Dale Teal and her husband Trent Teal have the following tax related information Sole trader Activities Dale was born on 01/11/1966 and runs a successful holistic health business as a sole trader with the following details Cash receipts from sale of trading stock for the year 110 000 Cash receipts from holistic health services 100 000 Amounts received in advance as at 30/6 (not included in cash receipts) 15 700 (Dale has a policy of refunding these amounts if clients choose not to go through with the treatment) Opening trading stock 37 500 Closing trading stock 30 000 Wages paid to part time staff 56 112 Rent expenses paid 15 600 Legal expenses incurred in renewing the lease 1 750 Superannuation Guarantee paid for all employees 5 190 Tax Agent's Fees for last year's tax return 6 50 Business Phone 1 780 Electricity 4 000 Postage, printing & stationery 1 600 Employee activities Dale is also a prison guard at a high security facility with Blackhand, a private enterprise noted for its involvement in conflict areas. Blackhand is registered for GST and able to claim GST credits Salary 85 000 PAYG withholding 14 200 Dale also received a mobile phone valued at $800 which she uses 100% of the time for prison guard related activities. 1 Dale has a $25 000 interest free loan with her employer which she has used to buy ASX listed shares in her name. Other information Her home phone bills totalled $1,200 with 55% business use. Dale paid $7,390 during the year for income protection insurance to ensure an income stream if she should be unable to work. She also paid a further $755 for life insurance providing a capital payment on her death or diagnosis of terminal illness. Dale also had a number of CGT events during the year. She owns all these assets herself. She sold a rental property purchased on 15/5/96 for $180 000 on 27/3/16 for $340 000 She sold a stamp she picked up at a garage sale for $5 on 15/7/15 on 25/3/16 for $25000. Dale has an expert knowledge of stamps and recognised it as a very rare stamp she could quickly sell to a collector. She sold a boat acquired on 1/11/04 for $17 500 on 1/4/16 for $9 000. She sold 500 shares acquired on 1/4/12 for $10 000 on 1/4/16 for $2 000 She sold 1000 shares acquired on 3/4/84 for $10 000 on 1/4/16 for $2000 She sold 2500 shares acquired on 25/5/96 for $18 000 on 1/6/16 for $18 750 Dale and Trent have a shared bank account which paid $2180 interest Dale and Trent also own a share portfolio of ASX listed shares which paid a fully franked dividend of $14350, 65% partially franked dividend of $9500 and unfranked dividends of $4000. During the year Dale paid 4 PAYG Instalments to the ATO of $8,500 each Dale and the family are covered by full private health insurance. Required 1. Identify any fringe benefits Dale has received and determine the value which needs to be reported on her tax return. Show all fringe benefits tax calculations 2. Calculate Dale's taxable income 3. Calculate the balance of her assessment 4. Prepare a statement of advice for Dale explaining your decisions and calculations based on the legislation and relevant case law. In particular 2 discuss your treatment of the postage stamp in detail, including your decision to treat it as a capital gain or as ordinary income. Part 2 Amity has been employed as a tax advisor by the mid-tier private accounting firm YoungPWC and Associates in their Adelaide branch for 7 years. In January 2015 she was selected to be sent to Kiribati for two years to advise the Kiribati government on the design and implementation of a new VAT. The placement was for a 2 year period with an option exercisable by Amity to extend the period for a further 3 years. Amity jumped at the opportunity and left Australia in January 2015 with her husband Martin. Amity intended to stay in Kiribati for at least the initial 2 years and then make a decision about staying longer if the lifestyle was enjoyable, the work enjoyable and financially rewarding. On first arriving in Kiribati, Amity and Martin took out a small mortgage on a house on the beach and planned to furnish it with furniture bought from the local furniture stores. However, they underwent extreme culture shock when they discovered there were no local furniture shops selling anything they wanted and the cost of shipping their furniture over was prohibitive. They decided to sell the house after 4 months and take up a serviced apartment in the capital. This was acceptable accommodation and it worked well enough as there were no children. They were able to take out 12 month rent agreements as there were many expats on one year placements. They made the apartment relatively homely with their few belongings. However, Martin found getting any sort of reasonable employment was essentially impossible and started to get dispirited. Amity's salary was paid into an account she opened with the Asia-Pacific Bank. Amity and Martin kept their home in Adelaide and rented it out through agents for 12 month periods. They discontinued their health insurance membership, however Amity maintained her Chartered Tax Advisor membership. Their only relatives are their elderly parents who resided in Australia. Martin contracted a form of food poisoning from eating a toxic fish and after only 18 months away the disenchanted couple returned to Adelaide at the beginning of July 2016. Required You are required to advise Amity on whether or not she was an Australian resident during the income year ended 30 June 2016 by reference to the relevant legislation and case law. 3 4 Taxation Law Assignment Part 2 (General Law) Fact: - Amity was working in a business called mid- tier Private Accounting Firm. She has been employed in that company for 7 years and the company selects her to go to Kiribati for two years to help the government of Kiribati for the