Taxation Law for Business Decision Making Assignment, Semester 2, 2019

This document presents a comprehensive solution to a taxation law assignment, addressing key aspects of Australian taxation. It begins by analyzing the residency status of an individual working abroad, applying the common law, domicile, 183-day, and superannuation tests, and determining the tax implications of foreign-sourced income under relevant tax rulings and double taxation agreements. The assignment then delves into fringe benefits tax (FBT), examining various scenarios including expense payment fringe benefits, in-house benefits, and commercial carrier conveyance fringe benefits. It explains the tax treatment for both employers and employees, referencing specific sections of the FBTAA 1986 and ITAA 1936, and provides detailed calculations and interpretations to illustrate each concept. The solution offers a clear understanding of the application of tax law in practical business decision-making scenarios.

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 question 1:.................................................................................................................2
Answer to question 2:.................................................................................................................6
Answer (A):............................................................................................................................6
Answer (B):............................................................................................................................7
Answer (C):............................................................................................................................7
Answer (D):............................................................................................................................8
Answer to question 3:.................................................................................................................9
References:...............................................................................................................................13

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Answer to question 1:
Issues:
The question is concerned with the issue of whether the taxpayer will be treated as
Australian resident under “subsection 6 (1), ITAA 1936”.
Rule:
The “taxation ruling IT 2650” main purpose is to lay down the direction in
ascertaining whether or not a person that goes out of Australia for a short stay to visit in
abroad for short-term employment assignments stop being an resident of Australia for tax
purpose for the duration of their time in abroad stay. The constitutional explanation of
resident given in “subsection 6 (1), ITAA 1936” says that an individual is an Australian
occupant that is living in Australia (Norbury, 2019). The definition also includes a person that
has their domicile in Australia, excepting when the tax administrator is gratified that their
perpetual home of habitation is out of Australia. The explanation which is given in “sec.6 (1),
ITA Act 1936” explains that there are four diverse types of tests. These are;
a. The common law test
b. Domicile Test
c. The 183-day test
d. Commonwealth superannuation fund test
The common test or reside test:
The common law test explains that the applicable discussion includes the behaviour
when they are existing in Australia. This test take account of intention or objective of coming
to Australia such as the family, business or employment ties (Lam, 2018). It also consist of
the maintenance and place of assets, societal and living preparations. Time of physical

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existence in Australia is also important. Weightage should be provided to every factor and
not a single factor can be held convincing. In the recent examples of “Iyengar v FCT (2011)”
an engineer took up 2 plus year job in foreign however, the family home was maintained in
Australia by the taxpayer and he also returned back to Australia. He was beheld as the
Australian occupant with “sec 6 (1), ITAA 1936”.
Domicile Test:
This test considers a person to be an Australian occupant when it is noticed that they
have maintained a home in Australia even though they are living in overseas. Unless the ATO
is gratified that the taxpayer has made their dwelling in abroad. The ruling of “IT 2650”
inspects the factors which needs to be considered when someone moves out of Australia
briefly to be present in abroad and acquires an enduring home in overseas, then they will be
observed as Australian dweller when they are absent from Australia (Miller, 2018).
In “Applegate v FCT (1979)”, the court noticed that they have set up the permanent
home somewhere else (Roberts, 2019). The expression “permanent” in this instance was
something not as much of permanent and represented a static or customary home. In
alternative example of “Boer v FCT (2012)”, the taxpayer was held to be Australian
occupant for the duration of their visit in abroad nation since no permanent home was set up
out of Australia.
The 183-days test:
This test is based on determining the total sum of days present in Australia by a
person. A person will be Australian resident when they live in Australia for 183 days or more
(Barkoczy, 2016).
Commonwealth superannuation test:

