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PACC6006 Taxation Law

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Peter Jones is a British architect making a name for himself in the field of repurposing industrial buildings for residential purposes. In June 2017, Peter was approached by Smith Constructions who were wishing to release a new range of designer apartments in Australia.  The company was very keen to employ Peter to design this range and has therefore offered Peter a one off payment of $100,000 to move to Australia and join Smith Constructions.  Peter accepted the offer. On 1 July 2017, Peter Jones, who was born in and resided in England up until that date, arrived in Australia to take up full time employment as a designer with the company.   The one off inducement payment of $100,000 was paid to him on 15 July 2017.  His employment contract was for 12 months, with an option to renew at the end of that term.   

Peter is a single parent with two children. The two children will not travel with him to Australia but stay with their grandparents (Peter’s parents).  Peter decided to retain the house he owns in England, and rent a house in Australia until such time as his employment contract was extended. Peter intends to stay in Australia if possible.

On the 23rd September 2017 Peter is transferred to the company’s office in New Zealand to assist with a special project.  The project is for approximately 9 months and he returns to the Sydney office permanently on the 12 June 2018.

On moving to Australia, Peter rented out his house in London for $2,000AUD a month.  On 7 July, Peter received a Statement of Income and Expenditure from his real estate agent which showed that as 30 June 2018, the rental income was $28,000AUD including $2,000AUD related to the month of July 2018. The Statement of Income and Expenditure included allowable deductions totalling $15,000AUD. As part of his employment contract, the company agreed to pay Peter a relocation allowance of $5,000 to cover the costs of removal or storage of his household effects on moving to Australia. The company also agreed to pay Peter allowance on the costs of his home telephone account. The allowance is paid on a monthly basis, calculated at an estimated rate of $100 per month.  As at 30 June 2018, the total amount paid on the telephone allowance was $1,200.

When Peter moved to Australia, he was most excited to learn of the OzLotto lottery.  Over the years, Peter developed a ‘system’ which he believed would enable him to win the Lotto jackpot.  His system was based on a discussion that he had with a clairvoyant, who told his that his lucky numbers would be the birth of his children, and it involved rotating the numbers of his children’s birthdays so that a new set of numbers of generated.  He documents his system each week to keep track of the numbers she has used. On 13 May 2018, Peter is ecstatic when his system finally succeeds in selecting the first division numbers, and as a result, he wins $1 million AUD.

Unsure of what to do with his money, Peter seeks advice from a solicitor who specialises in taxation law for advice on a suitable corporate structure that will provide the best means for managing this money and ensuring that his children are financially protected in future.  His solicitor advised there were two fairly standard, commercially accepted options that Peter could choose from.  The structures are similar, however, one of these structures generally results in a lower tax liability and for this Peter chose this option.  He paid the solicitor $2,000AUD for this advice and drafting of the relevant documents. He has not set up the relevant structure yet and does not intend to do so until August 2018.

Peter’s salary for the year was $100,000AUD. 75% of this salary was earned while working in New Zealand.  In addition to the above, Peter incurred the following expenses during the year: 

  • $2500 in registration fees for a conference on Australian designs that was offered by an industry specialist;  
  • $1500 course fees for a “Certificate in Australian Design”, offered by the Australian Institute of Architects.
  • A gift of $100 cash, paid to the Royal Brisbane Hospital;  
  • $50 to subscribe to the magazine “Australian Architecture”;  
  • $1500 to the Southern Cricket Club.  The club’s activities are only related to the development of youth cricketers in the community.
  • $1500 to Hunter Sports Club.  Hunter Sports is a sports conglomerate that makes substantial amounts of money from poker machines, entertainment and property development. They are registered as a deductible gift recipient on the Australian Business Register.
1. In the form of a professional correspondence you are required to advise Peter Jones of his taxation residency status.
2. Assuming he is an Australian resident for taxation purposes calculate his taxable income for the income tax year ending 30 June 2018. (Justify all decisions to include or not include income/deductions etc)
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