University Taxation Law Assignment: BLO2206, Trimester 2, 2017

This assignment delves into Australian taxation law, addressing two key issues: determining tax residency and identifying assessable income. The first question examines whether an individual working in Hong Kong and temporarily residing in Australia is considered a tax resident, analyzing the application of the Income Tax Assessment Act 1936 and 1997, including the common law and statutory residency tests. The analysis considers the duration of stay, the presence of a permanent place of abode, and superannuation scheme membership to conclude on the individual's residency status for different financial years. The second question assesses whether payments received by a well-known personality, including a signing bonus and salary, constitute assessable income. It examines the nexus between the payments and the services provided, referencing legal provisions from the ITAA 1997 and relevant case laws such as Brent v FCT and Higgs v Olivier, to determine the tax implications of the income received. The assignment provides a detailed breakdown of legal provisions, their applicability, and conclusions for each case, offering a comprehensive understanding of the taxation principles involved.

BLO2206 AUSTRALIAN TAXATION
LAW
ASSIGNMENT
TRIMESTER 2, 2017

TABLE OF CONTENTS
Question 1..................................................................................................................................3
Issue........................................................................................................................................3
Legal provisions.....................................................................................................................3
Applicability of the cited provisions in the given case situation...........................................4
Conclusion..............................................................................................................................5
Question 2..................................................................................................................................5
Issue........................................................................................................................................5
Legal provisions.....................................................................................................................5
Relevant case laws.................................................................................................................6
Applicability...........................................................................................................................7
Conclusion..............................................................................................................................8
References..................................................................................................................................9

QUESTION 1
Issue
In the given case situation; Jenny is working as an accountant in Hong Kong. She got a
proposal from her employer to provide business advice for the establishment of business to a
various former resident of Hong Kong residing in Australia. She entered in the frontiers of
Australia on 25th April 2016. Her prior intention was to stay there for three months, and
during these three months, she stayed in various motels. At the end of the three-month, her
employer asked her to stay there for further 9 months. Due to this aspect; she leased an
executive apartment near her workplace. During these 9 months, her parents visited twice. In
the present case situation, the issue arises from the view of taxation that whether Jenny is a
resident of Australia or not in accordance with the provisions of Income Tax Assessment Act
1936 and 1997.
Legal provisions
In accordance with the provisions of Ordinary Income (Section 6-5) and Statutory Income
(Section 6-10) of the Income Tax Assessment Act 1997 (ITAA 1997), if individual is an
Australian resident than their sources of ordinary & statutory income will be inclusive of all
income derived whether in direct or indirect manner and consider Australian as well as
foreign earnings (Thampapillai, 2016). In this provision; it is also stated that in a situation
where the individual is a foreign resident then the source of ordinary & statutory income will
be inclusive of only s income derived in the direct or indirect manner in Australia. In this
aspect; provisions of Section 7 of the Income Tax Rates Act 1986 (ITRA 1986) describes the
differential tax rates depending on the fact that whether the individual is a resident or non-
resident. Thus it is important to determine residential status as per provisions of Income Tax
Assessment Act 1997.
An individual is considered to be a resident of Australia for tax purposes when it comes
within the purview of the word “resident” which is defined in subsection 6(1) of the Income
Tax Assessment Act 1936 (Jones, 2017). Further, the definition is covered in section 995-1 of
ITAA 1997. Provisions of section 6(1) of the ITAA 1936 covers four distinct tests in order to
determine whether an individual is a resident in Australia for the purpose of Taxation.
Initially individual has to satisfy common law test according to which individual is said to be
resident if following cited aspects are satisfied1:
1 (subsection 6(1) of the Income Tax Assessment Act 1936 (ITAA 1936))

