Lwb 364 Intro to Tax Seminar 3 Richard Gallagher 02340640
Taxable Income = Assessable Income – Allowable Deductions
Time Line:
· August 1996 Arrived in Australia
· 1 September 1996 started working for Ascot Landscaping @ $600 per week
· 29 June 1997 Cash bonus of $5000 announced
· 1 July 1997 pay increase to $660 a week
· 2 July 1997 Receipt of $5000 cash bonus
· 1 August 1997 purchased $200 sunglasses as needed for work purposes
· 1 November Resigned from Gardening company
· 1 January 1998 The Greenie Landscaping services started operations
· 30 June 1998 Billed customers for $30,000 for services but only $20,000 had been received plus $5000 car expense related to the business.
· August 1998, $5000 receipt as prize for ‘Best Garden’ competition
· Sprinkler design, sold 2 annual licenses for $2000 each. $4000 total.
· 30 June 1999 Billed customers $80,000 and received $60,000 in fees less $10,000 expenses from running motor vehicle.
Assessable income:
Look to Income Tax Assessment Act 1997
s. 6-5 (1) Your assessable income includes income according to ordinary concepts, which is called ordinary income.
Residency:
s. 6-5 (2) & s.6-5 (3)
Look to these two clauses in section 5 of division 6 to appreciate the difference between resident and non-resident for taxation purposes.
Then look to the commissioners ruling TR 98/17 regarding resident status of people entering Australia for a guide.
The first test for a resident is the common law test according or ordinary concepts. Residence is question of fact and degree.
Factors:
· Physical presence in Australia.
· Purpose or intention of visits or absences from Australia
· Frequency, regularity and duration of visits
· Maintenance of home in Australia
· Family and business ties with Australia and other countries
· Present habits and way of life
· Nationality can also be a factor
Levene v. IRC
Lysaght v. IRC
Cooper v. Cadwalader.
In this particular case Peta Lee has severed all ties with her native Singapore and moved to Australia where she works regularly from the information provided it would appear she maintains a home here. And generally presents the general day-to-day habits of a resident in that she has a full-time job in Australia it appears she has remained in Australia since her arrival. Should she not be seen as a resident under the common law test Peta could also look to two statutory tests namely the domicile test and the 183 day test.
Looking firstly to the domicile test, Peta’s domicile of origin is Singapore but her domicile of choice is Australia. To satisfy the domicile test the taxpayer needs to show a permanent place of abode and an intention to reside their permanently. Applegate v. FCT considered the case of a Solicitor resides outside Australia, an important factor the court took into account was comparing the connections the tax payer has with both jurisdictions applying that to this case Peta would most likely still have family on Singapore but other than that all her personal possessions are in Australia and she is keeping a home here as well as her place of employment. These would all further evidence this. FCT v. Jenkins also looked at a similar scenario it interpreted permanent place of abode to mean a ‘fixed and habitual place of abode’ factors to consider include durability of association, continuity, duration of stay. In Peta’s case all of these factors would indicate she is definitely a resident.
Should for any reason it be argued that Peta is not a resident for taxation purposes there is also the second statutory test of 183 days of residence that could be relied on. From the information provided Peta has been in Australia approximately 300 continuous days and therefore exceeds the 183 days test. The period does not have to be continuous.
Therefore looking at Peta’s case she would be seen as resident for tax purposes from her arrival in Australia on the 1st August 1996.
Tax Year Ending 30 June 1997:
Income September 1 1996 through to 30 June 1997 @ $600 per week
= 10 months x 4.35 weeks x $600 = $26,100.
· Issue: Cash bonus announced 26/6/97 paid 2/7/97. Dealt with next tax period.
· Because Peta entered Australia in the middle of the tax year she will be only be able to claim a pro-rata amount of the tax free threshold.
· Therefore Taxable Income = $26,100 less nil deductions.
Tax Year Ending 30 June 1998:
Income:
· July 1 – November 1 @ $660 a week 1997 = 4 x 4.35 @660 = $11,484
· $5000 cash bonus received 2/7/97.
· January 1 – June 30 Business Revenue $20,000 receipt
Deduction:
· Automobile running costs $5000
· Sun Glasses $200 (Questionable)
Issues:
Receipts V. Earning – For Peta’s period as an employee TR 98/1 paragraph 42 ‘Income from employment would normally be assessable on receipts basis’. As for Peta’s business venture in accordance with TR 98/1 this also would be dealt with in a receipts due to the size of the business and the likely hood of delinquency with accounts.
Allowable deductions (Sun glasses)
Nature of cash bonus whether income or gift. It would be hard to argue on the facts that this cash bonus is an accolade there is a clear nexus related to her employment. Performance related on basis that it would be hard to argue that it is a testimonial or accolade. Kelly v. FCT
Taxable Income = $36,484 - $5000
Taxable Income = $31,484
Tax Year Ending 30 June 1999:
Income:
· Business Receipts $60,000
· Courier mail award $5,000
· Sprinkler License fees $4,000
Deductions:
· $10,000 for automobile expenses
Issues:
Sprinkler license fees whether capital or income. There is no mention of these license agreements being exclusive so this is also evidenced by the fact that two were provided. This payment could be likened to rent of intellectual property and hence should be considered income.
Receipts V. Earning – See previous tax year
Status of Courier mail bonus payment – Look to Case S17 and also the clear connection between the garden and the business the taxpayer takes on. The fact that the tax payer uses his garden for demonstration purposes would strongly indicate the commercial nature of the garden irrespective of intent.
Taxable Income = $69,000 -$10,000