TAX 305: Taxation Law Assignment 1 - Case Study Solutions, CDU, 2019

This document provides a comprehensive solution to a taxation law assignment, addressing three distinct case studies. The first case study examines the residency status of an individual under Australian tax law, analyzing the application of the 183-day test and the implications of having a permanent place of abode outside Australia. The second case study delves into the determination of whether an individual is carrying on a business for taxation purposes, considering various indicators outlined in Taxation Ruling 97/11 and relevant case law. The third case study focuses on identifying different types of income (ordinary and statutory), deductible expenses, and the application of relevant tax rates. The solution analyzes each scenario, providing detailed rules, applications, and conclusions based on relevant legislation (ITAA 36, ITAA 97) and case law, such as Harding v Commissioner of Taxation and Ferguson v Federal Commissioner of Taxation. The assignment also considers the tax treatment of various income sources and expenses, providing a complete overview of the taxation principles.

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

1TAXATION
Case Study One
Part A
Issue
Whether Rachel would be considered a resident of Australia for tax purposes for the
income year ended 30 June 2019. Whether any of her income would be included in tax
assessment under the Australian tax regime.
Rule
Any person who has been rendered as the resident of Australia as per the requirement
provided in ITAA 36, would be permissible to be treated as a for tax purposes as can be
conceived from the ITAA 97, s 995-1. The determination of the residency of a person needs to
be assessed under the tests provided in ITAA 36, s 6(1).
In case a person has an origin located in a foreign country and has arrived within the
precincts of Australia for the purpose of employment, the residency of that person is required to
be assessed as per the application of the 183-day test as provided in the above mentioned
provision. Any person who has arrived in Australia from a foreign country in pursuance of
employment would be required to be treated as a resident for tax purposes if he has been residing
within the precincts of Australia for more than 183 days or half of the year in question. While
applying this test, the intention of a person will not be given any regard. However, the person
should not be in possession of any permanent place of abode outside the boundaries of Australia.
This can be illustrated with the case of Case S19 85 ATC 225.
However, if it can be contended that if the individual has been found to have a permanent
place of abode being located outside Australia, he would not be treated as a resident even if he

2TAXATION
has been residing in Australia for more than half year. All the income of a person that has been
arising from the source located within Australia needs to be taxed under the Australian taxation
law.
Application
In the present case, Rachel is a medical practitioner and has always lived and worked in
her hometown of London. Rachel is a citizen of the United Kingdom. Rachel was offered a full-
time position as a doctor for a hospital in Perth, Australia for a period of 12 months. Rachel
signed the contract of employment before she left London. This makes it evident that Rachel has
been a person having an origin located in a foreign country and has arrived within the precincts
of Australia for the purpose of employment, the residency of that person is required to be
assessed as per the application of the 183-day test as provided in the above mentioned provision.
Any person who has arrived in Australia from a foreign country in pursuance of employment
would be required to be treated as a resident for tax purposes if he has been residing within the
precincts of Australia for more than 183 days or half of the year in question.
Rachel is married and with two young children. Rachel’s spouse and children will join
her in Perth. Rachel’s spouse will not be working while in Perth. Rachel moved out of the
family’s apartment in London and placed all their belongings in storage. Although she has been
owning a permanent place of abode outside Australia, but she has given up that apartment and
settled in Australia. As she has been living in Australia for more than six months she is required
to be treated as a resident in Australia as per the satisfaction of the 183 day test. As Rachel has
been a resident in Australia all his income is to be construed to be assessed under the Australian
tax regime.

3TAXATION
Conclusion
Rachel would be considered a resident of Australia for tax purposes for the income year
ended 30 June 2019. All of her income would be included in tax assessment under the Australian
tax regime.
Part B
Issue
Whether John is an Australian resident for tax purposes during the financial years
2017/18 and 2018/19.
Rule
Any person who has been rendered as the resident of Australia as per the requirement
provided in ITAA 36, would be permissible to be treated as a for tax purposes as can be
conceived from the ITAA 97, s 995-1. The determination of the residency of a person needs to
be assessed under the tests provided in ITAA 36, s 6(1). These tests are residency test, 183 day
test, domicile test and superannuation test. These have been applied in the case of Harding v
Commissioner of Taxation [2019] FCAFC 29.
As per the residency test an individual needs to actually reside in Australia. His intention
to come back to Australia is also to be taken into consideration even when he has not been
present in Australia. Domicile test requires his resident to be located in Australia. 183 day test
requires him to stay in Australia for more than 183 day test. Superannuation is applicable for
employees of the common wealth.

4TAXATION
Application
In this case, John has been born in Australia but left Australia for a job in Brunei. He left
Australia and given up his permanent place of abode and created as resident in Brunei. All his
intentions shows that he has not been a resident in Australia for tax purposes. Hence, he will not
be treated as a resident in Australia for tax purposes.
Conclusion
Hence, John is an Australian resident for tax purposes during the financial years 2017/18
and 2018/19.
Case Study Two
Issue
Whether Nadine has been carrying out business for the purpose of taxation in the year of
income 2019.
Rule
The probability of a person to have been carrying out business venture for the purpose of
taxation needs to be construed under the light of the indicators that has been provided for in
Taxation Ruling 97/11. Such indicator include:
 The activity needs to be commercial.
 It needs to be backed by the motivation of rendered as a business activity.
 The activity needs the objective of generating profit supporting it.
 The activity needs to have a regularity being involved in it.
 The adherence of the activities with the norms of the business.
 Planning and organization involved in conducting the business.