 the purpose or intention of the individual's there in Australia;
 The magnitude of which the individual’s household or occupational and employment
work ties within Australia;
 the location and maintenance of the assets of the individual; and
 The social and living arrangement of the individual (Steen and Peel, 2015)
If this is not satisfied then following statutory tests are applied2:
 Individual whose residence is in Australia, but if the Commissioner thinks
otherwise that particular person or individual has a permanent place of living
outside Australia, then the same wouldn’t be included in the definition of resident.
For this aspect case provisions of Miller v FCT (1946) 73, CLR is applied
(Sharkey, 2016).
 Individual who has continuously or intermittently been or stayed in the frontiers of
Australia for more than one-half of the year of assessable income. However in the
case where the commissioner is of the opinion that person has a permanent place of
living outside Australia then the same wouldn’t be included in the definition of
resident (Thampapillai, 2016).
 Individual who satisfies following aspects:
 A member of the superannuation scheme which has been executed by the
deed under the superannuation act, 1990 or
 An eligible employee for the purpose of the Superannuation Act 1976 or
 Is the wife or husband or child under 16, of the persons covered in Para
(A) and Para (B)
Applicability of the cited provisions in the given case situation
In the given case; Jenny who was working as an accountant in Hong Kong moved to
Australia for providing business advice to various former residents of Hong Kong residing in
Australia. She reached Australia on 25th April 2016, and she stayed there for 12 months
continuously or intermittently meanwhile her parents visited twice. As per the provisions of
law for being a tax resident of Australia, a person has to qualify or meet any one of the
following cited conditions below:
 The individual is covered under the meaning of resident as defined in subsection 6(1)
of the Income Tax Assessment Act 1936.
2 (subsection 6(1) of the Income Tax Assessment Act 1936 (ITAA 1936))

 The individual has a permanent place of living in Australia.
 The individual has stayed continuously or in breaks for more than half year of income
in territorial frontiers of Australia (Cassidy, 2017).
 The individual is the member of the superannuation scheme.
By considering the given case situation; in the Financial Year 2015-16 Jenny has not met or
qualified any of the statutory tests mentioned above. She stayed there for only 65 days (4
Days of April + 31 Days of May + 30 Days of June) in Financial Year 2015-16 which is less
than half year. In addition to this; she neither met the other three conditions, i.e. no permanent
place of living in Australia, not covered under the definition of resident defined in subsection
6(1) of the Income Tax Assessment Act 1936 and she is not the member of the
superannuation scheme.
Hence she is not a tax resident of Australia in the financial year 2015-16, but in the financial
year 2016-17, she stayed in the political boundaries of Australia for more than one-half year
of Income, so she qualifies for being a tax resident in 2016-17. However; if the Income Tax
Commissioner has the opinion that Jenny has a permanent place of abode outside Australia,
then he can adjudge Jenny as a non-tax resident.
Conclusion
Common law test is not satisfied by Jenny as primary conditions are not satisfied due to
which
For the Financial Year 2015-16 Jenny is not an Australian Tax Resident, but for the Financial
Year 2016-17, she is Tax resident because she has met one of the statutory conditions
required to qualify residency test, i.e. she has stayed in Australia for more than one-half year
of income in 2016-17. However, if the Commissioner of Income Tax is of the opinion that
Jenny has a permanent place of abode outside Australia, then he may at his discretion can
keep out Jenny out Tax Residency Bracket.
QUESTION 2
Issue
In the given case situation; a well-known personality was paid $400,000 as an encouragement
to join the new television network. She accepted the work and got a further remuneration of
$100,000 along with the lump sum payment. Thus in the present issue is determine whether

both receipts of the $400,000 and the $100,000 is part of assessable income as per Australian
taxation provisions.
Legal provisions
To determine whether income is part of assessable income as per Australian taxation
provisions the major problem arises from the aspect in the nexus of activity and is further
taken into consideration (Freedland and et al., 2016)
. Thus, ordinary income as per the Section 6(5) of ITAA97 or if any of the parts of the receipt
is capital for relinquishing up the right to earn income under the FCT v Woite (1982) 13 ATR
579.
According to the Section 6-5(1) of the ITAA 1997, assesable income is inclusive of taxable
income and income in terms of ordinary concept. Income under the ordinary concept is not
described; however, it is assessed that whether income earned by people would normally
consider being assessable income, by applying the concepts of income as per common law
(Italia, 2015). Further in the case of FCT v Woit; it has been found that the payment for
agreeing and signing a contract for not playing football for any other team and same was
considered as a non-assessable capital receipt.
However, if the purpose of the payment is to provide the right to earn income, then it will be
said as capital under Woite. Ultimately, it seems that the taxpayer was made payment as an
incentive to enter into an agreement (Freedland and et al., 2016). Thus, payment is provided
to them in order to render service in exchange, introducing nexus further making it as an
ordinary income. The taxpayer has not provided any of the significant rights via agreeing to
the agreement, and thus it is expected that the payment is made to them by doing something
that is ordinary income as per Section 6(5). Further; Section 15(2) ITAA 1997 states that
taxable income of a taxpayer is inclusive of all compensation, grant, benefits, gratitude and
all which are related to the employment of taxpayer or the services provided by the taxpayer,
and however it is exclusive of ordinary income.
Relevant case laws
Brent V FCT
The term derived is not always referred as earned. Derive actual meaning, in accordance with
the Oxford English Dictionary, refers to draw, obtain, find, gain. It has become clear that
unless and until an Act made particular provisions regarding the derived income, it will be

