CPA Australia Advanced Taxation: International Tax & Super Solution

This CPA Australia Advanced Taxation assignment presents a case study involving Dr. Peter Wong, an Australian pathologist working abroad, and Joseph Conti, an Australian resident receiving a superannuation lump sum. The solution analyzes Dr. Wong's residency status between 2015 and 2018, calculating his Australian assessable income for those years based on salary, dividends, interest, and rental income. It applies relevant legislation and case law to determine his residency under the ITAA 1936. Furthermore, the assignment calculates Joseph Conti's maximum tax payable on his superannuation lump sum benefit, considering his age, pre-July 1983 component, and undeducted contributions, while excluding the Medicare Levy. The analysis references relevant sections of tax legislation to support the calculations and conclusions.

CPA AUSTRALIA
ADVANCED TAXATION SUPPLEMENT
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Advanced Taxation Supplement - 2018
INTERNATIONAL TAX FUNDAMENTALS
Case Study
Dr Peter Wong is an Australian pathologist employed by Apex Laboratories Ltd (Apex) in Sydney since
2010. In June 2015 he accepted a 2-year research fellowship at a New York university, starting from
01 July 2015.
Willing to keep Dr Wong as an employee during his time overseas, Apex offered him a part-time
position, working remotely from New York and requiring him to travel to Sydney for project
meetings every 8 weeks.
After accepting the new work conditions, Dr Wong leased his Sydney apartment, sold his car and
moved to New York on 1 July 2015. Since then, his income consisted of the following:
- Salaries of $50,000 per year paid by Apex into his Australian bank account on a monthly
basis;
- Dividends of $3,000 from a US company, received on 1 October 2015 (no withholding tax was
applied in the US);
- Interest on his US bank deposits amounting to $180 (net of 10% US withholding tax);
received on 1 September 2015;
- Fully-franked dividends of $2,000 from an Australian company, received on 1 October 2017;
and
- Rents of $20,000 per year from his Sydney apartment paid in monthly instalments into his
Australian bank account.
In December 2015, the New York university offered Dr Wong a full time research position with an
annual salary of $100,000 plus travel allowance of $10,000 paid in January each year, as well as
sponsorship for a permanent residency visa. Dr Wong accepted the offer and on 1 January 2016 he
resigned from Apex. His Sydney apartment remained rented at the same price on a continuous basis
until 30 June 2018.
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Advanced Taxation Supplement - 2018
QUESTION A
(a) Considering the facts above, advise Dr Wong on his residency status for the period between
1 July 2015 and 30 June 2018, applying legislation, case law and relevant tax rulings to
support your answer.
(12 marks)
Type your answer here. Ensure you answer all parts of the question.
Answer:
Issues:
Is the taxpayer would be treated as Australian resident under the definition of “section 6 (1)
of the ITAA 1997”?
Laws:
As defined under “section 6 (1) of the ITAA 1936” the Australian resident are those people
that are having their domicile in Australia, except when the commissioner is content that an individual’s
permanent place of residence is out of Australian. It includes those people that are actually living in
Australia, constantly or intermittently for more than of the income year, except when the taxation
commissioner is content that the usual place of residence of the taxpayer is out of Australia and the
taxpayer has no intention of takin up the Australian residency. To determine the residency status there
are some alternative test that are performed.
Resides Test
The first test is the Resides Test which is also known as the common law test. An individual
would be treated as the Australian resident for the purpose of taxation if a person is actually living in
Australia, irrespective of the nationality, citizenship or their location of the permanent home. As held in
“Applegate v FCT (1979)” the word reside signifies to dwell on permanent basis or for the
considerable period of time at particular period. The case provides the factors that are treated as
indicative of whether or not a person is living in Australia including the term of employment or
appointment. As held in “Sneddon v FCT (2012)” the court of law held that the taxpayer to be the
Australian resident since he maintained his home in Australia. Similarly, in “Murray v FCT (2012)” the
fact that the taxpayer has bought a residential property in the overseas was not treated as sufficient to
establish that the taxpayer was not the Australian resident.