implementation of VAT. She also has an option that if she likes that place then she can stay for more 3 years. Amity and her husband Martin went to Kiribati and purchased a house in Mortgage but when they tried to buy household furniture for their house, they found that there were no furniture shop and it is going to be expensive for them to ship the item from Australia. In addition, they sold a house and bought an apartment and started to dwell over there. After 18 months of stay Martin contracted a food and suffered food poisoning by eating a fish that contains toxic so they returned to Adelaide in the first week of July 2016. Issue: - Is Amity an Australian Resident for tax purpose during the income year ended 30 June 2016? Rule: - In this case, Applegate and Jenkins case can be used. Jenkins being a taxpayer was shifted to work in New Hebrides with his wife and family for three years and if he likes the place he may extend his stay. After 18 months of stay he suffered serious ill- health and returned to Australia. The income he earned while working in New Hebrides can be considered as Net exempt income under s23(r) of the Income Tax Assessment Act 1936 (Cth) and is deemed as non-resident for tax purpose, but commissioner rejected his tax claim stating that he is resident for tax purpose because he does not have a permanent place to live in New Hebrides. In addition, commissioner also stated that Applegate was nonresident for tax purpose because his stay was permanent and had no intention to return. The decision to this case was Jenkins had a permanent place to leave in Villa and thus can be considered as non-resident for tax purpose. Apply the rule: - This case is similar to Applegate and Jenkins. In this case, Amity and her husband were sent to Kiribati to work in a firm for 3 years but she had to return to Australia after 18 months of stay because her husband became sick by eating a toxic fish. Thus, As the decision of Jenkins case Amity is considered as nonresident for tax purpose and she can claim net exempt income under s 23(r).Despite she did not had a permanent house in Kiribati the place where she lived can be considered as permanent place to abode outside Australia. Thus, a stay in foreign country for fixed period of time can also be deemed as permanent. Also, Amity stay was 3 years or more while she was provided a contract and hence is permanent resident in Kiribati and simultaneously nonresident in Australia for tax purpose. Part 2 Statutory Law Fact: - Amity was working in a business called mid- tier Private Accounting Firm. She has been employed in that company for 7 years and the company selects her to go to Kiribati for two years to help the government of Kiribati for the implementation of VAT. She also has an option that if she likes that place then she can stay for more 3 years. Amity and her husband Martin went to Kiribati and purchased a house in Mortgage but when they tried to buy household furniture for their house, they found that there were no furniture shop and it is going to be expensive for them to ship the item from Australia. In addition, they sold a house and bought an apartment and started to dwell over there. After 18 months of stay Martin contracted a food and suffered food poisoning by eating a fish that contains toxic so they returned to Adelaide in the first week of July 2016. Issue: - Is Amity an Australian Resident for tax purpose during the income year ended 30 June 2016? Rule: - In this case, the statutory law is used under Income Tax Assessment ACT 1997. According to the INCOME TAX ASSESSMENT ACT 1997 - SECT 36.20 Net exempt income (1) If you are an Australian resident, your net exempt income is the amount by which your total * exempt income from all sources exceeds the total of: (a) the losses and outgoings (except capital losses and outgoings) you incurred in deriving that exempt income; and (b) any taxes payable outside Australia on that exempt income. (2) If you are a foreign resident, your net exempt income is the amount (if any) by which the total of: (a) your * exempt income * derived from sources in Australia; and (b) your exempt income to which section 26AG (Certain film proceeds included in assessable income) of the Income Tax Assessment Act 1936 applies; exceeds the total of: (c) the losses and outgoings (except capital losses and outgoings) you incurred in deriving exempt income covered by paragraph (a) or (b); and (d) any taxes payable outside Australia on income covered by paragraph (b). Apply the rule: - Thus, in this case Income Tax assessment ACT 1997 S36.20 can be used. This section states that the if the person is out of their country for some time and is earning in another country then the person is not liable to pay tax for the country where she/he belongs. In this case, Amity and Martin being an Australian Resident went to work in Kiribati and earned some money from Australian company. Although they earned money in Kiribati from Australia they are considered as non-resident for tax purpose because they have been residing in Kiribati in income year starting from 1 July 2015 to 30 June 2016. However, she has to pay certain amount of tax on the income she obtained by renting her house in Adelaide while she was still in Kiribati. Conclusion: - Therefore, in this case Amity is considered as non-resident for tax purpose and she is not liable to pay tax for the income she earned while residing in Kiribati. In addition, she can have a net exempt income on the amount she earned in Kiribati. In addition, Amity is exempted from paying tax in her income. In addition, she must pay certain amount of tax to the income earned by renting her house in Adelaide. If she does not pay tax on that income then she can be penalized under act. Thus, this may include certain amount of fine to Amity or some