identified via ordinary business application and commercial rules and accounting method to
be implemented is that which "is computed to provided a substantially correct reflex of the
taxpayer's true income."
Smith v FCT (1987) 19 ATR 274
Westpac initiated an inducement scheme purposely for employees that carry out study and
research regarding to their operations, and payment payments will be made after the finish of
degrees or course (Tolhurst, 2016). The aim of this scheme was to improve qualified
expertise staff yet. In this case; court held that: -income is assessable as per the Section 26(e)
ITAA 1936 and will be under the Section 15(2). Otherwise in the present due to alteration in
section. Justification of court decision was that income was not “personal” gift-not ordinary
income-and scheme was designed for improvisation efficiency and performance of workers
so same will be considered as “an aspect of their employment.”
Higgs v Olivier [1952] Ch 311
In accordance with case study of Higgs v Olivier [1952] Ch 311, the court stated that trade
payment control which takes place at the contract’s life and is classically ordinary income
Applicability
Salary of $100,000 is simply assessable as there is the presence of ordinary income and there
is an apparent nexus between the recipes and services provided. However; the receipt of
$400,000 is not as clear in comparison must be made with decisions like Woite and Jarrold v
Boustead (1963) 41 TC 70 (Buchanan. and Consett, 2016). If there is the presence of nexus
coming with services, then it will be considered as ordinary income as per the Brent v FCT
(1971) 125 CLR 418.
Section 15(2) is reliable is, there is an adequate amount of facts to refuse the $400,000 being
as ordinary income. The receipts of $400,000 will be considered as statutory income in
accordance with Section 15-2 in case they comprise benefits etc., given in regards to services
(Peiros and Smyth, 2017). Under Smith v FCT (1987) 19 ATR 274, recommendation is
provided that the requirement of nexus test for the Section 15 (2) then it will be easier to meet
terms than from Section 6(5), and the assume that the payment is an incentive to enter into
employment agreement and will reveal it as arising out of future services.
Income Assessabilit Section Description of justification

y
Annual
remuneration
of $100,000
Yes 6-5(1) of
the ITAA
1997
By applying above-cited provisions yearly
salary of $100,000 is simply assessable as
there is the presence of ordinary income and
there is an apparent nexus between the
recipes and the receipts reveals many income
indicia that is regular depended on nexus with
individual services.
$400,000 as an
encouragement
to join the new
television
network
Yes Section
15(2)
The receipts of $400,000 will be considered
as statutory income in accordance with
Section 15-2 in case they comprise benefits
etc., given in regards to services.
Conclusion
Both the income earned by individual will be part of assessable income according to
Australia taxation provisions.

REFERENCES
Buchanan, R. and Consett, E., 2016. Section 974-80 ITAA97: The current state of play. Tax
Specialist, 19(5), p.217.
Cassidy, J., 2017. The International Tax Implications of New Zealand Taxation of Real
Property Owned by Non-residents (Offshore Persons). NZ Law Review, 2017, pp.235-323.
Freedland, M., Bogg, A., Cabrelli, D., Collins, H., Countouris, N., Davies, A.C.L., Deakin, S.
and Prassl, J. eds., 2016. The contract of employment. Oxford University Press.
Italia, M., 2015. A taxpayer privilege for Australia (Doctoral dissertation, Victoria
University).
Jones, S., 2017. The implications of changing your tax residency. Tax Breaks
Newsletter, 2017(380), pp.5-7.
Peiros, K. and Smyth, C., 2017. Successful succession: Tax treatment of executor's
commission. Taxation in Australia, 51(7), p.394.
Sharkey, N., 2016. Departing Australia: A complex tax situation with possible benefits and
hidden traps. Tax Specialist, 19(5), p.180.
Steen, A. and Peel, V., 2015. Economic and Social Consequences of Changing Taxation
Arrangements to Working Holiday Makers. J. Austl. Tax'n, 17, p.225.
Thampapillai, D.J., 2016. Foreign Employment Income and Double Tax Avoidance
Agreement: Australia's Possible Governance Failure. Browser Download This Paper.
Tolhurst, G.J., 2016. The assignment of contractual rights. Bloomsbury Publishing.