The Domicile Test:
According to the “section 6 (1)” an individual would be considered as the Australian citizen if
an individual has their place of residence in Australia and they can prove that they have not
established a permanent place of residence out of Australia. The intention of an individual to stay
permanently instead of their stay being transitory is considered as important but cannot be treated as
the only factor that should be taken into the consideration. As per the IT 2650 factors such as actual
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and the intended length of overseas stay, whether any fixed homes has been established out of
Australia and the durability of a person’s relation with the place in Australia are also vital. Similarly, in
“Boer v FCT (2012)” and “Sully v FCT (2012)” the taxpayer was treated as Australian resident all
through their stay in abroad because they did not establish any permanent place of residence out of
Australia.
The 183 days’ test:
Under this test, a taxpayer is treated as Australian resident if the taxpayer during a relevant
income year spends more than one half of the income year in Australia and does not intends to take
up the residency out of Australia.
Application:
As evident in the current case Dr Peter Wong accepted the offer two-year research fellowship
in US. Prior to moving US he maintained his home in Australia by renting out the same. Dr Peter
Wong will be treated as Australian resident for the year 2015 under the Resides Test because he
maintained his home in Australia and the bank account. He also maintained his Australian bank
account where his salaries were paid. While from the year 2016 to 2018 Dr Peter Wong will not be
treated as Australian resident because he accepted the permanent visa that was offered by his
employer. Therefore, Dr Peter Wong is only resident of Australia for the year 2015 while from 2016
to 2018 he will be treated as non-resident of Australia.
On the other hand, the Domicile Test has been referred in the situation of Dr Peter Wong to
ascertain the residency position. With respect to “section 6 (1) of the ITAA 1936” for the year ended
2015, Dr Peter Wong have possessed the Australian domicile however following the acceptance of the
permanent visa in 2016 Dr Peter Wong ceases to be an Australian resident. With respect to the rule of
Thumb, Dr Peter Wong has established a fixed home out of Australia which reflected a durability and
endurance with his fixed place of abode outside Australia. Therefore, Dr Peter Wong is a non-resident
of Australia for the year 2016 to 2018.
Under the 183 day’s test Dr Peter Wong cannot be treated as Australian citizen because for
the year 2015 to 2018 he did not reside in Australia and hence he also took up the permanent place of
abode out of Australia. Therefore, Dr Peter Wong ceases to be an Australian resident.
Conclusion:
On a conclusive note Dr Peter Wong will be only treated as Australian resident under
“section 6 (1) of the ITAA 1936” for the year 2015. However, from the year 2016 onwards Dr Peter
Wong will be treated as non-resident of Australia because he has established a fixed or permanent
home out of Australia.
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Advanced Taxation Supplement - 2018
Assessor comments Grade
First Attempt
/ 12
Second Attempt
/ 12
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QUESTION B
(a) Based on your answer to item (a) above, calculate his Australian assessable income for the
years 2015/16, 2016/17 and 2017/18, stating applicable legislation and relevant notes.
(8 marks)
Type your answer here. Ensure you answer all parts of the question.
Computation of Assessable Income
For the year ended 2015/16
Particulars
Amount
($) Amount ($)
Assessable Income
Income from Salaries (For Six Months) 25000
Dividend from US Company (gross of WHT of AUD 300) 3000
Interest on US Bank Deposits (Gross of WHT of 10% or AUD
20) 200
Australian Sourced rental income 20000
Total Assessable Income 48,200.00
Computation of Assessable Income
For the year ended 2016/17
Particulars Amount ($) Amount ($)
Assessable Income
Australian sourced rental Income 20,000
Total Assessable Income 20,000
Computation of Assessable Income
For the year ended 2017/18
Particulars Amount ($) Amount ($)
Assessable Income
Australian sourced rental Income 20,000
Australian Sourced Dividend Income
Fully franked (net) 2,000
Gross up for franking credits (2000 x 30/70) 857.14 2,857.14
Total Assessable Income 22,857.14
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Advanced Taxation Supplement - 2018
Assessor comments S
First attempt
/ 8
Second attempt
/ 8
SUPERANNUATION
Case Study
Joseph Conti, an Australian resident, has been employed by Build Ltd, an Australian construction
company, since 1 July 1980. Due to a downturn in the economy, Build Ltd was restructured and
Joseph was offered an early retirement package.