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This test only wants membership of superannuation scheme. A person is an Australian
dweller when they have the membership of super fund scheme.
Source:
The basis of earnings is considered necessary in levying tax and forms essential to the
requirement of getting break from double taxation. However, the DTA agreement might limit
the capability of ATO to levy tax on specific earnings type and might allocate the rights of
imposing tax on the specific states. The decision made in “FCT v French (1957)” held that
income from service engagement is measured for duty where the services or obligations are
carried out by taxpayer (Woellner et al., 2016). “Sec 23AG ITAA 1936” provides exemption
from income that are sourced in overseas through foreign employment income earned from
services which are rendered by Australian residents in foreign.
Application:
Ben has moved to Kuala Lumpur on 1st July 2018 after accepting the offer of working
as professional software developer in a Malaysian company. His wife remained in Australia
because she was expecting baby so she moved to her parents’ house in Caulifield. The
relevant four test is implemented in the situation of Ben to ascertain his residency position.
Reside Test or Common Law Test:
Under this test, the amount of time Ben has been physically absent from Australia and
the surrounding state of affairs such as living in a rented room of in-laws under a 12-month
agreement with the option of extension cannot be considered reliable with living in Australia,
despite the fact that have up his Australian home lease apartment. However, he has kept his
car, a Toyota at his parents’ home for the use of his wife. Ben has also maintained a private
health insurance policy with Medibank Ltd and has continued his registration with the
Australian electoral roll. Additionally, Ben along with his wife has also maintained a joint

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bank account in Australia where he has saved $200,000 for their future home. Citing the
factual situation of “Iyengar v FCT (2011)” which has similarity with the present situation of
Ben, he can be considered to “Reside” in Australia.
Domicile Test:
Under the Domicile Test it should be specified that Ben has only acquired a dwelling
in Malaysia which is temporary or transitory in nature. It is also arguable that Ben has
abandoned his Australian home by giving up the lease when he left Australia for his overseas
stay. Citing “Boer v FCT (2012)”, the nature home that is set up by Ben is temporary till the
span of time he has dedicated to remain employed in Kuala Lumpur (Sadiq, 2019). Ben under
the Domicile Test will be believed as Australian resident throughout his time of stay in Kuala
Lumpur since he has not established any fixed home out of Australia.
The 183-day test:
In the particularly earnings year of 2018-19 Ben has been in Australia for around 88
days and under the 183-days he cannot be held as Australian inhabitant.
Superannuation Test:
The superannuation test is not practical in the state of affairs of Ben because he does
not have membership with super fund in Australia.
Source:
The employment income of Ben is derived from overseas source in Kuala Lumpur,
Malaysia. Citing “FCT v French (1957)” the service income is earned form Malaysian
contract and under “sec 23AG ITAA 1936” the income will be excluded from Australian tax
(Butler, 2019). With regard to the DTA it will limit the ability of ATO to assess Ben on the
Malaysian sourced employment income.

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Conclusion:
Conclusively it is understood that Ben is an Australian inhabitant inside the sense of
“subsection 6 (1), ITAA 1936”. His employment income sourced in Malaysia is exempted
from tax under the DTA with Malaysia.
Answer to question 2:
Answer (A):
Reimbursement does not amount to remuneration or earnings for the employees.
Under “sec 136 (1), FBTAA 1986” reimbursement refers to the act of having an impact
either directly or indirectly. Usually, the law court in “Roads and Traffic Authority of NSW
v FCT (1993)” believed that a reimbursement is regarded as the imbursement which is given
in regard to the genuine disbursement (Hum et al., 2019). While for the employer an expense
payment fringe benefit may happen in whichever of the two situation;
a. The employer reimburses the employee for the expenditure that they occur
b. They pay the third party in satisfaction of expenditure occurred by the employee
In any of the case, the expenditure may be either the business expenditure or private
expenditure or may have the combination of two. The chargeable amount of the expenditure
payment benefit represents the amount which an employer reimburses or pays the employee.
During the FBT year of 2018/19 Betty paid telephone bills that amounted to $600,
However, a part of business portion of the telephone expenditure amounting to $400 was
reimbursed to Betty by NOSA. For Betty under “sec 136 (1), FBTAA 1986” it cannot be
considered as salary or wages. Instead, citing “Roads and Traffic Authority of NSW v FCT
(1993)” the reimbursement represents an imbursement which is given in regard to the definite
outgoings, hence it is non-taxable for Betty (Murray et al., 2018). While for NOSA being the

