Contents Individual Residency Test .................................................................................................................................................. 1 Resides in Australia #1 ...................................................................................................................................................... 1 Domicile Test #2 – leaving AU........................................................................................................................................... 2 183 Day Test #2 – for AU visitors ...................................................................................................................................... 2 Residence – Companies .................................................................................................................................................... 2 Temporary Resident.......................................................................................................................................................... 2 Source of Income .............................................................................................................................................................. 3 Derivation of Income ........................................................................................................................................................ 3 Assessable Income ............................................................................................................................................................ 4 Exempt Income ................................................................................................................................................................. 4 Non Assessable Non Exempt (NANE) Income ................................................................................................................... 4 Business v Hobby .............................................................................................................................................................. 5 Characteristics of a Business ............................................................................................................................................. 5 Business Characteristics Considerations ........................................................................................................................... 5 Specific areas of business/ hobby ..................................................................................................................................... 5 Isolated Commercial Transaction Gain ............................................................................................................................. 6 Capital Gains Tax .............................................................................................................................................................. 6 Capital Assets .................................................................................................................................................................... 7 CGT Exempt ....................................................................................................................................................................... 7 CGT Events ........................................................................................................................................................................ 8 A1 – Disposal of an Asset .............................................................................................................................................. 8 C1 – Loss or Destruction of a CGT asset ........................................................................................................................ 8 D1 - Creating Contractual or Other Rights .................................................................................................................... 8 D2 - Granting an Option ................................................................................................................................................ 8 F1- Granting lease ......................................................................................................................................................... 8 F3 – Lessor pays Lessee to get lease Changed .............................................................................................................. 8 F4 – Lessee Receives Payment for changing lease........................................................................................................ 8 F5 – Lessor Receives Payment for Changing Lease ....................................................................................................... 9 H1 - Forfeiture of a Deposit .......................................................................................................................................... 9 Calculate Capital Gain (P-C) .............................................................................................................................................. 9 Capital Loss ....................................................................................................................................................................... 9 Capital Gain ..................................................................................................................................................................... 10 Main Residence – CGT exempt but with condition ........................................................................................................ 10 Main Residence Exemption Issues .................................................................................................................................. 11 CGT Issues - Death .......................................................................................................................................................... 11 Fringe Benefit Tax .............................................................................................................................................. 12 Fringe Benefits Tax – Exempt .......................................................................................................................................... 12 Otherwise deductible rule .............................................................................................................................................. 12 Non Cash Business Benefits ............................................................................................................................................ 13 General Deductions s8-1 ................................................................................................................................................ 13 General Deductions s8-1 (a) Individuals ......................................................................................................................... 13 Issues with Incurred .................................................................................................................................................... 13 Timing issues ............................................................................................................................................................... 14 Expenditure to produce future income .......................................................................................................................... 14 Expenditure to reduce future expenses ......................................................................................................................... 14 Positive Limb s8-1(1) (a) Individuals Tests ...................................................................................................................... 14 Positive Limb s8-1(1) (b) Business Tests ......................................................................................................................... 15 Negative Limb s8-1(2)(a) Capital Test ............................................................................................................................. 15 Negative Limb s8-1(2)(b) Private and Domestic ............................................................................................................. 16 Specific Deduction .......................................................................................................................................................... 16 25-5 tax related expenses. .......................................................................................................................................... 16 25-10 Repairs .............................................................................................................................................................. 16 Part v Entirety ......................................................................................................................................................... 16 Repair vs Improvement ........................................................................................................................................... 17 Initial repairs ........................................................................................................................................................... 17