Joseph accepted the package and retired on 30 June 2018, aged 58. Among other benefits, on that
date he received a lump sum payment of $500,000 from his complying taxed superannuation fund.
His latest superannuation account statement showed the following information:
 Balance on 30 June 2007: $300,000 (including $33,313 pre-July 1983 component)
 Balance on 30 June 2018: $500,000 (including $50,000 undeducted contributions made
between 2010 and 2015)
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QUESTION 1
On the basis of the above information, calculate Joseph’s maximum tax payable in relation to his
superannuation lump sum benefit, stating supporting legislation for each step of the calculation and
excluding Medicare Levy.
(10 marks)
Type your answer here. Ensure you answer all parts of the question.
Answer:
According to the Australian Taxation office the taxpayer receives the tax-free component of
the superannuation benefit that have attained their perseveration age but they are below the age of 60
years. These incomes are neither taxable income nor it is exempted income. As stated under the
section 307-215 the taxable component represents the value of the superannuation interest following
the deduction of the tax free component of the interest. As explained under the section 307-275 (1)), it
is noteworthy to denote that the taxable component of the superannuation benefit comprises of the
element that are taxed in the fund or comprises of the element that are untaxed or not taxed under the
super fund. On a wider note the element taxed in the superannuation fund represents the one that has
carried tax in the fund either due to the deductible contributions or because of the income that are
comprising in the fund which is the subject to tax in the fund. The element that are taxed in the fund is
also levied for taxation purpose in the hands of recipient at the lower rate than the element tax is not
taxed in the fund based on the reason that the element carries tax in the fund’s hand.
As stated by the Australian taxation office majority of the super that is held in the fund would
be in the form of preserved benefits. The access to the superannuation benefits is usually restricted to
the members that have attained the age of preservation. An individual’s age of preservation ranges
between the age of 55 years to 60 years depending upon the age of date of birth. As understood in the
current case of Joseph he has attained the preservation age of 58 and hence he is allowed to obtain
the super benefits relating to the lump sum that is received by him from the lump sum payment of
$500,000.
According to the section 301-15 the superannuation benefit might be considered as the lump
sum or superannuation income stream benefit. As per the section 301-20 (2), (3)) up to a certain low
rate limit a low rate cap amount is applied for tax offset. This helps in assuring that the tax rate on that
part of lump sum constitute the element taxed in the fund does not goes past 0%.
In the current case Joseph receives the superannuation lump sum of $500,000. A low rate cap
with respect to section 301-20 (2), (3)) is applied in case of Joseph with the effective tax rate of 15%
excluding the Medicare levy of 2%. Furthermore, the case study provides that the balances in the
superannuation fund during the year ended 30 June 2018 stood 500,000 which also comprised of the
undeducted contributions that was made by Joseph. Additionally, a Pre-July $33,313 component was
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Advanced Taxation Supplement - 2018
also reported by Joseph that was included in the superannuation fund on 30 June 2007. Therefore, the
pre-july component and deducted contributions are excluded from the total lump sum payment to
determine the total tax payable.
Computation of Maximum tax payable
For the year ended 2017/18
Particulars Amount ($)
Assessable Income
Receipts of Lump Sum payment 500000
Less: Pre-July Component 33,313
Less: Undeducted Contributions 50,000
Taxable component - Taxed element
(Up to low rate cap - $200,000) 200000
Taxable component - Taxed element
(Over the low rate cap) 2,16,687
Effective rate (excluding medicare levy) 15%
Total tax payable 32503.05
Assessor comments S
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First Attempt
/ 10
Second
Attempt
/ 10
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Advanced Taxation Supplement - 2018
REFERENCES:
Barkoczy, S., 2016. Foundations of taxation law 2016. Oup catalogue.
Morgan, A., Mortimer, C. And Pinto, D., 2018. A practical introduction to Australian taxation
law 2018.
Sadiq, K., 2018. Australian tax law cases 2018. Thomson Reuters.
Woellner, R., Barkoczy, S., Murphy, S., Evans, C. And Pinto, D., 2016. Australian taxation
law 2016. Oup catalogue.
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