Thomas More Law School LEGL300 Taxation Law Assignment, 2020

This taxation law assignment addresses key concepts in Australian taxation law, specifically focusing on the determination of residency status and the classification of different types of income. The first part of the assignment examines whether a taxpayer is considered an Australian resident under the 'sec 6 (1) ITAA 1936' for the financial years 2019 and 2020, analyzing the application of the resides test, domicile test, and 183-day test. The second part of the assignment explores various income tax scenarios, including the taxability of unemployment benefits, compensation for lost wages, capital gains from the sale of an investment property, and gifts received for personal qualities. The assignment provides legal analysis and conclusions based on relevant legislation and case law, such as 'Joachim v FCT (2002),' 'Applegate v FCT (1979),' and 'FCT v DP Smith (1981),' and covers CGT. The assignment adheres to the Australian Guide to Legal Citation (AGLC) and includes a list of references.

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 Part 1:.................................................................................................................... 2
Answer to Part 2:.................................................................................................................... 4
References:............................................................................................................................ 6

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Answer to Part 1:
Issues:
 Whether the taxpayer is an Australian occupant under “sec 6 (1) ITAA 1936” for the
financial year ended 2019?
 Is the taxpayer a resident of Australia within “sec 6 (1) ITAA 1936” for the year
ended 2020?
Rule:
Under the “sec 6 (1) ITA Act 1936” Australian dweller implies a person that is living
in Australia and involves an individual that has residence in Australia, excluding when the
official is satisfied that an individual has the stable residence of living in foreign and not in
Australia1. Individuals are held resident on meeting any of the below listed four alternative
tests. This includes,
1: “Resides Test”
2: “Domicile Test”
3: “183-Day Test”
4: “Commonwealth Superannuation Test”
Resides Test:
This means to live on permanent basis in Australia for considerable time. As per TR
98/17 it is important to define the character of a person’s behaviour when they are in
Australia which includes the purpose of presence in Australia and taxpayer’s location of
assets. As noted in “Joachim v FCT (2002)” the taxpayer spent 316 days of an income
year by living out Australia on Sri Lankan vessels2. The taxpayer maintained his home in
Australia. The taxpayer was held as Australian resident by AAT.
Domicile Test:
Under “sec 6 (1)(a)(i)” an individual is held as Australian inhabitant if they have
house in Australia, unless when the commissioner is content that an individual has static
living place out of Australia. As per “IT 2650” an individual’s residence is reliant on whether
1 Woellner, Robin, et al. "Australian Taxation Law 2016." OUP Catalogue (2016).
2 Barkoczy, Stephen. "Foundations of Taxation Law 2016." OUP Catalogue (2016).

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the taxpayer envisioned and real stretch of stay in foreign country is for substantial period. It
also includes the time and steadiness of a person’s presence in foreign nation3. In
“Applegate v FCT (1979)” the taxpayer was seen to have a fixed domicile outside Australia
even though he envisioned to return to Australia and did return when the taxpayer turned ill.
183-day Test:
A person is occupant if they are found to be consistently living in Australia
intermittently for greater than one-half of income year, except when the commissioner is
gratified that taxpayer has fixed home outside Australia.
Commonwealth Superannuation Test:
This test is implemented on those that are eligible employee of public servants such
as the foreign diplomats living overseas.
Application:
Resides Test:
The stretch of Sam’s physical absenteeism from Australia and the contiguous
situations such as establishing home with his family in New Zealand and sub-letting his
family home in Australia cannot be viewed as residing in Australia in 2019 even though he
retained his home in Australia. Similarly, for FY 2020 even though Sam has residential
house in Australia and his family lives here, these factor should not be held significant. So he
is not resident for 2019 and 2020.
Domicile Test:
Sam has permanent place of living out of Australia because of the length of time he
has committed to spend in overseas and his family accompanying him can be considered
relevant. It is debatable that he has uninhibited his home by renting it out in Australia for the
duration of her stay justifies his domicile is in Australia. Referring to “Applegate v FCT
(1979)” even though Sam intended to return to Australia and he did return when his contract
was terminated he will be viewed as foreign resident for FY 20194. While for FY 2020, Sam
3 Sadiq, Kerrie. Australian Taxation Law Cases 2019. Thomson Reuters, 2019.
4 Robin & Barkoczy Woellner (Stephen & Murphy, Shirley Et Al.). Australian Taxation Law
2020. Oxford University Press, 2020.

