Reference no: EM13496069

Week 2 Residence and Source

Nick Stannos arrives in Australia from a European country on 26 January. He rents a small apartment and accepts two jobs. By 30 June he has saved $10,000 and decided to return to Europe permanently.

1. For the relevant income year, will Stannos be regarded as a resident or non-resident? In any event, what difference does it make?

2. If Stannos had remained in Australia indefinitely and was regarded as a resident of Australia from 26 January, how would his European salary income of A$20,000 (derived in the period 1 July to 24 January) be taxed? Assume ex-Australia tax of A$3,000 has been paid in respect of this income.

Income from Property

1. George owns a large cattle firm, parts of which are heavily timbered. He agrees to allow Mr Smith to enter his land for the purpose of felling timber in return for a payment of $20 per tree removed. During the first tax year of his agreement, George receives $10,000 from Smith. What are the tax consequences of this transaction? Would your answer differ if Smith had promised to remove the timber?

2. The following year, George contracts to sell Smith 9,000 trees for $90,000. Smith is to enter George's land for the purpose of felling and removing the trees, and is to pay the money by monthly instalments regardless of whether the timber is removed or not. The agreement provides that if 9,000 suitable trees are not found upon the land, then there shall be a pro rata decrease in contract price.

3. In the following year, George decides to sell his farm to Brown for the sum of $200,000 plus "royalty" of $10 for every tree removed from the land for the next 10 years.

Advise George in each of the above situations as to his tax liabilities. Also advise him as to whether his receipts are income or capital on general principles. (Note that these cases are governed by CGT event DI).