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employer of Betty will be accountable for external expense payment fringe benefit under
“sec 23, FBTAA 1986” because the expenses were reimbursed in regard to the total
outgoings occurred by the recipient (Betty). Hence, NOSA will be accountable for the
chargeable worth of the external expense payment fringe benefit represents the sum of $400
which is reimbursed to NOSA.
Answer (B):
An in house expense payment fringe benefit transpires when the expenditures are
associated to goods or services that is given by the employer in the normal business course.
In other words, this fringe benefit transpires only on the condition when the outlay is
reimbursed by the employer or pay was occurred by the employee at the time of purchasing
goods and services that an associate sells it to the customers or clients during the ordinary
business course (Morgan et al., 2018). The chargeable value of the in-house fringe benefit
under “sec 22A, FBTAA 1986” represents treating it as if it amounts to property or residual
fringe benefit.
In the present situation it is noticed that Betty purchases skin care products under the
employee plan with a 30% discount on the retail price sold by NOSA. The company also has
the 25% mark-up on the products that is sells to the public. To determine the taxable value for
NOSA the employee contribution represents the amount of expenditure that is occurred by
Betty, lowered by the amount of discount provided or paid by NOSA under “section 22A,
FBTAA 1986”.
Answer (C):
According to the “sec 23L, ITAA 1936” fringe amounts to a non-exempt income for
the employee. While the reconciliation law under “section 6-25 (2)” clarifies that if a sum
represents both the “ordinary” and “statutory” earnings then the rules of statutory earnings

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prevails unless the conflicting purpose is given (Black, 2018). Instead, if the company
provides a fringe benefit to the worker then the benefit will not be considered chargeable as
income to the worker under “section 23L, ITAA 1936” while the employer might be
considered taxable under FBT for the value of benefit given.
A commercial carrier conveyance fringe benefit is regarded as the in-house property
fringe benefit or the in-house residual fringe benefit till the degree that the benefit forms the
facility of conveyance in a passenger airplane that is functioned by a flight transporter
(Schenk, 2017). The chargeable worth of the transport benefit is allied with the valuation
methods of in-house benefit.
During 2019, Betty reported a receipt of performance bonus from her employer which
was paid as free paid holidays airfares to any Asian city. Betty along with her family went to
Singapore for holiday in March 2019. Hence, providing Betty with paid holiday fares
amounts to in-house air transportation fringe benefit for NOSA. Under the “sec 6-25 (2)” of
the reconciliation rule the paid overseas holiday amounts to both the ordinary and statutory
income for Betty (Morgan & Castelyn, 2018). As the statutory income rule prevails, the
benefit received by Betty will be viewed as a non-assessable income for her under “sec 23L,
ITAA 1936” and the employer here NOSA will be accountable for the chargeable worth of
the air transport fringe benefit provided to Betty in the relevant FBT year.
Answer (D):
A fringe benefit can be defined under “subsection 136 (1), FBTAA 1986” as a benefit
that is provided to the worker by employer during any point of the tax year. While
“subsection 136 (1), FBTAA 1986” defines arrangement as some kind of scheme, plan or
proposal, whether it is unilateral or otherwise (Robin & Barkoczy, 2019). A non-cash benefit
might possess the nexus with the personal services but if those benefits are not allowed to be

