Question 18

Jennifer was born in Australia and studied at University in Australia. She owns a property in Australia
which she rents out. She lives with her family when in Australia. After finishing her Bachelor of
Commerce degree, she travelled to the UK to work as an accountant for three years. During that time,
she rented a flat and made many friends. Her UK salary is paid into a UK bank account. At the end of
the 3-year period she had saved enough money to travel. Jennifer then spends 1-year travelling around
Europe and 1- year travelling around North America. At the end of these travels, she returns to
Australia and commences work in Australia.

Required: Advise Jennifer on her residency status for tax purposes and the tax consequences:
a) during the 3 years she was in the UK

To determine whether Jennifer is the taxpayer a tax resident of Australia, there are two tests
that need to be applied.

First, as outlined in the s. 6(1) ITAA36, Reside test needs to be applied, a resident means a
person who resides in Australia. During the 3 years she was in the UK which indicates that
Jennifer is physically present in the UK rather than Australia and 3 years is a considerable
period of time. It is a strong indicator of Jennifer is not a tax resident of Australia. In relation
to the business ties, Jennifer has a job as an accountant in the UK. For economic ties,
Jennifer rented a flat in the UK, she works there, and her income is also paid into a UK bank
account. For the personal ties, Jennifer made many friends in the UK, she does not seem to
have intention to return to Australia. A similar would be Levene v IR Commrs [1928]. The
reside test will be negative.

Second, the Domicile test needs to be applied. Under the Domicile test, an individual is a
resident of Australia if their domicile is in Australia, unless the Commissioner is satisfied that
the person has a permanent place of abode outside Australia. Jennifer has an intention to
stay in the UK for a long period. She seems to have established a permanent place of abode
in the UK since she rented a flat and lived there for 3 years. Refer to Harding v FCT (2019)
case, UK is the country that Jennifer physically resides. Permanent does not mean
forever/everlasting but it is more than temporary or transitory. A similar case would be FCT v
Applegate (1979). She stayed in the UK for 3 years which is a considerable period of time.
Therefore, the Domicile test would also be negative.

In conclusion, since Jennifer does not satisfy both tests, she will not be considered tax
resident during the 3 years she was in the UK, the income generated in the UK is not
taxable; however, the rent she received is still taxable since it is an income which is
generated in Australia FCT v French (1957).

b) during the 1-year she is travelling around Europe

To determine whether Jennifer is the taxpayer a tax resident of Australia during the 1 year
she is travelling around Europe, several factors are taken into account, such as the
individual's physical presence in Australia, the purpose and duration of their stay, as well as
their intention to establish a permanent home in Australia. Here are two tests that need to be
applied.
First, as outlined in the s. 6(1) ITAA36, Reside test needs to be applied, a resident means a
person who resides in Australia. During the 1-year Jennifer is travelling around Europe, she
already stayed in the UK for 3 years which is a considerable period of time. For economic
ties, we can assume she is still spending the savings from the UK bank account since her
salary is paid in the UK bank account. Since Jennifer is physically present outside of
Australia and not residing in the country during her European travels, she would not meet
the residency criteria for tax purposes. Therefore, the reside test will be negative.

Second, the Domicile test needs to be applied. Under the Domicile test, an individual is a
resident of Australia if their domicile is in Australia, unless the Commissioner is satisfied that
the person has a permanent place of abode outside Australia. During the 1-year period that
Jennifer is travelling around Europe, she is not living in Australia and her usual place of
abode is not Australia but in the UK since she already stayed in the UK for 3 years. It is likely
to be a permanent place of abode. Permanent does not mean forever/everlasting but it is
more than temporary or transitory, FCT v Applegate (1979). Therefore, she did not meet the
requirements of the domicile test.

In conclusion, Jennifer would not be considered as a tax resident in Australia. The income
generated in the UK is not taxable; however, the rent she received is still taxable since it is
an income which is generated in Australia.

c) upon her return to Australia

To determine whether Jennifer is the taxpayer a tax resident of Australia upon her return to
Australia, here are two tests that need to be applied.

