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Case Facts:

Ms Sierra Leone is employed on a luxury cruise liner which travels the Mediterranean Sea.

She owns an apartment in Australia which was her family home. After divorcing her wife, the wife took their twins to live in Singapore. Sierra now rents the apartment to her Uncle and his family.

The apartment is rented including all furniture, with the furniture belonging to Sierra. Sierra stays in the house whenever she is in Australia and has her own wing in the house consisting of a master suite, bathroom and toilet. All of Sierra's personal belongings are stored in this wing.

In the current tax year, Sierra spent eighty days in the apartment. The remainder was spent on the luxury liner or visiting her twins in Singapore, where she spent a total of 40 days.

The luxury liner where Sierra works visits many locations around the Mediterranean. Sierra is employed by a company incorporated in the Cook Islands under an employment contract signed in Hong Kong. The luxury liner is owned by a company incorporated in Bermuda.

The income earned by Sierra from the cruise company was salary and wages derived by her under the contract of employment.

In preparation for her retirement, Sierra has taken up horse breeding. She currently owns twelve horses which live and feed on an external farm in Australia (for a fee). These horses are being used in a breeding program supervised by a leading female horse trainer.

Sierra consistently keeps up to date with the development of the horses in the program. She spends most of her free time reading the latest horse breeding articles and studying data sent by the trainer. Sierra plans on purchasing a large property where she can breed horses full time when she retires from the luxury liner.

For each of the prior three years that Sierra has been undertaking this activity, there has been a tax loss made, although the tax losses have been reducing in size as the venture becomes more successful, in fact this year Sierra has made a small profit.

Requirements:

Working in a team of four tax accountants, you are to provide written taxation advice for Ms Sierra Leone relating to the following four main tax issues:

1)Residency

2)Source

3)Exemptions

4)Business

Required Format:

Identify the specific tax issues

Find any relevant taxation legislation/case law pertaining to the tax issue