Taxation Law Assignment: BACC16 - Residency, Assessable Income

This assignment addresses two key areas of taxation law: residency and assessable income, based on scenarios provided. The first part examines Harry's residency status in Australia, considering the 'resides test' and relevant case law (Peel v. The Commissioners of Inland Revenue, Levene v. The Commissioners of Inland Revenue), and whether his income earned in America is exempt under ITAA36 s23AG. It analyzes his employment, family ties, and property ownership to determine his residency. The second part focuses on Peter's assessable income, considering the sale of land, construction of townhouses, and rental income. It explores whether Peter's activities constitute a business, referencing the Income Tax Assessment Act 1997 (Cth), CGT events, and the indicators outlined in TR 97/11 to determine whether the income should be taxed as ordinary income. The assignment uses relevant legislation, case law, and tax rulings to support the analysis and conclusions.

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

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1. Residency
To Harry,
The present letter will strive identify the issue in the given scenario. It will enumerate
the rules that are relevant to the given scenario. It will also apply these rules in the given facts
of the scenario. Lastly, it would strive to provide a conclusion in the light of the discussion.
Issue
The issue arising from the given scenario is whether Harry will be considered to be a
resident in Australia and whether he the income earned in America would be exempt under
ITAA36 s23AG. His source of income is also required to be assessed.
Rule
The Income Tax Assessment Act 1936 (Cth) has provided for certain tests that are
required to be fulfilled by person to be rendered as a resident in Australia. The first test in this
regard is the resides test. This test as has been provided under section 995.1 belonging to the
Act. Under this section, a person will be rendered a resident in Australia for tax purposes if it
can be proved that he is required to be treated as a resident under the ordinary concept
pertaining to reside. The resides test is treated as a test that has evolved through common law.
Again, there are other tests which are also required to be satisfied with respect to a person
whose residential status is required to be assessed. These includes the domicile test, the
183day test and the Superannuation Test. Under the domicile test, the person is required to
own a domicile within the precincts of Australia for the purpose of being rendered a tax
resident in Australia for a particular financial year. However, to avail resort under this test the
taxpayer is required to prove that he has been owning a place of abode, which is permanent
within the limits of Australia. If it can be established by the person that such a place has been
located outside Australia, he will not be considered the residents and this test will not be

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applicable. This test has been provided under TR 98/17. Under this test, if a person can
satisfy the conditions, he will be rendered with a status of a resident in Australia and the
application of the other three tests would not be necessary. However, for the application of
this test, the intention and the circumstances of a person whose residency is in question is
required to be considered. This can be illustrated with the case of Peel v. The Commissioners
of Inland Revenue (1927) 13 TC 443. The TR 98 / 17 has provided under para 44 to para 45,
that if a person’s visit in Australia is for the purpose of employment and has admitted their
children in the school in Australia and has been involving in other social ventures will be
treated as an Australian resident for the purpose of taxation. Again, it can be stated that a
person who has been visiting Australia for the purpose of employment, which has been
arranged prior to his visit in Australia will be treated as a resident in Australia if his stay
within the territory of Australia can be construed as permanent. This can be illustrated with
the case of Levene v. The Commissioners of Inland Revenue (1928) 13 TC 486. Moreover
the TR 98/17, under paragraph 57 has provided that if a person has maintained the bank
account in Australia will be treated as a resident in Australia for the purpose of taxation.
Section 23 AG of the Act extends and exemption upon the resident in Australia with respect
to the incomes, which has been earned with respect to an employment that has been
continued by the employee in a foreign country for more than 90 days.
Application
In the present situation, Harry has visited Australia from his place of origin in Britain for
the purpose of employment. hence, he will be required to be applied with the resides test for
the determination of his residency in Australia. He has been accompanied by his family
including his children in Australia and has been residing in Australia ever since. His visit in
Australia is for the purpose of employment with Megabytes Pty Ltd and his stay in Australia
has been for a period between 2009 to the end of the month June in 2015. During this period,

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Harry has been visiting Australia for employment and has been staying there with all his ties
pertaining to families. Under this principle too he will be considered as a resident. The travel
to America was because of the employment that he has been pursuing and all his family ties
has been still residing in Australia. He has been owning his house that has been availed for
the purpose of his and his family stay in Australia. Hence, all these can be construed as a
fulfilment of the resides test and owing to these factors, Harry will be treated as a resident in
Australia for the purpose of taxation. Again, Harry has been employed in America where he
has been working for 2 months. All has bank account and all the employment contracts
relating to the job has been signed in Australia by Harry. Irrespective of these factors, the job
has been rendered in America and his stay in America has not been for more than 90 days.
Hence, he will not be able to avail the exemption that has been provided under section 23AG
of the Act.
Conclusion
Hence, it can be concluded that Harry will be considered to be a resident in Australia and
the income earned in America would not be exempt under ITAA36 s23AG.
2. Assessable Income
To Peter,
The present letter will strive identify the issue in the given scenario. It will enumerate
the rules that are relevant to the given scenario. It will also apply these rules in the given facts
of the scenario. Lastly, it would strive to provide a conclusion in the light of the discussion.
Issue
The issue arising from the given scenario is whether Peter has any tax implications of the
above scenario.