5TAXATION
 The activity needs a permanency.
 The non-inclusion of the activity as sport or hobby.
These indicators have initially evolved with the case of Smith and Commissioner of Taxation
[2010] 79 ATR 934, which later on has been modified for the purpose of to be inculcated within
this taxation ruling. This has further been extended in the case of Shields v Deputy Federal
Commissioner of Taxation [1999] 41 ATR 1042.
As per the provision contained in ITAA 97, s 995, any activity that involves a trade, profession,
employment or calling excluding a employment as an employee would be categorized as
business.
As can be conceived from the principles of the case of Ferguson v Federal Commissioner of
Taxation [1979] FCA 29, the presence of the profit making objective may not be immediate but
the mere presence of the same is enough to conclude it to be a business activity.
Application
In the present situation, the Nadine has been an accountant who has been involved in
painting landscape art for the purpose of evading the stress of the accountant work in his spare
time and later on decided to sell the same in the market on being advised by a friend. He made
enquiry in the market and has obtained stall to effect the sale. Moreover, he never labelled the
price of the artwork and extended no effort for advertising. All the obtaining of stall and making
the enquiry in the market depicts the intention of indulging into business activity and the profit
making objective has been adding to the same as can be conceived from the case of Ferguson v
Federal Commissioner of Taxation [1979] FCA 29.

6TAXATION
However, she has made the paintings as a hobby to avoid the stressful effects of her
accountant work and has been primarily engaged as an accountant. This needs to be construed as
his non-intention of making profit while painting the landscape art and has been depicting the
same to be categorized as a hobby. Hence, as the main intention of painting the same has been
accrued from evading the stress of the accountant work, it cannot be treated as a business and is
to be categorized as an income from hobby.
Conclusion
Hence, it can be concluded that Nadine has not been carrying out business for the purpose
of taxation in the year of income 2019.
Case Study Three
The professional fees would be falling under the provisions of ordinary income as
provided through the rules of s6.5 of the ITAA 1997. This is because fees and salary are to be
considered as income arising from ordinary concepts. The rule was discussed in FCT v Scott
The wedding gift received from a client worth 10000 would be considered as statutory
income under the rules of s15-2 of the ITAA97. This is because the gift has been provided in
connection to employment relationship by the client
Advertising incentive would be falling under the provisions of ordinary income as
provided through the rules of s6.5 of the ITAA 1997. This is because it is a find of fees which are
to be considered as income arising from ordinary concepts.
Salary From Part Time work worth $34000 would be falling under the provisions of
ordinary income as provided through the rules of s6.5 of the ITAA 1997. This is because fees
and salary are to be considered as income arising from ordinary concepts.

7TAXATION
Interest received from Bank Deposits worth $5000 is falling under the provisions of
ordinary income as provided through the rules of s6.5 of the ITAA 1997. This is because it is
interest and is flowing from a capital asset and is complying with the flow concept.
Lottery winning worth $15000 would not be considered as the ordinary income for the
TP. This is because the TP is not in a business of lottery and it is merely a wind fall gain which is
not considered as Income -.
Office rent is deductible as the expenditure falls within the rules of section 8.1 of the
ITAA97. This is because the expenditure has been done in relation to gaining the assessable
income of the TP.
Payment to cleaning contract is deductible as the expenditure falls within the rules of
section 8.1 of the ITAA97. This is because the expenditure has been done in relation to gaining
the assessable income of the TP.
The purchase of Photocopier is a capital purchase and will fall in the negative limb of
section 8-1 of the ITAA 97 and thus cannot be deducted. This is because capital purchases are
not immediately deductible
Cost of entertainment and meals for clients and herself is not deductible as it is to be
considered as a private expenditure and falls within the negative limb of s8-1.
Train fares for travel to and from work would not be deductible as work to home or vice
versa deductions are not allowed by the ITAA97.

8TAXATION
Rates on family home are not deductible as it is a domestic expenditure as a private
expenditure and falls within the negative limb of s8-1.
Electricity for family home is not deductible as it is a domestic expenditure as a private
expenditure and falls within the negative limb of s8-1.
Advertising business for packaging is deductible as the expenditure falls within the rules
of section 8.1 of the ITAA97. This is because the expenditure has been done in relation to
gaining the assessable income of the TP.
The taxation rates applied is $54,097 plus 45c for every $1 over $180,000
Tax loss from previous year is carried forward
Particulars Amoun
t
Amount
considered
Professional
Fees
450000 450000
Wedding gift from client 10000 10000
Advertising Incentive 10000 10000
Salary From Part Time
work
34000 34000
Interest received from Bank
Deposits
5000 5000
Lottery Winning 15000 0
Deductions 14000 14000
Office rent 10000 10000
Payment to cleaning
contract
50000 50000
Purchase of new
photocopier
18000 0
Cost of entertainment and meals for clients and
herself
1400 0

9TAXATION
Train fares for travel to and from
work
1200 0
Rates on family home 2200 0
Electricity for family
home
900 0
advertising business for packaging 25000 25000
Assessable
income
509000
Deductions 99000
Taxable Income 410000
Medicare Levy 8200
Tax Payable 157596
NET TAX
PAYABLE
165796
Tax loss from previous
year
12000
NET TAX
PAYABLE
153796

10TAXATION
Reference
Case S19 85 ATC 225
Ferguson v Federal Commissioner of Taxation [1979] FCA 29
Harding v Commissioner of Taxation [2019] FCAFC 29
Shields v Deputy Federal Commissioner of Taxation [1999] 41 ATR 1042
Smith and Commissioner of Taxation [2010] 79 ATR 934
Taxation Ruling 97/11
The Income Tax Assessment Act 1936 (Cth)
The Income Tax Assessment Act 1997 (Cth)