Taxation Law Report: Analysis of Residency and Capital Gains Tax

This report provides an analysis of taxation law, addressing two scenarios. The first scenario involves a letter of advice to Harry regarding his residency status as an Australian resident, considering factors like the resides test, domicile test, and the 183-day test, referencing relevant legislation such as section 6 (1) of ITAA 1936 and case law. The second scenario presents a letter of advice to Peter concerning capital gains tax implications from the development and sale of properties, focusing on whether the activities constitute a business of land development. The report examines CGT assets, trading stock, and ordinary income, citing relevant sections of the ITAA 1997 and case law like Stevenson v FCT (1991). Both scenarios offer practical tax advice based on Australian tax law.

Running head: TAXATION LAW
Taxation Law
Name of the Student
Name of the University
Authors Note
Course ID

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Table of Contents
Answer to Scenario 1:................................................................................................................2
Answer to Scenario 2:................................................................................................................5
References:.................................................................................................................................7

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Answer to Scenario 1:
Letter of Advice:
To Harry
From: ABC Tax Consultants
Dear Harry
With regard to our latest meeting and conversation please read our letter of advice
relating to residency matters as demanded by you.
Scope:
The objective of the letter is to deliver you guidance relating to your residency status
and sources of income derived by you.
Facts:
The present letter of advice relates to the facts relating to taxation rules, cases and
rulings that is applicable in your situation.
Summary of Advice:
A summary of our estimation with respect to the substances that are defined above. We
are strongly encouraging you to recite the conversation in relation to the advice stated. In
response your situation we found that you held the English passport that allowed you work
and live in Australia. However, you relocated to US to take up a six-month work agreement.
We seek our attention to make you aware that an occupant of Australia under “section 6 (1),
ITAA 1936” take account of an individual that is living in Australia and has their permanent
dwelling in Australia unless the tax official is contented that the taxpayer has any fixed home

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outside of Australia (Woellner et al., 2016). To understand whether an individual is an
Australian dweller there are usually four test applied namely the
a. Resides Test
b. Domicile Test
c. 183-day test
d. Superannuation test
A person under the reside test is held as resident of Australia if they are residing here
permanently (Barkoczy, 2016). This generally involves living in Australia for a considerable
period. Factors namely the time one devotes in Australia, maintaining a home in Australia for
the use of taxpayer are regarded important in deciding residency status.
The domicile test implies that an individual is an Australian domicile if they are living
in Australia by birth or have adopted domicile of their choice in another nation. The test is
usually applied to person that are moving to foreign country but they are not changing their
domicile. Accordingly in “Applegate v FCT (1989)” the taxpayer moved to villa for the
purpose of establishing the office (Sadiq, 2019). The taxpayer stayed there for two years
however returned upon falling ill. The law court held the taxpayer that his domicile was
Australian as he had not met the requirement of perpetual residence home outside Australia.
The 183-days test explains that a person is an Australian occupant if they have been in
Australia for six months in the relevant income year (Morgan et al., 2018). While under the
superannuation test an individual is held Australian occupant if they have the membership of
superannuation scheme in Australia.
Based on the above discussion, Harry under the resides test although you are having
the resident house in Australia where your wife and children lives but this is not relevant
factor to determine your residency. While under the Domicile Test it can be stated that your

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domicile is in Australia because while moving to overseas you maintained your Australian
domicile as you have not chosen to migrate on permanent basis (Robin, 2019). Citing the
case of “FCT v Applegate (1979)” your stable residence or dwelling continues to remain in
Australia (Braithwaite & Reinhart, 2019). The 183-day test and superannuation case is not
relevant in your case. As you have met the Domicile Test and your permanent home in
Australia so you are an Australian occupant under “section 6 (1), ITAA 1997”.
If the taxpayer is the foreign occupant the taxpayer is only liable for tax on the
ordinary income and the statutory income that is sourced in Australia. To determine the
actual source of income is observed as the practical substance of information. As held in the
case of “FCT v French (1957)” the source of employment income is ascertained when the
services are performed (Barrett, 2018). As evident in your case Harry, the source of income is
in New York because the services were performed by you in New York (America). Due to
Australia’s double taxation agreement with America the income that is earned in New York
will be exempted from tax under “section 23A of the ITAA 1936” (Morgan & Castelyn,
2018).
We hope the advice given to you in the letter has helped you in serving your residency
position and we are positive to hear from you shortly.
Yours sincerely
Associate Taxation
ABC Tax Consultants

