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HI3042 Taxation Law

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Questions

1. Residency

Scenario

Harry Simpson held an English passport at all times throughout the year. When he first visited Australia in 2009 to the end of June 2015, he held a visa which allowed him to live and work in Australia.

During his time in Australia, he worked under a contract as an IT consultant for an Australian owned private technology company, Megabytes Pty Ltd. However, being an international franchise Harry was asked by the American based and owned division if he could take up a six month contract with in their busy New York Company. He accepted, leaving behind his wife and two children in their residential rental home in Toorak, Victoria. Harry became seriously ill whilst in New York and unfortunately had to terminate his contract after only two and a half months. In this time his employer provided him with accommodation and a meal allowance. All contracts were signed in Australia, and all wages were to be paid independently by either company when work was performed into Harry’s Australian bank account.

When he returned to his Toorak residence, he was still unwell and terminated his contract with Megabytes Pty Ltd in Australia. He had only completed nine months of a two year contract to date.

After a further three months, Harry decided to establish his own IT Consultancy Company, he employed his wife as a receptionist and planned to build up clientele and possibly stay in Australia for another two years if his Visa was re-approved in future.  

Required:

Given the facts above and with reference to case law and relevant sections of the tax act, argue your views as whether the taxpayer is considered a resident or non-resident of Australia. Furthermore, comment on his source of income, and whether the income earned in America would be exempt under ITAA36 s23AG, if he were an Australian resident.

2. Assessable Income

Scenario

Peter Miles owned rural property for 30 years. On 1st July 2014 he sold the rural properties and vacant lands and retired on the Sunshine Coast, Queensland.

On the 1st September that year he purchased half an acre of land near the beach for $800,000. In order to increase his retirement funds Peter appointed a builder to build six townhouses at a cost of $300,000 each. At the same time he asked his accountant for advice on expected rental return from each of the townhouses. The units were completed on 12th June 2015.

Peter decided to live in one of the townhouses and he rented the others on a yearly basis. All the townhouses had a separate strata title. In December 2015 Peter sold three of the townhouses for $550,000 each.

He decided to then purchase another block of land in Queensland for $1,500,000 and intended to build and develop a combination of units and townhouses.

Required:

State your views and draw conclusions making reference to relevant case law and relevant sections of the tax act as to the tax implications of the above scenario. When referring to cases explain them clearly and in detail explaining how they apply to the given situation.

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