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Taxation Law of Australia

Part A: The case of All Black Pty Ltd (All Black)
Question 1: Determining whether Nicholas is a residence

Response

Step 1: Issue

The legal issue in this case is to determine whether Nicholas is a resident of Australia for the year ended 30th June 2013 (that is, the year in which Nicholas was working in Brazil but retained his legal family in Australia).

Step 2: Law

Two factors- legal statutes and rulings of relevant case laws- will determine the issue of residence, as it applies to the law of taxation. In Australian law of taxation, the following laws will apply in determining Nicholas’s residence:

*Section 6(1) of the Income Tax Assessment Act 1997
*FCT V Applegate (1979) 9 ATR 899
*(Gregory v FCT (1937) 57 CLR 774)
*Levene v IRC [1928] AC 217

Step 3: Application

Under Rule 1 of determining a person’s residence at a given time, it is necessary to note that there is no single legal concept of determining “residency”. Rather, the application of Australian statutes and case laws depends on the purpose of the founding jurisdiction as it applies to the case in question. In the case of Nicholas, it is necessary to note that Nicholas is a citizen of Australia by birth. As such, the taxation rule will not apply in determining his residence for the year ended 30th June 2013. As such, other rules will apply.

Under section 6(1) of ITAA 1997, it is most likely that Nicholas will remain an Australian residence during the year he has been out of the country for business/employment purposes. Under this section, Nicholas is supposed to satisfy any of the four rules of residency during the year in order to be considered a residence of Australia.

Under the Rule 1 (Common law test), Nicholas remains a citizen of Australia during the year ended 30th June 2013 for a number of reasons. First, he was physically in Australia for about 12 weeks during the year. Secondly, he has maintained Australian nationality during the year. Thirdly, the history of his life indicates, quite clearly, that he has been living in Australia since he was born until he reached 30 years of age. Moreover, his absence from Australia is clearly for the purpose of employment. In addition, he has not sought permanent residence of the foreign country.

Under case law Hnderson v Henderson (1965) 1 All ER 179, it was held that a person’s domicile is the place that is considered by the Australian law to be his or her permanent home. This is also defined in the ruling held in case law Udny v Udny (1969) LR 1 HL (Sc) 441. Thus, Nicholas’s permanent place of residence, as shown by his nationality and other aspects, is in Australia. For instance, in R v Hammond (1852) ER 1477, Lord Campbell, the CJ, argued that a person’s residence is the place where he lives with his family and must be considered his full place of abode. Since Nicholas’s family resides in Australia while he is away for employment purposes, this rule applies, and would most likely hold that he is a residence of Australia. Finally, under the rulings in both FCT v Jenkins (1982) 12 ATR 745 and Applegate’s case, it is most likely that Nicholas will be considered a residence of Australia because he retains his official businesses in Australia, include his bank accounts as well as the properties he owns in All Black Pty.

Step 4: Conclusion

A number of facts have been considered when determining Nicholas’s residence. He has been found to be a residence of Australia because he was born and lived in the country for more than 30 years. In addition, he retains his Australian residence, is physically present in the country during the year and retains his family and properties in the country. in addition, his choice of going to Brazil is based on employment purposes.

Question 2: The residence of All Black for the year ended June 2013

Response

Step 1: issue

The legal issue in this case is to determine whether All Black Pty Ltd, a company, is a resident company of Australia in the year ended June 30 2013.

Step 2: Law

For a company, to determine its residence in the country over a given period, it is necessary to apply the relevant statutes as well as case laws as the authority for test. As such, the following authorities will apply in this case:
 Section 6(1)(b) of the ITAA 1997
 Malayan Shipping Company Ltd v FCT (1946) 71 CLR 156
 De Beers consolidated Mines Ltd v Howe

Step 3: Application

Under Section 6(1)(b) of the ITAA 36, a company is considered to be a resident of Australia for two major reasons- if it is incorporated in Australia or if it carried business in Australia. In the second parameter, two other issues are considered. First, if a company carries its business in Australia and its central management is controlled from Australia, then it is a resident of the country. secondly, if it carries its business in Australia and its voting power is controlled by shareholders who are legally residents of Australia, then it is a resident of the country.