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Answer to Scenario 2:
Letter of Advice:
To Peter
From: ABC Tax Consultants
Dear Peter
In correspondence to our recent discussion we have attached our letter of advice in
relation to the capital gains tax matters as requested by you.
Scope:
The objective of this letter is to offer you with the information relating to the capital
gains tax consequences from development and sale of separate strata title.
Facts:
The guidance is based entirely based on the assessment rules cases and rulings since
we under their use in your case facts.
Summary of Advice:
A summary to our opinion with respect to the problems that is defined above. We are
recommending you please read the conversation and in relation to the counsel given.
We found you peter that, vacant lands and rural properties were sold by you. You
appointed a builder to build the six townhouses at the cost of $300,000 each. You decided to
reside in one of the townhouse and you rented one on the yearly basis with having strata title.
You further bought additional units to develop townhouses.

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We would like to explain you that a capital gains or capital loss happens when the
CGT event happens to the asset. Under “section 108-5 (1) of the ITAA 1997” CGT asset
includes any type of asset that are property or legal or equitable right which is not the
property (Barrett, 2018). Land should be viewed as CGT asset and its sale will result in CGT
event A1. If the land is the capital asset and turns out to be asset of the land development
business, then the land will be treated as the trading stock from the date when the business
commenced. The taxpayers will be considered to have sold the land at the market value and
have soon reacquired the land for the same amount. This will mean that taxpayer should be
aware that their activities have crossed the line and now it amounts to conducting the
business and should know when such changes occurred.
The law court in “Stevenson v FCT (1991)” the sale of land and the profits derived
were taxable as ordinary income because development of land and selling the same
constituted trading stock business (Morgan & Castelyn, 2018). Similarly, Peter in your case
the selling of land and reacquiring another block amounts to carrying on the business of land.
The land will be treated as trading stock in your case and you should be aware that your
activities have gone past the line and now it amounts to conducting business activities. The
incomes made from the sale of land amounts to ordinary income since you are sole decision
maker relating to developmental procedure. You will be held taxable on the profits from the
sale of land under the “section 25 (1)” since it has gone outside the mere realisation of the
capital asset and your actions represents carrying on the business of land development
(Barrett, 2018).
We hope that the advice that is provided to you above has helped in serving your
purpose. At any point of the advice given above, if you find it irrelevant then you can easily
reach at our office.

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Yours sincerely
Associate Taxation
ABC Tax Consultants

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References:
Barkoczy, S. (2016). Foundations of taxation law 2016. OUP Catalogue.
Barrett, J. (2018). Vacant Property Taxes and the Human Right to Adequate Housing. J.
Austl. Tax'n, 20, 123.
Braithwaite, V., & Reinhart, M. (2019). The Taxpayers' Charter: Does the Australian Tax
Office comply and who benefits?. Centre for Tax System Integrity (CTSI), Research
School of Social Sciences, The Australian National University.
Morgan, A., & Castelyn, D. (2018). Taxation Education in Secondary Schools. J.
Australasian Tax Tchrs. Ass'n, 13, 307.
Morgan, A., Mortimer, C., & Pinto, D. (2018). A practical introduction to Australian
taxation law 2018. Oxford University Press.
Robin, H. (2019). Australian Taxation Law 2019. Oxford University Press.
Sadiq, K. (2019). Australian Taxation Law Cases 2019. Thomson Reuters.
Woellner, R., Barkoczy, S., Murphy, S., Evans, C., & Pinto, D. (2016). Australian Taxation
Law 2016. OUP Catalogue.

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