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Rule
The Income Tax Assessment Act 1997 (Cth) under section 6.1 has defined any income
that has been accrued from a business to be an ordinary income for the purpose of tax
assessment. on the other hand under section 108.5 of the Act, land is considered to be a
capital asset. Under this meaning, any proceed that will be incurred with respect to the sale of
the land will be treated as a gain of capital nature under the CGT event A1. This can be
illustrated with the case of Hart v Commissioner of Taxation [2003] FCAFC 105. However,
any sale of a land will be treated as a business venture and the proceeds of the same will be
treated as a business income if it can be proved that the taxpayer has subjected the land to
certain modifications for the purpose of earning a profit from the disposal of the same. This
can be illustrated with the case of Ransley v Deputy Commissioner of Taxation [2018] FCA
1796. For the purpose of rendering an activity generating taxable income as a business the TR
97/11 is required to be referred to. Under this ruling there are certain indicators that has been
provided for the purpose of determining an activity to be a business. A business activity is
required to have commercial character your purpose as provided under para 28 to 38 of the
TR 97/11. An activity generating profit is required to be treated as a business activity if the
person paying the tax has the intention of the motive to be engaged in a business activity as
has been provided under para 39 to 46 of TR 97/11. Another requirement of rendering on
activity to be a business activity is the motive of making profit from the activity as has been
provided under para 47 to 54 of TR 97/11. Under para 55 to 62 of the TR 97/11, an activity is
required to be repetitive as well as regular to be rendered as a business activity. Under para
63 to 67 of the TR 97/11, a person needs to prove that has been carrying out an activity which
is identical to that of an ordinary trade for the purpose of rendering his income as a business
income. Under para 68 to 76 of the TR 97/11 an activity required to be organised in plant for
the purpose of being rendered as a business activity. Under para 77 to 85 of the TR 97/11, the

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permanency scale and size of the business is also required to be taken into consideration
under this regard. And lastly, an activity should not have the character of recreation hobby or
a sport activity the purpose of being rendered a business activity as has been provided in para
86 to 93 of TR 97/11.
Application
In the present situation, Peter has made a purchase of half acre of land costing him
$80,000. This land is required to be considered as an asset of capital nature for the purpose of
section 108.5 of the Act. Again, the selling of the land will render event as a CGT event A1.
This can further be supported with the case of Hart v Commissioner of Taxation [2003]
FCAFC 105. Again, the land owned by Peter has been subjected to construction of six
townhouses that has accrued of costing $300000 to Peter. Again, Peter has been involved in
such a construction for the purpose of enhancing his funds relating to retirement. This
provides an alteration of the CGT asset with an intention of earning profit. As has been
provided under para 47 to 54 of the TR 97/11. Moreover, Peter has sought advice from his
accountant with respect to the rental return that he can obtained from this town houses that he
has constructed upon his land. This can be construed as an organised and planned activity as
provided under paragraph 68 to 76 of the TR 97/11. Moreover, Peter has bin residing in one
of the town houses and rented the others. The rent that will be accrued to Peter will be treated
as an ordinary income as it has previously been established that all this arrangement has
pointed towards the activity being an ordinary income generating activities as it has been
earned in the furtherance of a business activity. Moreover, the scene of three of the houses for
an amount of $ 550,000, is required to be treated aza furtherance of a business activity as the
same has been affected for the purpose of acquiring Thailand for the amount of $ 1500000.
All these points towards the activity carried out by Peter to be a business activity and his
income to be an ordinary income generated from such a business activity.

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Conclusion
Hence, it can be concluded that the income of Peter is required to be treated as an ordinary
income for the purpose of taxation as he has been earning the same under a business activity.

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Reference
Australian Master Tax Guide, CCH Australia Ltd, Sydney
Barkoczy, S Foundations of Taxation Law, CCH Australia Ltd, Sydney
Barkoczy, S. Australian Tax Casebook, CCH Australia, Sydney.
Barkoczy, S. Core Tax Legislation and Study Guide, CCH Australia, Sydney.
Hart v Commissioner of Taxation [2003] FCAFC 105
Levene v. The Commissioners of Inland Revenue (1928) 13 TC 486. Moreover the TR 98/17
Peel v. The Commissioners of Inland Revenue (1927) 13 TC 443. The TR 98 / 17
Ransley v Deputy Commissioner of Taxation [2018] FCA 1796
The Income Tax Assessment Act 1936 (Cth)
The Income Tax Assessment Act 1997 (Cth)
TR 97/11
TR 98/17