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converted into cash then it does not amount to ordinary proceeds. In “Payne v FCT (1966)”
redemption of frequent flyer points which were accumulated from any employment linked
travel were not considered as earnings for the employee. While the “taxation ruling of TR
1999/6” explains that earning any kind of frequent flyer points related to the work travel will
not be viewed as fringe benefit liability (Krever & Sadiq, 2019). The ruling says that flight
rewards does not attracts FBT since they originate from individual contractual relations.
Similarly, Betty is required to travel interstate on regularly basis to negotiate with
suppliers. She redeemed 60,000 Qantas frequent flyer points that valued $1,800. Citing
“Payne v FCT (1996)” redemption of frequent flyer points is a non-cash benefit. Despite the
fact that it holds adequate nexus with the personal services but it is non-convertible to cash.
Hence, it is not an ordinary income for Betty (Schmalbeck et al., 2015). While the employer
here, NOSA will not be required to pay FBT since it resulted from Betty’s personal
contractual relation.
Answer to question 3:
Issues:
Whether the profit which is earned by the taxpayer following the subdivision and sale
of the property will be assessable under either “sec 25 (1)” or under “sec 26A” or whether
the taxpayer was only realizing the capital asset.
Law:
The “tax determination ruling of TD 97/3” delivers direction in establishing whether
the incomes which is obtained from the isolated transaction are regarded as earnings and
hence can be considered as the assessable income within the “subsection 25 (1) of ITAA
1936” (Main, 2019). The word “isolated transaction” implies that the taxpayer is performing

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its business activities and the activities which is entered in by the non-business taxpayers. It
also includes the business dealings that is entered by the non-business taxpayers.
Land is viewed as the CGT asset and its sale will be viewed as the “CGT event A1”.
Denoting “sec 104-10, ITAA 1997” it clarifies that a “CGT event A1” transpires when an
individual disposes the CGT asset. Accordingly, dividing the property do not amounts to sale
of land under “sec 104-10, ITAA 1997” (He et al., 2019). Common principles explain that
when the sale of land leads to commercial or the part of commercial activities the profits in
such a circumstances will be held as chargeable earnings under the “sec 6-5, ITAA 1997”. If
the sale amounts to mere realisation of land, then the proceeds would be held as capital
amount.
The law court in “FCT v Whitfords Beach Pty Ltd (1982)” held that taxpayer was
held chargeable on the profits derived from disposing the land under “sec 25 (1)” since the
individual taxpayer had went further than simply realizing the capital asset and his actions
amounted to carrying the business of land development (Ingles, 2019). The Federal Court
held that the taxpayer took an extensive amount of development and subdivision was greater
than simple sale of the CGT asset. It is very much significant to make sure that the taxpayer
is playing a passive role in the development. The more active role is played by the taxpayer’s
it becomes likely for the taxation commissioners to argue that the taxpayer was conducting
the profit making undertaking or even the business due to their involvement in the present
activities.
The above stated factors was significant in “Stevenson v FCT (1991)”. In this case
the scale of subdivision and the degree of involvement by the taxpayer in planning and
administering the subdivision must be considered as income instead of considering it as
capital (Evans et al., 2015). This resulted the tax officials to rule that the profits got from

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dividing the land will be considered as taxable ordinary income since it does not amount to a
mere realisation of CGT asset.
Application:
The evidences obtained from the case shows that the land was purchased in 1983 for
$320,000 to carryout plantation on land. The land here will be viewed as the pre-CGT asset
since it was assimilated in 1983 which is prior to the application of CGT regime. Another 20
acres of land was purchased for 40,000 in 1989. The cost associated with purchase includes
the stamp duty of $800 and legal fees of $1600. The will be observed as the post-CGT asset
since it was bought after 20/9/1985 which is afterward the introduction of the CGT regime.
The land was subdivided and eventually sold by Bob in May 2019 after incurring a
subdivision cost of $160,000. The sale of land will be considered as the “CGT event A1”
under “sec 101-10, ITAA 1997” (Chardon et al., 2016). Denoting to “FCT v Whitfords
Beach Pty Ltd (1982)” the taxpayer here Bob will be viewed as assessable earnings relating
to profits derived for the sale of divided plot under “sec 25- (1)” since the taxpayer has went
further than the mere realisation of the capital asset and the activities of Bob amounted to
performing the business of land development. The taxpayer here formed a profitable
undertaking and obtaining the approval of commissioner shows that Bob was very much
activity involved as the land owner in the project.
Citing the factual situation of “Stevenson v FCT (1991)” in the situation of Bob it can
be stated that the magnitude along with the extent of involvement of Bob in planning as well
as managing the activities of subdivision formed the significant factor in the present situation
(Bankman et al., 2018). The proceeds that is obtained from disposing the land must be treated