) – land is regarded as a CGT
asset. The proceed from the disposal of the land will also be treated as capital gain. This
comes under the category of CGT event A1.

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KKQY and Commissioner of Taxation (Taxation) [2019] AATA 204 – sale of the land
comes under the CGT event A1.
Greig v Commissioner of Taxation [2018] FCA 1084 – any transfer of land by the way of
sale will be treated as a business venture if the same has been effected after a required
amount of alterations being done to the same with an objective to earn profit.
TR 97/11 – this ruling provides for certain indicators that can be considered while
rendering a business to be a business income and an activity to be an business activity. The
indicators are:
Para 28 – 38 of TR 97/11 – the activity is required to be commercial.
Para 39 – 46 of TR 97/11 – the activity needs to have an object of carrying out a business
activity.
Para 47 – 54 of TR 97/11 – the activity needs to have an object of making profit.
Para 55 – 62 of TR 97/11 – the activity needs to be recurrent and regular in nature.
Para 63 – 67 of TR 97/11 – all the transactions involved in the activity needs to be
identical.
Para 68 – 76 of TR 97/11 – the activity needs to be planned and organised.
Para 77 – 85 of TR 97/11 – the activity needs to be permanent for certain extent.
Para 86 – 93 of TR 97/11 – the activity should not have a best explanation as a hobby or a
sport.
Application
In the instant scenario, Peter bought a land measuring half acre worth $ 80000. Section
108.5 of the Income Tax Assessment Act 1997 (Cth) rendered land to be regarded as a CGT

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asset. The proceed from the disposal of the land will also be treated as capital gain. This
comes under the category of CGT event A1. It has been also made evident in the case of
KKQY v Commissioner of Taxation (Taxation) [2019] AATA 204 that sale of the land
comes under the CGT event A1. He has bought the land for the purpose of constructing 6
townhouses for the purpose of earning rent and has consulted an accountant for the purpose
of effecting the same. This can be said to be a profit making motive as has been provided
under the TR 97/11. Again, he has indulged in the activity of transferring the property by way
of sale for the purpose of using the proceeds from the same to buy another land. That land has
also been proposed to be purchased for the purpose of making alterations for earning profit.
This can be treated as a business income as the same has all the indicators of a business
activity. This activity is required to be commercial. The activity has an object of carrying out
a business activity. The activity is recurrent and regular in nature. All the transactions
involved in the activity are to be identical that is modification of lands. The activity is to be
planned and organised. The activity is permanent for certain extent. This is not a hobby.
Therefore, the transactions of Peter is a business activity and the income from the same will
be treated as an ordinary income.
Conclusion
The transactions of Peter is a business activity and the income from the same will be
treated as an ordinary income.

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Reference
Australian Master Tax Guide, CCH Australia Ltd, Sydney
Barkoczy, S Foundations of Taxation Law, CCH Australia Ltd, Sydney
Barkoczy, S. Australian Tax Casebook, CCH Australia, Sydney.
Barkoczy, S. Core Tax Legislation and Study Guide, CCH Australia, Sydney.
Bell v. Kennedy [1868] L.R.1 Sc.& Div. 307
FC of T v. Applegate 79 ATC 4307
Greig v Commissioner of Taxation [2018] FCA 1084
KKQY and Commissioner of Taxation (Taxation) [2019] AATA 204
The Income Tax Assessment Act 1936 (Cth)
The Income Tax Assessment Act 1997 (Cth)
TR 97/11
TR 98/17
TR IT 2650