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Australian taxation law

PART A                                                                                                                    
EXPLAIN briefly and VALIDATE by reference to appropriate sections of ITAA 97 and appropriate Case Law as to whether the individuals listed below are residents of Australia for taxation purposes
For an individual to qualify to be an Australian resident for taxation purpose, that person must have lived in Australian for the entire life or have moved in to stay in Australia. Further, one can also become a resident after being in Australia for more than half of the income year and if he/she is an overseas student who enrols to study a course lasting for more than six months.

An Indian IT consultant who accepts a four month contract of employment in Australia between January 2013 and April 2013 and a further two month contract in June and July 2013 and returns to India.

According to the above definition of Australian resident for taxation, the Indian consultant does not qualify to be a resident, since the period of stay during the year of income is only five months.  The financial year begins on 1st July to 30th June. In this respect, income earned by the Indian IT consultant between 1st July 2012 and 30th June 2013 will be taxed in financial year ending 31st July 2013. Further, according to provisions of the same section, income earned in July 2013 will be assessed for tax in July 2013. Section 6-5(3) of ITAA 97, income according to ordinary concepts states that income derived by a foreign resident directly or indirectly from all Australian sources is assessable for income taxes.

An Australian born viticulturist (wine maker) who accepts seasonal contracts in Australia, New Zealand, South Africa and France.

The Australian born viticulturist is a resident for taxation purpose. Even though the wine maker accepts seasonal contracts from foreign countries, by birth and stay qualifies as a resident. According to ITAA 97 section 6-5(2), income according to ordinary concepts, assessable income includes all incomes derived directly or indirectly from all sources whether in or outside Australia during the year of income. Therefore, the Australian Viticulturist will be taxed on income derived from seasonal subcontracts in the stated countries. In Malayan Shipping
Co Ltd v FCT, the court held that even though the company engaged in foreign trade, the management was Australian resident and therefore income derived from foreign income was assessable for tax purposes.

An Italian born tradesman who migrates to Australia on 30 March 2013.

According to the definition of Australian resident, an individual qualifies to be a resident by among other things moving to live in Australia. Therefore, the Italian tradesman qualifies to be a resident by migrating to Australia. Based on ITAA 97 section 6-5 (3), Income according to ordinary concepts, the income of the Italian tradesman to be assessed includes that part derived directly or indirectly from Australian sources between 30 March 2013 and 30th June 2013 when the year of income ends.

An Australian born bank employee sent to a Singapore branch for 6 months.

The bank employee is a resident by birth. According to ITAA 97 section 6-5(2), income according to ordinary concepts, assessable income to Australian residents includes income derived directly from all sources be it local or foreign sources during the year of income. Therefore, the income earned will be assessed in the financial year within which it falls.

A person of Australian domicile living in Sydney.

The fact that the person is a domicile and lives in Sydney, Australia is sufficient qualification for residency. According to ITAA 97 section 6-5(2), income according to ordinary concepts, assessable income for Australian residents includes income derived directly and indirectly from all sources. This means that income for Australian domicile will be taxed in the year of income it falls.
PART B                                                                                                                    
CALCULATE the minimum amount of net capital gain   which is to be included in his assessable income. You must indicate how every item mentioned above is treated for tax purposes. You must refer to the relevant sections of the Income Tax Assessment Act 1997. 
ABC/L Shares
According to ITAA section 30, a testamentary gift other than land or building acquired through testamentary cultural bequest is deductible in the year of income the bequest dies. Therefore, taxable amount is equivalent to prevailing value at the time of death, which is $105,000.
BHP Ltd and FBU Ltd
According to Section 26(26) of Australian income tax Act, gain on disposal of shares is subject to capital gains tax.
Gold Ring
Section 35 (40): personal possessions argues that an individual is required to pay capital gain tax on disposal of movable and tangible personal possessions including jewellery, antiques and paintings.
A houseboat forms part of the private residence. As noted above, James could only have been exempted from capital gain tax only if he entirely occupied the private residence during the period of ownership (Murphy, 22). Since the property was not the main residence for James for a period of five years, then the loss on disposal of houseboat that is considered part of the private residence will help to offset capital gain tax on disposal of the private residence (Section 36-15, How to deduct tax losses).
Private Residence
According to Davidson (105), a person is liable to pay tax on disposal of private residence and a relief is only applicable when such residence was the main residence throughout the period of ownership. However, since James had rent the private residence for five years the capital gain realized is taxable.
Gold Charms
Section 35 (40): personal possessions, provides that an individual is required to pay capital gain tax on disposal of movable and tangible personal possessions including jewellery, antiques and paintings. Even though it is stated that the Gold charms were purchased as a set for $ 600, it means half a set was sold for $ 2,500, thus, gaining $2,200.
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