First, as outlined in the s. 6(1) ITAA36, Reside test needs to be applied, a resident means a
person who resides in Australia. In this case, Jennifer returns to Australia and commences
work in Australia, it seems she is trying to resettle in Australia. We can assume that she still
lives with her family since she rented out her own property which indicates that she has a
consistent living habit and routine (TR 98/17). It appears that Jennifer’s intention was to
return to Australia after her trip. For economic ties, she owns a property there which she
rents out so she receives rent payment. Additionally, her family is in Australia which is her
personal ties. For business ties, she is currently working in Australia. Levene v IR Commrs
[1928] is a similar case, the duration of visiting in Australia is important and Jennifer seems
to like to stay in Australia permanently. These factors may suggest a continuing connection
to Australia, indicating the reside test is positive.

Second, the Domicile test needs to be applied. Under the Domicile test, an individual is a
resident of Australia if their domicile is in Australia, unless the Commissioner is satisfied that
the person has a permanent place of abode outside Australia. Jennifer was born in Australia
so her domicile of origin at birth is Australia. In addition, she stayed with her family which
indicates that her permanent place of abode is also Australia. Therefore, the domicile test is
also positive.

In conclusion, Jennifer would be considered as a tax resident in Australia and her whole
income will be taxed by ATO.
Question 19

Daniel is an executive with a Singaporean corporation specialising in management consultancy. He

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 Sydney for 12 months. His wife accompanies him on the trip but his teenage
daughters stay in
Singapore to continue their studies, living on campus in Singapore. Daniel rents out the family home
in Singapore. Apart from the absence of his children, Daniel’s daily behaviour is relatively similar to
his behaviour before entering Australia. Because of ill health, Daniel returns to Singapore 11 months
after arriving in Australia. Daniel is concerned about his tax liability.

During the time that Daniel is in Australia, is he a tax resident of Australia?

To determine whether Daniel is the taxpayer a tax resident of Australia, several factors are
taken into account, such as the individual's physical presence in Australia, the purpose and
duration of their stay, as well as their intention to establish a permanent home in Australia.
Here are two tests that need to be applied.

First, as outlined in the s. 6(1) ITAA36, Reside test needs to be applied, a resident means a
person who resides in Australia. In this case, the purpose of Daniel to come to Australia is to
set up a branch of his company. Since setting up a company is a long-term progress, he
leases a residence in Sydney for 12 months which is a long period which indicates the
intention for Daniel to stay in Australia is likely to be long. Levene v IR Commrs [1928] is a
similar case, the duration of visiting in Australia is important and Daniel seems to like to stay
in Australia permanently. For the economic tie, Daniel leases a residence for 12 months so
we can assume he already paid the rent. In addition, setting up a branch for his business is
also a business tie for him. In relation to the family tie, his wife comes to Australia with him.
Also, Daniel is also physically present in Australia which is a strong indicator of tax resident
of Australia, therefore, the reside test is positive.

Second, 183-day test needs to be applied. If an individual has been physically present in
Australia for 183 days or more in an income, they will be presumed to be a tax resident of
Australia. Daniel stayed in Australia for 11 months which is definitely over 183 days so we
can assume that he treats Australia as his usual place of abode (TR 98/17). It also
demonstrates that he intends to take up residence in Australia.

In conclusion, Daniel would be considered as a tax resident in Australia and her whole
income will be taxed by ATO.
Question 43

Sania has lived in Melbourne all her life but has always wanted to move to the country, because
she wants a large garden in which to grow vegetables and keep animals. In Melbourne, she lives
in an apartment (which she owns) in Docklands (near the water). She also owns a boat which she
keeps moored at Docklands.
Sania is employed as an accountant and works for a company located in the Melbourne Central
Business District (the CBD office). Her salary for 2022-23 for her work as an accountant is $180,000
per annum.

In May 2022, Sania finds the house and land she has always wanted. It is located in Craigieburn
(about 1.5 hours from the CBD office). On 1 July 2022, Sania purchases the house and land in
Craigieburn for $1,000,000. She moves in to the Craigieburn house on 1 August 2022. In order to pay
for the house in Craigieburn, she borrows $800,000 from the bank at an interest rate of 5.0% per
annum. Her monthly repayments of interest on this loan are $5,000. She also incurs borrowing
expenses from the bank of $2,000.

Sania decides to sell her boat. She had purchased the boat in January 2020 for $11,000 and in 2021
she had spent $4,000 repairing the boat after storm damage. She sells the boat for $12,000 in October
2022.