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will be held as Australian dweller for the reason that he has demonstrated that his residence
is in Australia.
183-Days Test:
Sam was not present in Australia for 2019 so this test is irrelevant. While for 2020 he
was present for six months of the income year beginning from January 2020. So for 2020
Sam is a occupant under this test.
Commonwealth Superannuation Test:
This test is irrelevant for Sam because he is not a member of super fund.
Conclusion:
Sam will not be held as Australian resident for 2019 because he failed to meet the
four alternative test. While for 2020, he will be considered as Australian dweller under “sec
6 (1) ITAA 1936”.
Answer to Part 2:
Answer to A:
As per “sec 6-5 (1)” it assesses ordinary income for tax purpose. Under the “sec 6-
5 (1)” the taxable income involves the income that is in agreement with ordinary concepts
which is known as “ordinary income”. A taxpayer is held taxable for receipts that related
income generating activity5. Tom reports receipt of $5,000 as unemployment benefits from
government. The amount will not be held chargeable ordinary income under “sec 6-5 (1)”
since it is not connected to any income producing activity.
Answer to B:
When a taxpayer gets compensation for the loss of income under the insurance
policies then it is held as income in nature and chargeable as ordinary income under “sec 6-
5 (1)”. In “FCT v DP Smith (1981)” the taxpayer was held taxable under “sec 25 and sec
26j ITAA 1936” for the compensation received arising out of injury under the personal
disability insurance policy6. Similarly, Mike will be held taxable for receipt of $4,000 receipt
from insurance company relating to lost wages due to injury at work.
5 Taylor, John, et al. Understanding Taxation Law 2018. LexisNexis Butterworths, 2017.
6 Krever, Rick. Australian Taxation Law Cases 2016. Thomson Reuters (Prous Science),
2016.

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Answer to C:
CGT legislation was introduced with the objective of taxing capital gains. Capital
gains are imposed when the CGT assets were purchased on or following 20 September
1985 and have subsequently been sold or disposed. While any assets bought before 20
September 1985 are termed as “Pre-CGT Assets” and any gains or loss is disregarded.
John sold an investment property for $2 million7. The asset was purchased before 1980 so
the capital gains made will not be considered as taxable “ordinary income” since the asset is
a pre-CGT asset.
Answer to D:
The gift received by taxpayer for personal qualities is not an ordinary income. As
evident in case of John’s son he was paid $26 per hour for his work in John’s business.
Citing “FCT v Dixon (1952)” the receipts will be chargeable as “ordinary income” under
“sec 6-5 (1)” because it has nexus with receipt and income earning act8. While citing “Scott
v FCT (1966)” the expensive Christmas gift is not taxable as ordinary income because it
was given out of personal relationship.
7 Ferraro, Ruth. "Tax education: Understanding tax law." Taxation in Australia 51.3 (2016):
129.
8 Jacob, Martin. "Tax regimes and capital gains realizations." European Accounting
Review 27.1 (2018): 1-21.

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References:
Barkoczy, Stephen. "Foundations of Taxation Law 2016." OUP Catalogue (2016).
Ferraro, Ruth. "Tax education: Understanding tax law." Taxation in Australia 51.3 (2016):
129.
Jacob, Martin. "Tax regimes and capital gains realizations." European Accounting
Review 27.1 (2018): 1-21.
Krever, Rick. Australian Taxation Law Cases 2016. Thomson Reuters (Prous Science),
2016.
ROBIN & BARKOCZY WOELLNER (STEPHEN & MURPHY, SHIRLEY ET
AL.). AUSTRALIAN TAXATION LAW 2020. OXFORD University Press, 2020.
Sadiq, Kerrie. Australian Taxation Law Cases 2019. Thomson Reuters, 2019.
Taylor, John, et al. Understanding Taxation Law 2018. LexisNexis Butterworths, 2017.
Woellner, Robin, et al. "Australian Taxation Law 2016." OUP Catalogue (2016).