Reference no: EM132369858

Questions

This assignment contains 3 questions.

Give reasons for your advice. If you need more facts be sure to indicate those that are needed and consider the potential tax consequences if those facts apply You are expected to consider alternative consequences where a particular consequence is not clear or straightforward.

Question 1

Ben was born in Malaysia but has lived in Melbourne since 2000. He is an Australian citizen and holds an Australian passport. Ben is a self-employed, professional software development consultant (contractor). On 01 July 2018, he left for Kuala Lumpur, Malaysia after accepting a lucrative offer from a Malaysian company, pursuant to a contract for professional software development and consultancy services. His contract was for a period of one year with an option for the Malaysian company to extend his contracting services.

Ben's wife, Betty is a Malaysian citizen, and an Australian permanent resident. Neither Ben nor his wife owned real property in Australia. A month before Ben moved to Kuala Lumpur, they gave up the lease of their apartment in Southbank and moved to his parents' home in Caulfield as Betty was expecting a baby. Their daughter, Alice was born on 09 September 2018. While in Malaysia, Ben lived at his wife's parents' home in Kuala Lumpur. On 01 August 2018, Ben entered into a 12-month lease agreement with his wife's mother to rent a room at the in-law' s home, with an option to renew. Ben says that he paid rent of 1000 Malaysian Ringgit per month (approximately AUD$300) from 01 August 2018 to 30 June 2019.

Ben kept his car, a Toyota at his parents' home for Betty's use, and his Australian private health insurance policy with Medibank Limited. He continued to be registered on the Australian Electoral Roll. Ben and Betty have a joint bank account with Westpac with about $200,000 saved as a deposit for their future home. During the income year ended 30 June 2019, they received $3,000 interest income from Westpac. Betty withdrew $160,000 in May 2019 as deposit on a $800,000 residential property in Caulfield which she purchased under joint names with Ben. She moved into their new home in September 2019. Betty and baby Alice spent Christmas 2018 and Chinese New Year 2019 in Kuala Lumpur. The family also holidayed in Singapore in March 2019.

During the income year ended 30 June 2019, Ben was in Australia for a total of 88 days, and in Malaysia for a total of 277 days. On each of the Australian immigration "outgoing" passenger cards that Ben completed during his visits to Melbourne, hedeclared that he was an "Australian resident departing temporarily" and that Victoria was the state in which he lived.

Ben's income from his contract in Malaysia for the income year ended 30 June 2019 was AUD150,000 which included AUD25,000 performance bonus as the software development project was implemented ahead of time and on budget. Half of his remuneration was paid into his Australian bank account and the other half into his Malaysian bank account. The Malaysian company extended Ben's contract to 30 June 2020 with an option to renew for another year.

In July 2019, Ben applied to the Australian Taxation Office (the ATO) for a private ruling in respect of his tax residency status for the income year ended 30 June 2019. On 08 August 2019, the Commissioner issued Ben with a private ruling which stated the following:

Questions and answers:

Is all of your income from professional software development and consultancy services assessable in Australia?

Yes

Ben is anxious after receiving the ATO's ruling and does not know what to do. His tax adviser in Malaysia has advised him that he will be a resident under Section 7(1)(a) of the Income Tax Act 1967 (Malaysia) (the Malaysian ITA) which provides that an individual is a resident in Malaysia for the particular income year if he is in Malaysia in that income year for a period or periods amounting in all to 182 days or more.

Your task:

Advise Ben as to whether he is a resident of Australia for tax purposes and how his income would be taxed in Australia for the income year ended 30 June 2019. Your advice should take into account the ATO private ruling issued to Ben. You are not required to examine the Malaysian ITA or advise Ben on his Malaysian tax obligations.

Question 2

Ben's wife, Betty is a purchasing manager with Nourished Organic Skincare of Australia Pty Ltd (NOSA). The company buys organic skincare products from local manufacturers and sells them to the public at NOSA stores all over Australia. Her annual salary, excluding fringe benefits, is $90,000.

1. (1) During the 2018/19 FBT year Betty paid telephone bills amounting to $600. However, because the telephone was partly used for business purposes, NOSA reimbursed her $400 for the business calls.

2. (2) To encourage staff to keep up-to-date with developments in new skincare products, staff are provided, under a staff plan, with a 30% discount on the retail price of any products sold by NOSA. During the year, Betty spent $1,500 on skincare products under the staff plan. Assume that NOSA has a 25% mark-up on the products it sells to the public.

3. (3) On 1 February 2019 NOSA reported an interim increase in profits of 50% from $1,000,000 for the previous period to $1,500,000 for the current period. On 10 March 2019, Betty received a performance bonus valued at $4000 from her employer in the form of paid holiday airfares to any Asian city. Betty took her family to Singapore for a holiday in March 2019.

4. (4) Betty's employer required her to travel interstate regularly to negotiate with their suppliers. As a result, Betty accumulated a lot of Qantas frequent flyer points. She redeemed 60,000 points for hotel accommodation in Singapore which was normally valued at $1,800.

Your task:

Advise both NOSA and Betty as to the tax consequences of the above events. Where appropriate, calculations must be made. However, you are not required to compute the personal tax liability of the employee.

Question 3

In September 1983, Ben's maternal grandfather, Bob purchased 80 acres of land in the Grampians region of Victoria for an olive farm at a cost of $320,000. By 1989 the plantation was well established and producing olives and olive oil products of good quality and deriving reasonable profits. As a result, on 1 October 1989, Bob bought another 20 acres of land for $40,000. Costs associated with the purchase included stamp duty $800 and legal fees $1,600.

Since 2010, due to the impact of drought and climate change, the crop was extremely poor; coupled with this, the federal government's relaxation of restrictions on the importation of olive products from Europe forced Bob to drop the prices of his olives and olive oil products. Paul, who was Bob's loyal farm manager of 25 years resigned in 2013 due to ill health and Tim, the new farm manager was not as experienced. These conditions precipitated financial difficulties and Bob's decision to retire. Attempts to sell the land as a whole in 2014 were unsuccessful as there was only one offer of $400,000. Bob observed that the farmlands in the neighbouring areas were sold for significantly higher prices after subdivision as residential land. Bob therefore decided to sell the land by subdivision.

After gaining council approval in June 2015, Bob spent $160,000 on the subdivision of the 100-acre block and finally sold the subdivided land for $700,000 in May 2019 to a local builder. Although the contract of sale was signed on 10 May 2019 and a 10% deposit paid by the purchaser on that date, settlement was not completed until 10 August 2019. The contract terms provided that 50% of the purchase price would be payable upon settlement and the balance on 31 January 2020. The outstanding balance would accrue interest at 10% pa. Costs of disposal included agent's commission of $12,000 and legal fees of $2,400.

Your task:

Advise Bob of the potential tax implications in relation to the $700,000 sale proceeds. Where appropriate, calculations must be made. You may ignore any GST implications which may arise pursuant to the contract of sale in May 2019. You may assume that each acre of land acquired and sold is equally valuable.

Reading- FOUNDATIONS OF TAXATION LAW By STEPHEN BARKOCZY.