Prior to moving to the new home in Craigieburn, Sania negotiates with her employer to work from
home two (2) days per week. On the other three (3) days each week, she works in the CBD office.
She sets up her home office (in Shoreham) in the guest bedroom and starts working two (2) days per
week from home on 1 November 2022.

For her home office, Sania purchases a large antique desk for $8,000 (effective life 20 years), and a
new computer and printer for $5,000 each (both have effective life of 2 years). She buys these items
in October 2022 and sets up the office ready for use by 1 November 2022. For 2022-23, she
determines that the running costs (electricity, heating, lighting and internet usage) of her home office
are $4,000. She has records to substantiate these costs.

Sania has a car provided to her by her employer, and she uses this car to drive to the CBD office from
Craigieburn three (3) days per week. She has a parking spot in the CBD that is paid for by her
employer. This saves her $6,000 per year in parking. Although her employer owns the car, Sania pays
for petrol. In 2022-23, she estimates that she spends $8,000 on petrol to drive between Shoreham and
her workplace in the CBD.

Sania decides to rent out her Melbourne apartment. She incurs advertising costs of $500 to get
tenants. Her tenants move in on 1 December 2022. She engages an agent to manage the property. The
agent charges her $100 per month to manage the property. Sania earns $1,200 per month in rent.
Before the tenants move in, Sania spends $3,000 repainting the whole apartment and $4,000 re-
carpeting the whole of the apartment.

Sania’s house in Craigieburn is on a large block of land which is covered in trees. As noted above,
she wants to grow vegetables and hopes to sell the vegetables. She also wants horses and is
considering running horse riding lessons to make some extra money. In February 2023, she employs
her brother to clear the land to prepare it for planting the vegetables and to prepare it for horses. She
pays her brother $25,000. By June 2023, no planting has occurred and there is only one horse, which
Sania rides on the weekends. She still plans to grow the vegetables and purchase more horses.

Required: Calculate Sania’s taxable income for 2022-23. Your answer must include an explanation
of each item that you include in your calculation and an explanation of any items you exclude from
the calculation. Support your answer with legislation and case law.
Taxable income = assessable income - deduction (s 4-15 ITAA97)
Assessable income = ordinary income + statutory income (s 6-1 ITAA97)
Deductions = general deductions + specific deductions (s 8-1 and s 8.5 ITAA97)

Identify ordinary income

- Salary ($180000 per annum)
- Rental income ($1200 per months for 7 months)(1 December 2022 to 30 June 2023)
- Total of ordinary income = $188400

Identify statutory income

- Sales of boat: $4000 repairing will be disregarded
Cost base of a personal use asset: disregard 3rd element of the cost base s. 108-30
ITAA97
$12000 - 11000 = $1000 Gain on sale
Since Sania held the boat for more than 12 months so it is discountable
Statutory income: $1000/2 = $500
Total of statutory income = $500

Identify deduction
- General deductions are deductions that satisfy at least 1 positive limb of s 8-1 AND
Do not get caught by any of the 4 negative limbs
- Borrowing expense of $2000: private and domestic (s 8-1) so not deductible
- Interest expense of $5000: it is private and domestic rather than income producing
- Desk costing $8000: not deductible because it is one-off payment so it is capital in
nature
- Computer and printer costing $5000: not deductible because t is one-off payment so
it is capital in nature
- Home office running expense $4000: Sania has a normal office in the CBD so home
office was a kind of secondary kind of an office. She still has her main tasks in the
office in CBD so this is a home office for convenience [Handley v FCT (1981)]. Only
the running expenses such as electricity, heating, lighting and internet usage for
$4000 can be claimed. However, we need to apportion it, assuming Sania is working
at home 2 days a week, then it will be $4000 x 2/7 = $1143
- Advertising cost of $500: it is deductible since it is producing her assessable income
and it did not caught by any negative limbs
- $8000 patrol to drive office: not deductible since it is private or domestic (2nd negative
limb) (Lunney v FCT)
- $700 ($100 per month) management fee on rented property: deductible since it is an
expense that in producing her assessable income
- Depreciation of capital assets in prime cost method:
- Desk: 8000 x 242/365 x 200%/20 = 530
- Computer and printer: $5000 x 242/365 x 200%/2 = 3315
- Total of deduction: 1143+500+8000+700+530+3315 = 14188

Taxable income: 188400+500-14188 = $174712