It is important to note that the fact that the company was not incorporated in Australia compels one to consider this section of the statute in addition to the case laws. Under this statute, it is clear that All Black can be considered a resident of Australia for the year ended 30 June. The company has been carrying its business in two countries, of which Australia is one of them. As such, we apply the two remaining requirements of the rule. The company’s management control can be determined to be in Australia because its annual general meetings are held. Secondly, the company’s voting power is clearly in favour of Australian shareholders, who own more than 50% of the total shares. Consider, for instance, that three parties own the company. The first two parties, own 49% of the company each, but this does not make any of them the majority owner because none owns 50% plus of the stakes. Since each of them belongs to different countries (Australia and New Zealand), the company, at this point, cannot be considered to be a resident of Australia. However, the Australian law shows that Nicholas is a resident of the country, and that he owns the remaining 2% of the shares at All Black. As such, it is evident that Australians own 51% of the company, giving them the voting power over the New Zealand investors. Therefore, All Black is an Australian resident.

Secondly, the application of the relevant case laws is necessary to determine whether a court will hold All Black as a resident of Australia. First, under Malayan Shipping Company Ltd v FCT (1946) 71 CLR 156, it was held that the management and control of the company are two important aspects required to determine the residence of a company. The term “control” give the Australian some powers because the physical location of annual general meetings are held in Australia, in addition to the voting powers vested on them by the virtue of their shareholder value. In addition, De Beers consolidated Mines Ltd v Howe, the number of shareholders living in a given country is enough to determine the control and thus, the residence of a company. In this case, it is clear that over 50% of the shareholders of All Black are Australians by residence, which makes the company a residence of Australia.

Step 4: Conclusion

Under both the statute and the case laws, the Australian laws are most likely to hold that the company, All Black Pty Ltd, is a resident of Australia for two major reasons- the voting power is vested on Australian shareholders owing to their shareholder value (51%) and residence and that the company’s annual general meetings are held in the country.

Part B: The Case of Kate

Question 1: Calculate Kate’s assessable income for the year ended 30th June 2013

Response

The legal issue in this case is to determine Kate’s assessable income for the year ended 30th June 2013 as per the Australian law of taxation. To calculate a person’s assessable income for a given trading period, the Australian law of taxation for small companies applies as follows.

Opening stock 46,000
Add purchases 260000
Add freight and insurance on stock 13,000
Less sales 543,000
Gross income 223,500
Less closing stock 105,000
Assessable income 118,500

Part C: The case of Daniela

Step 1: issue

The legal issue in this case is to determine the amounts assessable for Daniela when she is physically in Australia for the sole purpose of playing tennis.

Step 2: Law

 Income Tax Assessment Act 1997
 Income Tax Assessment Act 1936
 s 6-5 25(1) of ITAA 1997
 Henderson v FCT 70 ATC 4016
 FCT v Dunn 89 ATC 4141.

Discussion

In Australian law of taxation, the issue of being non-resident in the country will apply when determining the amount that Kate will have to pay as taxes to the Australian authorities. According to the section of the statute, prizes, awards, and other benefits are considered as taxable income. In addition, Kate is utilising her personal skill to gain some monetary advantage, which subjects her income to taxation. In Stone v FCT 2005 ATC 4234, it was held that a sportsperson ought to include the amounts received related to the performance of his or her skills, which should be considered as received due to the abilities of the person and thus, subjected to taxation.

The formula below is applicable:
Gross income 125,000
Less exempt income (facilities) 5,000
Equals total assessable income 120,000
Less allowable income (2,800 + 2,600)
Equals taxable income 114,600

Part D: The case of Agnieszka

The legal issue is to determine the types of income that should be subjected to assessment for Agnieska during the year ended 30th June.

In this case, it is necessary for the person to ensure that all the items listed under income for the services delivered are placed first in the list of assessable income. In this case, it is clear that the $10,000 received as sign-on payment should be the first thing on the list under “income” category.
Under FCT v Slaven 84 ATC 4077, any amount paid as compensation for injuries, which is paid in lumpsum, is not considered as capital, and thus, is exempted from assessable income. Thus, the $32,000 and $12,000 paid for damages to Agnieska should be exempted from the list. Therefore, all other items will apply, which makes the total assessable income for Agnieska to be $45,000

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