Notional repairs ...................................................................................................................................................... 17 S25-25 Borrowing Expense ......................................................................................................................................... 17 S25-35 Bad Debt.......................................................................................................................................................... 18 s25-45 Losses through theft by employee .................................................................................................................. 18 s25-55 Payments to Association ................................................................................................................................. 18 Other business taxes ................................................................................................................................................... 18 s25-40 Loss from profit making undertaking or scheme ............................................................................................ 18 s25-100 Travel between 2 work places ...................................................................................................................... 18 Specific Non Deduction .................................................................................................................................................. 19 26-5 Fines .................................................................................................................................................................... 19 S26-45 Membership of recreational club ................................................................................................................... 19 S26-52/53 Bribes to officials ....................................................................................................................................... 19 S26-54 Illegal Activity .................................................................................................................................................. 19 S32 – Entertainment (with exceptions) ...................................................................................................................... 19 S26-30- the cost of accompanying spouses on business trips .................................................................................... 19 S40-880 – Blackhole Expenditure ................................................................................................................................... 19 Division 35 - Non-Commercial loss activities .................................................................................................................. 20 Division 30 – Gifts ........................................................................................................................................................... 20 Division 36 – Past year losses.......................................................................................................................................... 20 Tax Loss Limitation on deductions .............................................................................................................................. 21 Capital Allowances and Capital Works .......................................................................................................................... 21 Plant/ NCA – S40 ............................................................................................................................................................. 21 Ownership -> legal owner ........................................................................................................................................... 21 Cost = what you spend ................................................................................................................................................ 21 Depreciation Calculation (Buy Asset) .......................................................................................................................... 22 Asset Disposal s40-D ................................................................................................................................................... 23 Pooled Assets .............................................................................................................................................................. 23 Division 43 - building ....................................................................................................................................................... 23 Trading Stock s70-35 ....................................................................................................................................................... 24 Trading stock case law ................................................................................................................................................ 24
Individual Residency Test Statutory test S6(1) ITAA 1936 A resident of Australia means: A person other than a company, who resides in Australia and includes a person (I) Whose domicile is in AU, unless the commissioner is satisfied that his permanent place of abode is outside AU; (II) Who has been in AU, continuously or intermittently, during more than one-half of the year of income, unless the Commissioner is satisfied that his usual place of abode is outside of Australia and he does not intend to take up residence in Australia (III) Who is a member or a spouse, child or eligible employee for the purposes of the Superannuation Act 1990 (only for Commonwealth Government Officers) Leaves AU : Resides #1, Domicile #2 [Left AU on 1 July , Stayed in USA from 2 July to EOFY] Coming in AU : Resides #1, 183 Days #3 [Stayed in USA from 1 July, came to AU 1 August – EOFY] Can be Resident for part of the year or full. Special Circumstances • A migrant coming to reside here permanently is a resident from arrival • Can be resident of more than 1 country • Implications of Double Tax Agreements • Overseas students studying in Australia are residents (>6 Months) • Backpackers visiting on a working holiday are not considered to be residents as they here on a working holiday and do not reside here
Resides in Australia #1 TR 98/17 Indicators; Look for factors that connects that person to Australia; Trying to make AU Home; 1) Physical Presence 2) Intention (Stay/ Holiday/ Visa) 3) If stay for what? (Work, Business, Study (>6 Months = residence)); 4) Family (dependants) where? 5) Type of accommodation (rent, buy, hotel (not resident)) 6) Assets (Bank, Credit Card, Personal Asset, Work Related Asset) 7) Liabilities in Australia (Phone Bill, Power Bill) 8) Look at a period of 6 Months The country she’s a resident in would be where she has more asset. | Do you just own the asset or renting the asset? If she bought it then she wants to live there permanently (make the country your home) | If the things are not there, you need to ask the question. Rent doesn’t mean has permanent place of abode Reside Case Law - Levene v IRC [1928] – Retired, sold his house and lived in hotels in the UK for about 5 months for medical advice, visit relatives & religious ceremonies. Held he was a residence until he decided to lease a flat in Monte Carlo. Based on his ties in UK and that him going abroad was temporary -IRC V Lysaght [1928] -Spent considerable time abroad. Retired moved to Ireland, sold his home in England but returned often as non-executive director of the family. It was held that he was residence due to the frequency and regularity of visits. -Joachim v FCT (2002) – Taxpayer migrated to AU and could not find a job so he worked in various Sri Lankan vessels. He was an AU Resident because he maintained a home for his family in AU despite his absence his intention to treat AU as a home has not changed.
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Domicile Test #2 – leaving AU Domicile of Origin (Where you’re born); Domicile by Choice (migrated, Change his permanent home); If AU Resident. If don’t want then have to prove your permanent place of abode is outside AU; in other words if you have greater connection with overseas country than Australia; Look for things that can prove that person has tried to make overseas country his permanent place of abode - Buy Assets and have Liabilities - Have Family (dependant); Have a Job - Belong to a professional social clubs - Learn the language; House, Accommodation. Tax Ruling IT 2650- permanent means stay in 1 country for at least 2 years Domicile Case Law - FCT v Applegate (1997) - Employer sent taxpayer to Vanuatu to work (staying indefinitely). Intents to return to AU. leases his flat leaving no assets in AU and left AU with wife. 22 months after He returned to Sydney because he’s sick. Court held he had a permanent place of abode. [Permanent place of abode = >temporary,