Question 1 (5 Marks)
Fred, an executive of a British corporation specialising in
management consultancy, comes to Australia to set up a branch of
his company. Although the length of his stay is not certain, he
leases a residence in Melbourne for 12 months. His wife
accompanies him on the trip but his teenage sons, having just
commenced college, stay in London. Fred rents out the family home.
Apart from the absence of his children, Fredâ€™s daily behaviour is
relatively similar to his behaviour before entering Australia. As well
as the rent on the UK property, Fred earns interest from
investments he has in France. Because of ill health Fred returns to
the UK 11 months after arriving in Australia.
Discuss whether Fred is a resident of Australia for taxation
Question 2 (5 marks)
Explain why the receipts in Egerton-Warburton & Ors v DFC of T
(1934) 51 CLR 568 were assessable, but the receipts in IRC v
Ramsay (1935) 1 All ER 847 were treated as capital amounts.
Question 3 (10 Marks)
Your client is an investor and antique collector. You have
ascertained that she is not carrying on a business. Your client
provides the following information of sales of various assets during
the current tax year. Based on this information, determine your
clientâ€™s net capital gain or net capital loss for the year ended 30
June of the current tax year.
(a) Block of vacant land. On 3 June of the current tax year
your client signed a contract to sell a block of vacant land for
$320,000. She acquired this land in January 2001 for
$100,000 and incurred $20,000 in local council, water and
sewerage rates and land taxes during her period of ownership
of the land. The contract of sale stipulates that a deposit of
$20,000 is payable to her when the contract of sale is signed
and the balance is payable on 3 January of the next tax year,
when the change of ownership will be registered.
(b) Antique bed. On 12 November of the current tax year your
client had an antique four-poster Louis XIV bed stolen from
her house. She recently had the bed valued for insurance
purposes and the market value at 31 October of the current
tax year was $25,000. She purchased the bed for $3,500 on
21 July 1986. Although the furniture was in very good
condition, the bed needed alterations to allow for the
installation of an innerspring mattress. These alterations
significantly increased the value of the bed, and cost $1,500.
She paid for the alterations on 29 October 1986. On 13
November of the current tax year she lodged a claim with her
insurance company seeking to recover her loss. On 16
January of the current tax year her insurance company
advised her that the antique bed had not been a specified
item on her insurance policy. Therefore, the maximum
amount she would be paid under her household contents
policy was $11,000. This amount was paid to her on 21
January of the current tax year.
(c) Painting. Your client acquired a painting by a well-known
Australian artist on 2 May 1985 for $2,000. The painting had
significantly risen in value due to the death of the artist. She
sold the painting for $125,000 at an art auction on 3 April of
the current tax year.
(d) Shares. Your client has a substantial share portfolio which
she has acquired over many years. She sold the following
shares in the relevant year of income:
(i) 1,000 Common Bank Ltd shares acquired in 2001 for $15
per share and sold on 4 July of the current tax year for
$47 per share. She incurred $550 in brokerage fees on
the sale and $750 in stamp duty costs on purchase.
(ii) 2,500 shares in PHB Iron Ore Ltd. These shares were also
acquired in 2001 for $12 per share and sold on 14
February of the current tax year for $25 per share. She
incurred $1,000 in brokerage fees on the sale and $1,500
in stamp duty costs on purchase
(iii) 1,200 shares in Young Kids Learning Ltd. These shares
were acquired in 2005 for $5 per share and sold on 14
February of the current tax year for $0.50 per share. She
incurred $100 in brokerage fees on the sale and $500 in
stamp duty costs on purchase.
(iv) 10,000 shares in Share Build Ltd. These shares were
acquired on 5 July of the current tax year for $1 per share
and sold on 22 January of the current tax year for $2.50
per share. She incurred $900 in brokerage fees on the
sale and $1,100 in stamp duty costs on purchase.
(e) Violin. Your client also has an interest in collecting musical
instruments. She plays the violin very well and has several
violins in her collection, all of which she plays on a regular
basis. On 1 May of the current tax year she sold one of these
violins for $12,000 to neighbour who is in the Queensland
Symphony Orchestra. The violin cost her $5,500 when she
acquired it on 1 June 1999.
Your client also has a total of $8,500 in capital losses carried
forward from the previous tax year, $1,500 of which are
attributable to a loss on the sale of a piece of sculpture which
she sold in April of the previous year.