AUSTRALIAN TAXATAION

Fred was born in the UK. Fred is an executive of a British corporation specialising in management consultancy. He arrived in Australia on 1 August 2019 to set up a branch of his company. At the time of his arrival in Australia, the length of his stay is not certain. His wife accompanies him on the trip but his adult sons stay in London and continue living in the family home in the UK.

From 1 August to 10 December 2019, Fred and his wife stay in a hotel in Melbourne. They return to the UK in December for 3 weeks to visit their sons and have Christmas with family. While in the UK, they stay in the family home.

In January 2020 Fred and his wife return to Australia and decide to rent a house for 12 months. They also decide to lease out the family home in the UK for 12 months.

One of their sons moves to Australia to join them. They are very happy in Australia and particularly enjoy the climate. In June 2020, Fred purchases a small farm on the outskirts of Melbourne for $500,000 plus stamp duty of $25,000. Freds son has always been a keen gardener and Fred wants run the farm on a commercial scale as an organic vegetable business, with his son as the manager.

Since 30 June 2020, Fred has not earned any income from the farm. His expenditures at the farm have included the following items:

a) $25,000 on rectifying defects that existed in the farmhouse at the time of settlement.

b) $22,000 (GST inclusive) construction costs to build a barn to store the vegetables once harvested. Construction is expected to be completed by 31 December 2020.

c) $5,500 for seeds to grow the vegetables.

d) $30,000 in management fees to his son, who has been living at the farm.

Fred continues to receive rent from his UK property. As well as the rent on the UK property, Fred earns interest from investments he has in France.

Required:

1. Explain the tax consequences of his tax residency to Fred with respect to his income. Support your answer with relevant legislation and case law

2. Advise Fred on the tax treatment of each of the expenses he has incurred in relation to the farm (including the purchase costs for the farm itself). No calculations required